-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tSGBmMxSNV8NQMG5Kp55OrtXlFBB3f/3CdaMzNH3IlNemUdusoi+COeanOmPpn99 jGMKyJclo4k6J9FRwdbsMQ== 0000950123-94-000504.txt : 19940316 0000950123-94-000504.hdr.sgml : 19940316 ACCESSION NUMBER: 0000950123-94-000504 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LONG ISLAND LIGHTING CO CENTRAL INDEX KEY: 0000060251 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 111019782 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-03571 FILM NUMBER: 94516093 BUSINESS ADDRESS: STREET 1: 175 E OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 BUSINESS PHONE: 5169334590 10-K 1 FORM 10-K, LONG ISLAND LIGHTING COMPANY 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 1-3571 ------------------------ LONG ISLAND LIGHTING COMPANY Incorporated pursuant to the Laws of New York State ------------------------ INTERNAL REVENUE SERVICE - EMPLOYER IDENTIFICATION NUMBER 11-1019782 175 EAST OLD COUNTRY ROAD, HICKSVILLE, NEW YORK 11801 516-755-6650 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Title of each class so registered: Common Stock ($5 par) Preferred Stock ($100 par, cumulative): Series B, 5.00% Series I, 5 3/4%, Convertible Series E, 4.35% Series CC, 7.66% Preferred Stock ($25 par, cumulative): Series AA, 7.95% Series NN, $1.95 Series GG, $1.67 Series QQ, 7.05% General and Refunding Bonds: 8 3/4% Series Due 1996 8.50% Series Due 2006 9 5/8% Series Due 2024 8 3/4% Series Due 1997 7.90% Series Due 2008 7.85% Series Due 1999 9 3/4% Series Due 2021 Debentures: 10.25% Series Due 1994 7.30% Series Due 2000 11.375% Series Due 2019 11.75% Series Due 1994 7.05% Series Due 2003 8.90% Series Due 2019 10.875% Series Due 1999 7.00% Series Due 2004 9% Series Due 2022 7.30% Series Due 1999 7.50% Series Due 2007 8.20% Series Due 2023
NAME OF EACH EXCHANGE ON WHICH EACH CLASS IS REGISTERED: The New York Stock Exchange and the Pacific Stock Exchange are the only exchanges on which the Common Stock is registered. The New York Stock Exchange is the only exchange on which each of the other securities listed above is registered. SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the Common Stock held by non-affiliates of the Company at March 1, 1994 was $2,616,304,039.50. The aggregate market value of Preferred Stock held by non-affiliates of the Company at March 1, 1994, established by Lehman Brothers based on the average bid and asked price, was $681,486,015. COMMON STOCK ($5 PAR) -- SHARES OUTSTANDING AT FEBRUARY 22, 1994: 112,527,452 The Company's proxy statement for its Annual Meeting of Shareowners to be held on April 12, 1994 has been incorporated by reference into Part III of this Form 10-K to provide information required in Item 10 (Directors and Executive Officers of the Company) as to Directors, Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and Related Transactions). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS Page ---- ABBREVIATIONS iii ITEM 1. BUSINESS 1 The Company 1 Territory 1 Segments of Business 2 Employees 2 Regulation and Accounting Controls 2 Electric Operations 3 General 3 System Requirements and Reliability 4 Energy Sources 5 Oil 5 Gas 5 Nuclear 5 Independent Power Producers and Cogenerators 5 Interconnections 6 Conservation Services 6 1989 Settlement and Electric Rates 6 General 6 The Rate Moderation Agreement 7 Electric Rates 7 Gas Operations 9 General 9 Gas System Requirements 9 Gas Transportation and Supply 9 Gas Transportation 10 Year-Round Pipeline Firm Transportation 10 Winter Seasonal Pipeline Firm Transportation 10 Storage 10 Gas Supply 10 Year-Round Firm Supply 11 Winter Seasonal Firm Supply 11 Peak Shaving 11 Gas Rates 11 Non-Regulated Activities 11 Recovery of Transition Costs 11 Environment 12 General 12 Air 12 Water 12 Land 12 Nuclear Waste 13 The Company's Securities 14 General 14 The G&R Mortgage 14 The First Mortgage 16 Unsecured Debt 16 Equity Securities 17 Shoreham Decommissioning 18 Executive Officers of the Company 19 Capital Requirements, Liquidity and Capital Provided 22 i 3 Page ---- ITEM 2. PROPERTIES 22 ITEM 3. LEGAL PROCEEDINGS 22 Shoreham 22 Nine Mile Point 2 23 Environmental 24 Human Resources 24 Other Matters 24 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 25 ITEM 6. SELECTED FINANCIAL DATA 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 52 Statement of Income 53 Balance Sheet 54 Statement of Capitalization 56 Statement of Cash Flows 58 Statement of Retained Earnings 59 Notes to Financial Statements 60 Report of Ernst & Young, Independent Auditors 87 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 88 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 88 ITEM 11. EXECUTIVE COMPENSATION 88 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 88 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 88 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 88 List of Financial Statements 88 List of Financial Statement Schedules 89 List of Exhibits 89 Reports on Form 8-K 109 Schedules V, VI, VIII and X 111 SIGNATURES 119 ii 4 ABBREVIATIONS The following abbreviations are sometimes used in this Annual Report. AFC . . . . . . . . . . . . . Allowance For Funds Used During Construction BFC . . . . . . . . . . . . . Base Financial Component BVPA . . . . . . . . . . . . Bondable Value of Property Additions DEC . . . . . . . . . . . . . New York State Department of Environmental Conservation DOE . . . . . . . . . . . . . United States Department of Energy DSM . . . . . . . . . . . . . Demand Side Management Dth . . . . . . . . . . . . . Dekatherms EFRBs . . . . . . . . . . . . Electric Facilities Revenue Bonds EPA . . . . . . . . . . . . . United States Environmental Protection Agency FCA . . . . . . . . . . . . . Fuel Cost Adjustment FERC . . . . . . . . . . . . Federal Energy Regulatory Commission First Mortgage . . . . . . . Indenture of Mortgage and Deed of Trust FRA . . . . . . . . . . . . . Financial Resource Asset G&R Bonds . . . . . . . . . . General and Refunding Bonds G&R Mortgage . . . . . . . . General and Refunding Indenture GAAP . . . . . . . . . . . . Generally Accepted Accounting Principles Kw . . . . . . . . . . . . . Kilowatts kWh . . . . . . . . . . . . . Kilowatt hour LIPA . . . . . . . . . . . . Long Island Power Authority MW . . . . . . . . . . . . . Megawatts Niagara Mohawk . . . . . . . Niagara Mohawk Power Corporation Nine Mile Point 2 . . . . . . Nine Mile Point Nuclear Power Station, Unit 2 NRC . . . . . . . . . . . . . Nuclear Regulatory Commission NYPA . . . . . . . . . . . . New York Power Authority NYSEG . . . . . . . . . . . . New York State Electric & Gas Corporation NYSERDA . . . . . . . . . . . New York State Energy Research and Development Authority PCRBs . . . . . . . . . . . . Pollution Control Revenue Bonds PILOTS . . . . . . . . . . . Payments in-lieu-of-taxes PRP . . . . . . . . . . . . . Potentially Responsible Party PSC . . . . . . . . . . . . . Public Service Commission of the State of New York RMA . . . . . . . . . . . . . Rate Moderation Agreement RMC . . . . . . . . . . . . . Rate Moderation Component Shoreham . . . . . . . . . . Shoreham Nuclear Power Station
iii 5 A LISTING OF ABBREVIATIONS FREQUENTLY USED IN THIS REPORT MAY BE FOUND IMMEDIATELY AFTER THE TABLE OF CONTENTS PART I ITEM 1. BUSINESS THE COMPANY: Long Island Lighting Company (the "Company") was incorporated in 1910 under the Transportation Corporations Law of the State of New York and supplies electric and gas service in Nassau and Suffolk Counties and to the Rockaway Peninsula in Queens County, all on Long Island, New York. The mailing address of the Company is 175 East Old Country Road, Hicksville, New York 11801 and its general telephone number is (516) 755-6650. TERRITORY: The Company's service territory covers an area of approximately 1,230 square miles. The population of the service area, according to the Company's 1993 estimate, is about 2.7 million persons, including approximately 98,000 persons who reside in Queens County within the City of New York. The 1993 population estimate reflects a .14% increase since the 1990 census. Approximately 80% of all workers residing in Nassau and Suffolk Counties are employed within the two counties. In 1993, total non-agricultural employment in Nassau and Suffolk Counties increased by approximately 5,200 employees, an employment increase of 0.5%. The area served is predominantly residential, but the Company receives approximately one-half of its electric revenues from commercial and industrial customers. Although electronics and aerospace are the largest manufacturing industries in the area, about 88% of total employment is non-manufacturing. Industrialization is gradually increasing in Suffolk County which, with three times the land area, has only one-third the population density of Nassau County. 1 6 SEGMENTS OF BUSINESS: The percentages of total revenues and operating income before income taxes derived from electric and gas operations for each of the last three years are shown in the following table:
Percentage of Percentage of Total Operating Revenues Income* ------------- ---------------- Electric Gas Electric Gas -------- --- -------- --- 1991 86 14 98 2 1992 84 16 92 8 1993 82 18 89 11
- --------------- * Before income taxes. - --------------- For additional information respecting the Company's electric and gas financial results and operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations for the Year Ended December 31, 1993" and "Selected Financial Data" and Notes 2, 3, and 11 of Notes to Financial Statements for the Year Ended December 31, 1993. EMPLOYEES: The Company has approximately 6,300 full-time employees, of which approximately 2,500 belong to Local 1049 and approximately 1,500 belong to Local 1381 of the International Brotherhood of Electrical Workers ("A.F.L.-C.I.O."). On February 6, 1992, the Company and the unions agreed upon contracts which will expire on February 13, 1996. REGULATION AND ACCOUNTING CONTROLS: The Company is subject to regulation by the Public Service Commission of the State of New York (the "PSC") with respect to rates, issuance and sale of securities, adequacy and continuance of service, safety and siting of certain facilities, accounting, conservation of energy, management effectiveness and other matters. To ensure that its accounting controls and procedures are consistently maintained, the Company has created a program which is monitoring those controls and procedures. The Audit Committee of the Company's Board of Directors, as part of its responsibilities, periodically reviews this monitoring program. New York law requires that all utilities be periodically audited to identify those aspects of their operations, if any, which are in need of improvement. A comprehensive management audit report was issued by the PSC in March 1993. The audit report favorably recognized many of the initiatives the Company is taking, including its efforts to improve customer service and control costs while changing the basic culture and orientation of employees. The report also contains constructive recommendations for improving the effectiveness of the Company's overall management. During 1993, the PSC also completed an audit of the Company Customer Service Incentives Program and of the practices for provision and management of legal services. The Company is also subject, in certain of its activities, including accounting, to the jurisdiction of the United States Department of Energy ("DOE") and the Federal Energy Regulatory Commission ("FERC"). In addition to its accounting jurisdiction, FERC has jurisdiction over the rates the Company may charge for the sale of electric energy for resale in interstate commerce, including the rates the Company charges for electricity sold to 2 7 municipal electric systems within the Company's territory, and for the transmission, through the Company's system, of electric energy to other utilities or to industrial customers. FERC also has some jurisdiction over a portion of the Company's gas supplies and substantial jurisdiction over transportation to the Company of its gas supplies. Operation of Nine Mile Point Nuclear Power Station, Unit 2 ("Nine Mile Point 2"), a nuclear facility in which the Company has an 18% interest, is subject to regulation by the Nuclear Regulatory Commission ("NRC"). ELECTRIC OPERATIONS: General The Company's system energy requirements are supplied from sources located both on and off Long Island. Company-owned generating facilities with an aggregate summer generating capability of approximately 4,251,000 kilowatts ("kW") include five steam electric generating stations and a number of internal combustion and diesel supplemental generating units, all located on Long Island, and the Company's 18% share of Nine Mile Point 2, a nuclear generating station located in upstate New York. Generating facilities owned by others, such as independent power producers and cogenerators located on Long Island and investor-owned and public electric systems located off Long Island, provide the balance of the Company's energy supplies. In the years between 1982 and 1991, the Company purchased between 13% to 25% of its power requirements from others. In 1992, purchased power increased to 38%. In 1993, the amount of power purchased from others amounted to 41%. In 1992 and 1993, cogenerators and independent power producers provided 9.4% of the Company's system requirements for each of those years. During 1995, after the 136 MW Holtsville facility owned by the New York Power Authority ("NYPA") is completed in early 1994 and the new 40 MW cogeneration facility at the Stony Brook campus of the State University of New York ("Stony Brook")is completed in early 1995, independent power producers and cogenerators will provide an estimated 13.7% of the Company's system energy requirements. For information about a 300 MW cogeneration facility that is the subject of litigation, see the discussion about Mayflower Energy Partners, L.P. ("Mayflower") under the heading "Energy Sources -- Independent Power Producers and Cogenerators." The Company does not expect any new major independent power producers to be built on Long Island in the foreseeable future for several reasons. Under federal law, the Company is required to buy energy from qualified producers at the Company's avoided costs. Current long-range avoided cost estimates for the Company have significantly reduced the economic advantage to entrepreneurs seeking to compete with the Company and with existing independent power producers. Also, with the Company's load being 45% residential, 52% commercial and industrial and 3% other sales, and with approximately 200 MW of net capacity from independent power producers and cogenerators already installed on Long Island, the market for additional large electric projects to provide power to the Company's remaining commercial and industrial customers is small. 3 8 The following table indicates the 1993 summer capacity of the Company's major generating stations and internal combustion units as reported to the New York Power Pool ("NYPP") in December 1993:
Description Number of Units MW ----------- --------------- ---- Northport . . . . . . . . . . . . . 4 1514 Port Jefferson . . . . . . . . . . 4 474 Glenwood . . . . . . . . . . . . . 2 230 E.F. Barrett/Island Park . . . . . 2 387 Far Rockaway . . . . . . . . . . . 1 114 Internal Combustion Units . . . . . 42 1344 Nine Mile Point 2 (18% Share) . . . 1 188 -- --- Total . . . . . . . . . . . . 56 4251 == ====
The maximum demand on the Company's system to date was 3,967,000 kW on July 9, 1993, representing 83% of its total available capacity of 4,799,000 kW on that day, which included 548,000 kW of firm capacity purchased from other sources. By agreement with the NYPP, the Company is required to maintain, on a monthly basis, an installed and contracted firm power reserve generating capacity equal to at least 18% of its actual peak load. The Company is currently meeting this NYPP requirement. System Requirements and Reliability The Company's current electric load forecasts indicate that, with continued implementation of its conservation and load management programs and with the availability of electricity provided by the Company's existing generating facilities, by its portion of nuclear energy generated at NMP2 and by power purchased from other electric systems and from certain non- Company-owned facilities, located within the Company's service territory, Long Island has adequate generating sources to meet its energy demands through the end of the century. System kWh energy requirements in 1993 were 2.6% higher than in 1992 and .5% higher than in 1988. The compound annual growth rate for the five-year period ended December 31, 1993 was .1%. As a result of the implementation of conservation programs and the availability to customers of energy supplies from cogeneration sources discussed below under the heading "Independent Power Producers and Cogenerators," the Company forecasts a 0.7% and 1.7% decrease, relative to the year 1993, in system energy requirements for the years 1994 and 1995, respectively. However, for the period 1993-2003, the Company forecasts an average annual growth rate in system energy requirements of .6%. The Company's system electric requirements for the last three years were provided as follows: Percentage of System Requirements
Purchased Oil* Gas* Nuclear** Power*** --- --- ------- ----- 1991 50 18 7 25 1992 37 19 6 38 1993 33 19 7 41
- --------------- 4 9 * Generated on the Company's own system. Oil consumption for the Company's system electric energy requirements in 1993 was 9.7 million barrels compared to 10.7 million barrels in 1992. Certain units may be fired with natural gas when it is available on an economic or as-required basis. Gas consumption for the Company's system electric energy requirements in 1993 was 36.3 million dekatherms compared to 34.5 million dekatherms in 1992. ** Generated at Nine Mile Point 2. *** Generated at (i) more economical nuclear, coal, oil and hydroelectric units owned by other electric systems and transmitted to the Company over its interconnections and (ii) cogenerators and independent power producers located within the Company's service territory. - --------------- Energy Sources Oil: Oil is the principal fuel burned in the Company's electric generating stations. In recent years, the Company has been able to reduce its oil requirements by burning natural gas, by using nuclear energy generated at Nine Mile Point 2 and by purchasing power from other systems, cogenerators and independent power producers. The availability and cost of oil used by the Company are affected by factors beyond its control such as the international oil market, environmental regulations, conservation measures and the availability of alternative fuels. However, any changes in oil costs are reflected in rates charged to the Company's customers. The Company's fuel oil is supplied principally by five suppliers, no one of which normally provides more than one-half of the total requirements. For information concerning federal and other regulatory environmental limitations on fuel oil burned by the Company, see "Environment -- Air." For additional information concerning the recovery of fuel oil costs, see Note 1 to Notes to Financial Statements for the Year Ended December 31, 1993. Gas: In addition to burning oil, several of the Company's generating stations have the capability of burning natural gas. These dual-fired units enable the Company to burn the most cost efficient fuel and to reduce its dependency on oil. Nuclear: The Company holds an 18% interest in Nine Mile Point 2, a 1,047 megawatt ("MW") nuclear generating unit near Oswego, New York. The cotenants of Nine Mile Point 2, in addition to the Company, are Niagara Mohawk Power Corporation ("Niagara Mohawk"), New York State Electric & Gas Corporation ("NYSEG"), Rochester Gas and Electric Corporation ("RG&E") and Central Hudson Gas & Electric Corporation. For additional information on Nine Mile Point 2 and nuclear plant insurance, see Notes 5 and 9, respectively, of Notes to Financial Statements for the Year Ended December 31, 1993. Independent Power Producers and Cogenerators: Independent power producers and cogenerators located within the Company's service territory provided approximately 200 MW of power to the Company, the equivalent of approximately 9.4% of the Company's energy requirements in 1993. Capacity from these sources is expected to reach 340 MW by the summer of 1994. The Company has also entered into contracts for approximately 50 MW of power from various projects under construction on an energy-only basis, including the Stony Brook project. The Company has also signed contracts for energy-only purchases totaling over 400 MW from several projects that are not expected to be built prior to the expiration date of these contracts, December 31, 1994. In addition, the Company was ordered by the PSC to enter into a contract, which it executed under protest, with Mayflower to purchase, on an energy-only 5 10 basis, power for 15 years from a 300 MW facility scheduled to begin commercial operation in 1995. On December 30, 1993, the Appellate Division, Third Department, of the New York Supreme Court, affirmed the Supreme Court of the State of New York Special Term's decision that had annulled the PSC order requiring the Company to enter into the agreement with Mayflower (Long Island Lighting Company v. Public Service Commission of the State of New York and Mayflower Energy Partners, L.P.). In the Special Term decision, the court held that the PSC had violated the federal Public Utility Regulatory Policies Act ("PURPA") and the New York Public Service Law, and had acted arbitrarily when it ordered the Company to sign a power purchase contract with Mayflower incorporating the PSC's 1989 Long Run Avoided Cost estimates. The Third Judicial Department affirmed the Special Term's decision, finding that the PSC-determined rates were not just and reasonable as required under PURPA and the New York Public Service Law. Interconnections: Five interconnections allow for the transfer of electricity between the Company and members of the NYPP and the New England Power Pool. Energy from these sources is transmitted pursuant to transmission agreements with Niagara Mohawk, NYPA and Consolidated Edison Company of New York, Inc. ("Con Edison") and displaces energy which would otherwise be generated on the Company's system with higher cost fuel oil. The capacity of these interconnections is utilized for (i) the requirements of Con Edison, a co-owner with the Company of three of these interconnections, (ii) the requirements on Long Island of NYPA, the owner of one of these interconnections, (iii) the transmission of the Company's share of power from Nine Mile Point 2 and (iv) the Company's purchases from NYPA and other utilities. Conservation Services: The Company's 1993 Electric Conservation and Load Management Plan called for a cumulative 194 MW reduction in coincident peak demand by December 31, 1993 and a cumulative annualized energy savings of 578 gigawatthours ("GWh"). The Company has met these targets with an expenditure of $33.5 million. These reductions were achieved through several different program types including customer education/information rebate, audit and direct installation which targeted a number of energy efficient technologies. In the fourth quarter of 1993, the Company filed a Modified Demand Side Management ("DSM") Plan with the PSC to support the objectives of the Company's December 31, 1993 electric filing. For additional information, see the discussion under the heading, "1989 Settlement and Electric Rates--Electric Rates." Under this modified plan, which includes a substantially lower budget than the one approved for 1994, a greater emphasis will be placed on the educational aspect of the Company's conservation efforts in lieu of the conventional reliance on rebates. This will help to shift the responsibility for adopting and implementing energy efficient practices away from the utility and to the customer. In addition, to control DSM costs further, the Company will promote financing programs and look to foster cost sharing relationships with manufacturers of energy efficient appliances. 1989 Settlement and Electric Rates General: On February 28, 1989, the Company and the State of New York (by its Governor) entered into an agreement (the "1989 Settlement") settling certain issues relating to the Company and providing for, among other matters, the transfer of the Shoreham Nuclear Power Station ("Shoreham") to the Long Island Power Authority ("LIPA"), Shoreham's subsequent decommissioning and the return of the Company to financial health. For additional information respecting the 1989 Settlement, see the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations for the Year Ended December 31, 1993" and Note 2 of Notes to Financial Statements for the Year Ended December 31, 1993. 6 11 The Rate Moderation Agreement: The Rate Moderation Agreement ("RMA"), a constituent document of the 1989 Settlement approved by the PSC, created an asset known as the Financial Resource Asset (the "FRA") and provides for its full recovery. The FRA has two components, the Base Financial Component (the "BFC") and the Rate Moderation Component (the "RMC"). The RMA, by its terms, specifies that the FRA was created to provide the Company with adequate financial indicia to restore the Company's debt securities to investment grade levels as determined by independent rating agencies. The BFC, as initially established, represented the present value of the future net-after-tax cash flows which the RMA provided the Company for its financial recovery. The BFC was granted rate base treatment under the terms of the RMA, similar to other plant investments, and is included in the Company's electric rates through an amortization over 40 years on a straight-line basis. At December 31, 1993, the BFC amounted to $3.6 billion. The RMC reflects the difference between the Company's revenue requirements under conventional ratemaking and the revenues resulting from the implementation of the rate moderation plan provided for in the RMA. This revenue difference, together with a carrying charge equal to the allowed rate of return on rate base, has been deferred. The RMC has provided the Company with a substantial amount of non-cash earnings since the effective date of the 1989 Settlement through December 31, 1992, because the revenues provided under the RMA were less than the revenues required under conventional ratemaking. The RMC balance was $652 million at December 31, 1992. During 1993, however, as revenues provided under the RMA began to exceed the revenues that would have been provided under conventional ratemaking, the RMC balance began to decline. Thus, at December 31, 1993, the RMC balance was $610 million. The Company has no reason to believe that the PSC will fail to continue to honor its commitments, contained in the RMA, respecting the recovery of the FRA and other 1989 Settlement-deferred charges. This belief is based, in part, upon the PSC's actions granting the Company six of the 11 electric rate increases contemplated by the RMA, discussed below, and, in part, upon the PSC's publicly confirmed commitment to the effectuation of the 1989 Settlement. Those actions have been consistent with provisions of the RMA regarding the establishment and recovery from ratepayers of the FRA and other 1989 Settlement-deferred charges provided by the RMA. For additional information respecting the RMA, the BFC and the RMC, see Notes 1, 2 and 3 of Notes to Financial Statements for the Year Ended December 31, 1993. Electric Rates: The RMA contemplated, among other objectives, a series of rate increases designed to restore the Company to financial health. Pursuant to the RMA, the Company received electric rate increases of 5.4% effective February 18, 1989 and 5.0% for each of the rate years that began on December 1, 1989 and December 1, 1990. In 1991, the PSC approved annual electric rate increases of 4.15%, 4.1% and 4.0% to be effective on December 1 of 1991, 1992 and 1993, respectively. On December 31, 1993, the Company filed a three-year electric rate plan with the PSC for the period beginning December 1, 1994, that minimizes future electric rate increases while retaining consistency with the RMA's objective of continuing the restoration of the Company's financial health. The filing proposes no base electric rate increases in years one and two of the plan and an overall increase of 4.3% in the third year. The Company's electric rate plan filing is subject to PSC approval. Although base electric rates would be frozen during the first two years of the plan, annual rate increases of 1% in the first year and 2% in the second year are expected to result in these years from the operation of the Company's fuel cost adjustment clause ("FCA"). The FCA captures, among other amounts, any increases in the cost of fuel above the level recovered in base rates and, under the rate mechanisms that have been in effect since 1991, a portion of (i) earned incentives and (ii) variances in actual versus forecasted electric revenues and certain cost components occurring in prior periods. The Company's proposed electric rate plan provides for lower annual electric rate increases than were originally anticipated under the 1989 Settlement. However, as a result of changes in certain assumptions upon which the RMA was based, their impact on the RMC and the Company's plans to reduce DSM, operations, 7 12 maintenance and capital expenditures, the Company has determined that the overall objectives of the RMA can be met under the proposed multi-year plan described in the preceding paragraph. Because of lower inflation rates, interest costs, property taxes, fuel costs and return on common equity allowed by the PSC, the RMC, which originally had been anticipated to peak at $1.2 billion in 1994, has already peaked at $652 million in 1992. With the exception of an increase in 1995-1996, which is not now projected to cause the RMC to increase above its $652 million peak, the RMC is expected to decline until it is fully amortized. The actual length of the period over which the RMC is to be amortized will depend on the extent to which the assumptions underlying the rate plan materialize. While the proposed electric rate plan may extend the recovery period for the RMC by one but not more than three years, the Company's current projections indicate that the RMC will be recovered in a period of approximately 11 years that began on July 1, 1989. On November 2, 1993, the New York State Consumer Protection Board and the Long Island Power Authority ("CPB/LIPA") filed a Petition with the PSC asking the PSC to hold a proceeding on freezing or possibly reducing the Company's electric rates for the period December 1994 to November 1997. In written comments filed on January 12, 1994 in response to the CPB/LIPA Petition, LILCO urged the PSC to reject the Petition and consider the CPB/LIPA's issues in the proceeding that has been established regarding the Company's three-year rate application. Staff of the Department of Public Service filed a response urging the PSC to reject the Petition and consider these issues in the Company's current electric rate proceeding. The Attorney General for New York State also filed comments that urge the PSC to conduct a full investigation of the Company's rates in the course of the current proceeding concerning its proposed electric rate plan. For additional information respecting electric rate increases, see Note 3 of Notes to Financial Statements for the Year Ended December 31, 1993. 8 13 GAS OPERATIONS: General In 1993, recognizing the growing importance of its gas operations and the dynamic changes then anticipated as a result of proceedings before FERC to deregulate the transportation of natural gas, the Company established its gas operations as a separate corporate business unit. During 1993, the Company's gas business unit focused on two areas: one, continuing its marketing efforts on Long Island and two, seeking opportunities in the newly de-regulated national natural gas market. Gas System Requirements At year-end 1993, the Company had a total of 445,830 firm gas customers, compared to 441,580 at year-end 1992, and 436,352 at year-end 1991. Of the 1993 year-end total, 269,994 were space heating customers. Total sales in 1993 were 59,182,674 dekatherms ("Dth"), compared to 56,292,131 Dth in 1992. The maximum daily firm demand experience on the Company's gas system in 1993 was 485,896 Dth on December 26, 1993; the prior maximum daily firm demand of 466,517 Dth was on February 1, 1993. Accompanied by unusually cold weather, seven new maximum daily firm demand records came in early 1994 -- the highest being 585,227 Dth on January 19, 1994. The forecasted maximum daily firm gas demand for the 1993-94 winter season (November 1 - March 31) was 577,900 Dth, representing 85% of the Company's maximum daily firm operating supply capability of 682,284 Dth for this period. This forecast was exceeded in January 1994. Based on the forecasted maximum daily firm gas demand, the Company should have a peak day surplus of 77,057 Dth of firm supply including peak shaving capability for the 1993-94 winter season. The Company recovers the costs of its gas supply from both its firm and interruptible customers through provisions in the Company's rate schedules. Continuing its recent efforts to expand the base of customers across which its fixed costs can be absorbed, the Company is emphasizing residential and commercial gas marketing. In particular, new market segments and new uses for natural gas are being sought. The technology for natural gas vehicles ("NGVs") is becoming commercially viable, and the Company is working internally and with customers to put NGVs on the road. For example, the Metropolitan Suburban Bus Authority ("MSBA"), a subsidiary corporation of the Metropolitan Transportation Authority principally serving Nassau County, has installed a natural gas compression station and is operating ten dedicated NGVs. MSBA anticipates purchasing more than 200 buses fueled by compressed natural gas over the next five years. Gas Transportation and Supply The proceedings before FERC, developing out of its Order No. 636, have resulted in a regulatory "unbundling" of the gas supply, transportation and storage services that for decades had been provided by the nation's natural gas pipelines. In the past, local distribution companies ("LDCs") have purchased their gas supplies at the citygate from those pipelines serving their territories. The citygate is generally the location where the interstate pipeline meets the local distribution company's system. The Company shares common citygate facilities, known as the New York Facilities, with Con Ed and the Brooklyn Union Gas Company. The Company's principal pipelines have been Transcontinental Gas Pipe Line Corporation ("Transcontinental"), Texas Eastern Transmission Corporation ("Texas Eastern"), CNG Transmission Corporation ("CNG"), Tennessee Gas Pipeline Company ("Tennessee") and, beginning in early 1992, the Iroquois Gas Transmission System ("Iroquois"). Through two wholly-owned subsidiaries, the Company is a general partner in Iroquois, with an equity share of 1%, and in the Liberty Pipeline Company ("Liberty"), with an equity share of 3-1/3%. With respect to Liberty, proceedings for authority to construct and operate are now pending before FERC. 9 14 Under FERC Order No. 636, pipelines, for the most part, no longer act as sales agents to bundle the mix of services from the producers and other interstate pipelines. LDCs must now make arrangements for gas supplies and gas storage directly with producers, marketers and the owners of storage facilities. In addition, each LDC must now also make separate transportation arrangements with each pipeline in the path between the supplier and the LDC's citygate and not merely with the nearest pipeline connecting to the LDC's system. This fundamental change in the way LDCs conduct their activities has affected the reliability, pricing and diversification of their natural gas supplies. Gas Transportation: The Company's gas transportation capacity for meeting its 1993-94 winter season requirements is provided from a portfolio of year-round, winter seasonal and storage services summarized below:
1993-94 Winter Peak-Day Transportation Capacity: ----------------------------------------------- Type of Supply Dth Per Day -------------- ----------- Year-Round 243,692 Winter Seasonal 2,726 Storage 287,839 ------- Total 534,257 =======
Year-Round Pipeline Firm Transportation: The Company has 303,692 Dth per day of year- round pipeline firm transportation capacity from four interstate pipeline companies: Transcontinental, Texas Eastern, Tennessee and Iroquois. For the winter 1993-1994 season, options on 60,000 Dth per day of capacity have been granted to off-system markets leaving a total of 243,692 Dth available to meet system peak-day requirements. Winter Seasonal Pipeline Firm Transportation: The Company has winter seasonal pipeline firm transportation capacity on Transcontinental amounting to 2,726 Dth per day. This incremental capacity is available through March 31, 1994. Storage: The Company also has long-term firm storage services to meet higher winter demand which provide a total operating supply of approximately 287,839 Dth per day with a total capacity of 22,692,363 Dth for the winter period. Of these totals, 277,589 Dth per day, or a total capacity of 21,455,363 Dth, is provided by a gas storage field at Leidy, Pennsylvania, and 10,250 Dth per day, or a total capacity of 1,237,000 Dth for the winter period is provided by a gas storage field in upstate New York operated by Honeoye Storage Corporation, in which the Company has a 23-1/3% equity interest. In addition, the Company has the right to request 812,500 Dth in the winter period from a cogeneration facility with the obligation to return quantities in kind during the following summer period. The Company also contracts for storage capacity in a facility in the Gulf Coast near sources of supply and pipeline transportation. Up to 50,687 Dth per day can be withdrawn with a total of 4,459,220 Dth of storage capacity in the Washington storage facility in Louisiana. While this facility provides the Company with greater security of supply and enhanced operational flexibility in meeting peak-day requirements, the Company has no related firm pipeline transportation agreement for these supplies. Therefore, to take gas from this storage, the Company must curtail the transportation of some of its firm contract supply. Gas Supply: The Company's gas supplies for the 1993-94 winter season are provided from a portfolio of year-round, winter seasonal, storage and peak shaving supplies summarized below. 10 15 Year-Round Firm Supply: Of the 213,469 Dth of firm supplies, 83,575 Dth are Canadian and 129,894 Dth are domestic. The Company is a 2.7% equity owner of Boundary Gas, Inc., ("Boundary"), a corporation formed with 15 other gas utility companies to act as a purchasing agent for the importation of natural gas from Canada. The Company obtains 2,470 Dth per day of its long-term firm Canadian supply from this source. Gas supplies to use 90,223 Dth per day of the remaining year-round pipeline firm transportation capacity are purchased by the Company in both the seasonal and monthly spot markets. Winter Seasonal Firm Supply: The Company also contracts for firm seasonal supply of 90,223 Dth delivered during the five winter months each year from a number of winter seasonal suppliers. Peak Shaving: The Company has its own peak shaving supplies to meet its requirements on excessively cold winter days. This includes a liquefied natural gas plant with a storage capacity of approximately 620,000 Dth of gas and vaporization facilities which provide 103,300 Dth per day to the peak-day capability of the Company's system. In addition, the Company has propane facilities that produce 17,400 Dth per day of peak shaving with a storage capacity of approximately 100,000 Dth. Gas Rates In December 1993, the PSC approved a three-year gas rate settlement between the Company and the Staff of the PSC. The gas rate settlement provides that the Company receives, for each of the rate years beginning December 1, 1993, 1994 and 1995, annual gas rate increases of 4.7%, 3.8% and 2.8%, respectively. In the determination of the revenue requirements for the first year of the gas rate settlement, an allowed rate of return on equity of 10.1% was used. The gas rate decision also provides for earnings in excess of a 10.6% return on equity in any of the three rate years covered by the settlement, to be shared equally between the Company's firm gas customers and its shareowners. In November 1992, the PSC approved a gas rate increase of 7.1%, or $35.7 million annually, effective December 1, 1992, with an allowed return on common equity from gas operations of 11.0%. In November 1991, the Company received a gas rate increase of 4.1% effective December 1, 1991. Non-Regulated Activities The unbundling of gas transportation activities and the need for local distribution companies to negotiate directly with producers and other suppliers and with pipelines has provided the Company with new business opportunities. These new opportunities include providing gas to non- traditional markets including LDCs and end-users from Mississippi to Connecticut. In addition, the Company has formed a wholly-owned subsidiary, Northeast Gas Marketers, Inc. ("NGMI"), to broker natural gas in the unregulated market. The Company is presently awaiting PSC authorization to fund up to $20 million of NGMI's unregulated gas brokering activities. Recovery of Transition Costs Transition costs are the costs associated with unbundling the pipelines' merchant services in compliance with FERC Order No. 636. They include pipelines' unrecovered gas costs and the costs that pipelines incur as a result of reforming or terminating their gas supply contracts. In order to recover transition costs, pipelines must demonstrate to FERC (i) that such costs were attributable to FERC Order No. 636 and (ii) that they were prudently incurred. While the Company is challenging, on both eligibility and prudence grounds, its pipelines' efforts to recover their claimed transition costs, the Company presently estimates that it could be charged as much as $14 million in transition costs by several of its pipelines. The Company will seek permission from the PSC to recover these costs from its gas customers. 11 16 ENVIRONMENT: General The Company is subject to federal, state and local laws and regulations dealing with air and water quality and other environmental matters. It is not possible to ascertain with certainty if or when the various required governmental approvals for which applications have been made will be issued, whether, except as noted below, additional facilities or modifications of existing or planned facilities will be required or, generally, what effect existing or future controls may have upon Company operations. Except as set forth herein below, no material proceedings have been commenced or, to the knowledge of the Company, are contemplated by any federal, state or local agency against the Company, nor is the Company a defendant in any material litigation with respect to any matter relating to the protection of the environment. In 1994 and 1995, the Company anticipates expenditures of $12.5 million and $4.1 million, respectively, for environmental projects including projects described below for emission monitoring requirements and nitrogen oxide ("NOx") reduction requirements. Air Federal, state and local regulations affecting new and existing electric generating plants govern, among other emissions, sulfur dioxide and NOx and, in the future, hazardous air pollutants. The laws governing the sulfur content, by weight, of the fuel oil being burned by the Company in compliance with the United States Environmental Protection Agency ("EPA")-approved Air Quality State Implementation Plan ("SIP") are administered by the New York State Department of Environmental Conservation ("DEC"). The Company does not expect to incur any costs to satisfy amendments to the Clean Air Act with respect to the reduction of sulfur dioxide emissions, since the Company already uses fuel with acceptable low levels of sulfur. The Company expects that it will have to expend $4.3 million in 1994 to meet continuous emission monitoring requirements and $3.5 million in 1994 and $2.0 million in 1995 to meet Phase I NOx reduction requirements. In addition, subject to requirements that are expected to appear in regulations that have not yet been issued, the Company estimates that it may be required to expend as much as $125 million by May 1999 to meet Phase II NOx reduction requirements and approximately $50 million by 2000 to meet requirements for the control of hazardous air pollutants from power plants. Water Under the federal Clean Water Act and the New York State Environmental Conservation Law, the Company is required to obtain a State Pollutant Discharge Elimination System permit to make any discharge into the waters of the United States or New York State. The DEC has the jurisdiction to issue those permits and their renewals and has issued permits for the Company's existing generating units. The permits allow the continued use of the existing circulating water systems which have been determined to be in compliance with State Water Quality Standards. The permits also allow for the continued use of the existing chemical treatment systems. Land The Company is the owner of six pieces of property on which the Company or certain of its predecessor companies produced manufactured gas. The Company has investigated two of these sites for possible environmental contamination caused by these prior operations and plans to submit the findings to the appropriate regulatory agencies in 1994. The Company's clean-up costs, if any, cannot be determined until the remediation alternatives have been reviewed by the regulatory agencies and negotiations with them have been completed. The Company will conduct similar investigations of the remaining four sites over the next several years. The Company 12 17 cannot determine the costs of remediation for these four sites until the investigations have been completed and the results reviewed by the appropriate regulatory agencies. The costs for the remediation of these sites are not expected to have a material impact on the Company's financial condition. The Company and nine other potentially responsible parties ("PRPs") have entered into an Administrative Order by Consent ("Consent Order") with the EPA to complete a Remedial Investigation and Feasibility Study ("RI/FS") for a site in Philadelphia, Pennsylvania, operated by a company known as Metal Bank of America, to which the EPA alleges that the Company shipped scrap transformers, possibly containing polychlorinated biphenyls. The RI/FS, which will be completed in 1994, will assess the nature and extent of site contamination and will suggest cleanup alternatives. The amount of the Company's liability, if any, which may be joint and several if imposed, cannot be ascertained until the EPA has selected a remedy from among the cleanup alternatives. The Company has notified the appropriate insurers but no lawsuit has been commenced. The EPA has conducted a thorough, unannounced inspection of the Company's hazardous waste Treatment Storage and Disposal Facility ("TSDF"). The inspection focused on compliance with hazardous waste management regulations. The EPA subsequently issued a Complaint and Compliance Order which noted several deficiencies, primarily related to permit modifications and minor operational issues, and proposed a $29,000 civil penalty. The Company has protested the amount of the penalty. The EPA also issued a letter requesting additional information on the Company's TSDF operations to which the Company has responded. Nuclear Waste Niagara Mohawk, on behalf of the NMP2 cotenants, entered into a contract with the Department of Energy ("DOE") for the permanent storage of NMP2 spent nuclear fuel. Under that contract, the NMP2 cotenants are currently paying DOE a user-fee of one-mil per kilowatthour of net nuclear generation. The Company is collecting its portion of the user-fee from the Company's ratepayers. Under the federal Low Level Radioactive Waste Policy Amendment Act of 1985, New York was required, by January 1, 1993, to have arranged for the disposal of all low level, radioactive waste generated within the state or, in the alternative, contracted for the disposal of waste at an operating facility outside the state. Failure to do so would require New York to either (1) take title to and possession of, and assume all liability for, all waste generated in the state or (2) forfeit to the generators of waste in the state the rebate of a portion of the surcharges paid by such generators for the disposal of waste at operating facilities outside the state. New York has entered into a contract with the State of South Carolina for the disposal of all low level radioactive waste (except mixed wastes) through June 1994. The Company can provide no assurance as to what disposal arrangements, if any, New York will have in place after that date if New York fails to make other waste 13 18 disposal arrangements. The Company may incur additional costs for temporary storage of NMP2-generated waste at the NMP2 site. The Company expects that its costs to dispose of low level radioactive waste, including any surcharges or penalties, in an amount yet undetermined, will be recovered in electric rates. Moreover, under the Amended and Restated Asset Transfer Agreement, discussed below, LIPA is responsible for the disposal of waste associated with the decommissioning of Shoreham, although such costs will be paid by the Company and recovered through electric rates. THE COMPANY'S SECURITIES: General The Company's securities are rated by Moody's Investors Service, Inc. ("Moody's"), Standard and Poor's Corporation ("S&P"), Fitch Investors Service, Inc. ("Fitch") and Duff and Phelps, Inc. ("D&P"). The Company's securities are rated as follows:
Moody's S&P Fitch D&P ------- --- ----- --- First Mortgage Bonds . . . . . . . . Baa2 BBB- BBB BBB G&R Bonds . . . . . . . . . . . . . . Baa2 BBB- BBB BBB 1985 PCRBs* . . . . . . . . . . . . . Aaa NR NR NR 1993 EFRBs* . . . . . . . . . . . . . Aa2 NR NR NR Other EFRBs and PCRBs (unsecured) . . Baa3 BB+ NR NR Debentures (unsecured) . . . . . . . Baa3 BB+ BBB- BB+ Preferred Stock . . . . . . . . . . . "baa3" BB+ BBB- BB MINIMUM INVESTMENT GRADE Baa3 BBB- BBB- BBB- - ---------------
* - Secured by Letters of Credit. NR - Not rated. - --------------- The G&R Mortgage The Company's General and Refunding Indenture dated June 1, 1975 (the "G&R Indenture" or "G&R Mortgage") is a lien upon substantially all of the Company's properties. The lien of the G&R Mortgage, which is currently subordinate to the lien of the Company's Indenture of Mortgage and Deed of Trust dated September 1, 1951 (the "Indenture of Mortgage" or "First Mortgage"), will become the Company's most senior mortgage in 1997, the year in which the last of the currently outstanding non- pledged First Mortgage Bonds matures. Outstanding at December 31, 1993 were approximately $1.7 billion of General and Refunding Bonds (the "G&R Bonds") and $125 million of First Mortgage Bonds, excluding $1.0 billion of First Mortgage Bonds (the "Pledged Bonds") which are pledged with the G&R Trustee as additional security for the G&R Bonds. Additional information concerning the Company's G&R Mortgage and the First Mortgage is discussed below and in Note 7 of Notes to Financial Statements for the Year Ended December 31, 1993. Under the G&R Mortgage, the Company may issue G&R Bonds on the basis of either matured or 14 19 redeemed G&R Bonds and First Mortgage Bonds (other than Pledged Bonds) or on the basis of the Bondable Value of Property Additions ("BVPA"). Generally, when issuing G&R Bonds, the Company must satisfy a mortgage interest coverage requirement (the "G&R Mortgage Interest Coverage"). The G&R Mortgage Interest Coverage requires that the Net Earnings available for interest for any 12 consecutive calendar months within the 15 consecutive calendar months preceding the issuance of the G&R Bonds must be equal to at least two times the stated annual interest payable on outstanding G&R Bonds and Prior Lien Bonds (other than Pledged Bonds), including any new G&R Bonds. Under the G&R Mortgage Interest Coverage, the Company would currently be able to issue approximately $4.3 billion of additional G&R Bonds based upon: (i) earnings for the 12 months ended December 31, 1993 and (ii) an assumed interest rate of 9% for such additional G&R Bonds. A change of 1/8 of 1% in the assumed interest rate of such G&R Bonds would result in a change of approximately $58.6 million in the amount of such G&R Bonds that the Company could issue. Currently, the Company is able to issue G&R Bonds only on the basis of matured or redeemed G&R Bonds and First Mortgage Bonds (other than Pledged Bonds). The maximum amount of additional G&R Bonds which the Company is able to issue on this basis is approximately $683 million. The Company is currently unable to issue G&R Bonds on the basis of the BVPA because it is required to recognize, for purposes of the G&R Mortgage, a "deficit" in the BVPA of approximately $202 million as of December 31, 1993. As the Company continues to make capital improvements to its system (i.e., add Property Additions), this deficit will be reduced at an estimated rate of approximately $250 million each year. The existence of the deficit in the BVPA does not require that any outstanding G&R Bonds be retired or that the deficit be eliminated by deposits of cash or retired G&R Bonds or First Mortgage Bonds. The Company expects this deficit to be eliminated prior to 1995. G&R Bonds are, however, subject to retirement through the normal operation of the G&R Sinking and Maintenance Funds or through maturities. The Company believes that, based upon currently scheduled redemptions and maturities, it will have sufficient retired G&R Bonds and First Mortgage Bonds for the foreseeable future to satisfy the requirements of the G&R Sinking Fund or to withdraw with retired G&R Bonds and First Mortgage Bonds any cash that may be deposited to satisfy the Sinking Fund requirements. The Sinking Fund requires the Company to pay $24 million or to certify a like amount of retired G&R Bonds and First Mortgage Bonds on or before June 30, 1994. The Company is planning to satisfy this requirement in 1994 with retired G&R Bonds. In addition, subsequent to 1994, when the Company expects that Property Additions will again become available for the various purposes contemplated by the G&R Mortgage, the Company may elect to use such Property Additions either to issue G&R Bonds or to satisfy the G&R Sinking Fund requirements. The Maintenance Fund covenant under the G&R Mortgage requires that the aggregate amount of Property Additions added subsequent to December 31, 1974 must be, as of the end of each calendar year subsequent to 1974, at least equal to the cumulative Provision for Depreciation (as defined in the G&R Mortgage) from December 31, 1974. The G&R Mortgage requires cash (or retired G&R Bonds or retired First Mortgage Bonds) to be deposited to satisfy the Maintenance Fund requirements only when such cumulative Provision for Depreciation exceeds such aggregate amount of Property Additions. As of December 31, 1993, the amount of such cumulative Property Additions calculated pursuant to the G&R Mortgage was approximately $9.4 billion, including approximately $5.5 billion of Property Additions attributable to Shoreham. Also, as of December 31, 1993, the amount of the cumulative Provision for Depreciation, similarly calculated, was approximately $1.4 billion. The Company anticipates that the aggregate amount of Property Additions will continue to exceed the cumulative Provision for Depreciation. 15 20 The First Mortgage Under the provisions of the G&R Mortgage, the Company may not issue any additional bonds under the Company's First Mortgage other than Pledged Bonds which are required, concurrently with the issuance of each new series of G&R Bonds, to be deposited with the G&R Trustee. The issuance of any such Pledged Bonds does not create additional indebtedness. The coverage requirements of the First Mortgage and the Company's ability to issue additional Pledged Bonds do not restrict the Company's ability to issue additional G&R Bonds. Of the approximately $1.2 billion of First Mortgage Bonds outstanding at December 31, 1993, $1.0 billion, or 89%, were Pledged Bonds. After satisfying the 1993 Depreciation Fund and Sinking Fund requirements discussed below, the Company expects that it will issue additional Pledged Bonds when it next issues additional G&R Bonds. The First Mortgage requires the Company to pay the First Mortgage Trustee by June 30 of each year cash equal to 1% of all previously issued First Mortgage Bonds (excluding bonds issued on the basis of retired bonds). Currently, the annual First Mortgage Sinking Fund requirement is approximately $18 million. The Company expects to satisfy this requirement prior to June 30, 1994, with retired First Mortgage Bonds. The annual Sinking Fund requirement is not expected to change, because of restrictions in the G&R Mortgage, until and unless the Company issues additional G&R Bonds. The Company expects to be able to satisfy the Sinking Fund requirement in each year through 1996, the last year in which this requirement must be met, with cash, available Property Additions or retired First Mortgage Bonds which become available through scheduled maturities. The Depreciation Fund covenant of the First Mortgage requires that the Company pay to the First Mortgage Trustee by June 30 of each year cash (which may be withdrawn up to the amount of Gross Bondable Additions and First Mortgage Bonds made the basis for such withdrawal) equal to the greater of (a) the amount actually charged on the Company's books as a utility operating revenue deduction for the preceding calendar year for depreciation, depletion, obsolescence, retirements and amortization of the Company's Utility Plant ("Book Depreciation") or (b) an amount equal to (i) 15% of gross operating revenues (less the cost of electricity and gas purchased for resale) from Utility Plant for such year less (ii) the amount actually expended for maintenance of Utility Plant during such year ("Revenue Depreciation"). Since the oil crisis of the 1970s, Revenue Depreciation in each year has been greater than Book Depreciation for such year. The Revenue Depreciation requirement for 1993 was approximately $216 million. Instead of paying cash to satisfy this Depreciation Fund requirement, the First Mortgage permits the Company to deliver First Mortgage Bonds or certify Property Additions. The Company expects to satisfy the 1993 requirement by June 30, 1994, using a combination of First Mortgage Bonds and Property Additions. The Company presently plans, assuming that its expenditures for capital improvements are approximately $250 million annually and notwithstanding that G&R Bonds may be issued which would require, in turn, the issuance of First Mortgage Bonds to be pledged, that it will have adequate Property Additions to satisfy the Depreciation Fund requirements in 1995 and 1996, the last year in which this requirement must be met. The Company also expects that retired First Mortgage Bonds, including Pledged Bonds, will be available to satisfy the Depreciation Fund requirement in 1995 and 1996, if such retired First Mortgage Bonds are not applied to other purposes. Unsecured Debt The Company's First Mortgage, its G&R Mortgage and its Restated Certificate of Incorporation do not contain any limitations upon the issuance of debt secured by liens which are subordinate to the above mortgages or upon the issuance of unsecured debt. The Company's Debenture Indenture, dated as of November 1, 1986, as supplemented, and the Debenture Indenture, dated as of November 1, 1992, as supplemented, (together, the "Debenture Indentures") each provide for the issuance of an unlimited amount of Debentures to be issued in amounts that may be authorized from time to time in one or more series. The Debentures are unsecured and rank pari passu with all other unsecured indebtedness of the Company subordinate to the obligations secured by the Company's two mortgages. Currently, there are approximately $2.9 billion of Debentures outstanding. 16 21 As of December 31, 1993, the Company had outstanding approximately $817 million principal amount of promissory notes, securing $215 million of tax-exempt Pollution Control Revenue Bonds (the "PCRBs"), $2 million of tax-exempt Industrial Development Revenue Bonds and $600 million of tax-exempt Electric Facilities Revenue Bonds ("EFRBs"). Of these amounts, $17 million issued in 1982, $150 million issued in 1985 (the "1985 PCRBs") and $100 million issued in 1993 (the "1993 EFRBs") are subject to periodic tenders by the holders of the tax-exempt bonds. The 1985 PCRBs and 1993 EFRBs are supported by letters of credit pursuant to which the letter of credit banks have agreed to pay the principal, interest and premium, if applicable, on any tendered 1985 PCRBs or 1993 EFRBs, in the aggregate, up to approximately $163 million and $109 million, respectively, in the event of default. These letters of credit expire on March 16, 1996 and November 17, 1996, respectively. The obligations of the Company to reimburse the letter of credit banks supporting the 1985 PCRBs and the 1993 EFRBs are unsecured. Each of the PCRBs, the Industrial Development Revenue Bonds and the EFRBs have been issued by the New York State Energy Research and Development Authority ("NYSERDA"). See Note 7 of Notes to Financial Statements for the Year Ended December 31, 1993 for additional information respecting the Company's Notes securing tax-exempt bonds and the Company's other outstanding unsecured debt. Equity Securities The Company's Restated Certificate of Incorporation provides that the Company may not issue additional Preferred Stock unless the net earnings of the Company available for payment of interest on its debt after depreciation and all taxes for any 12 consecutive calendar months within the 15 calendar months preceding the month of issuance are at least 1.50 times the aggregate of the annual interest charges and dividend requirements on the debt and Preferred Stock to be outstanding immediately after the issuance of such Preferred Stock (the "Earnings Ratio"). Currently, the Company cannot satisfy the Earnings Ratio and therefore cannot issue Preferred Stock except, under certain circumstances, to redeem outstanding Preferred Stock. When the proceeds from the sale of the Preferred Stock to be issued are used to redeem outstanding Preferred Stock, the requirement to satisfy the Earnings Ratio is not applicable if the dividend requirement and the requirements for redemption in a voluntary liquidation of the Preferred Stock to be issued do not exceed the respective amounts for the Preferred Stock which is to be retired. Additional Preferred Stock may also be issued beyond amounts permitted under the Earnings Ratio with the approval of at least two-thirds of the votes entitled to be cast by the holders of the total number of shares of outstanding Preferred Stock. Default in the payment of dividends on any shares of Preferred Stock in an amount equivalent to or exceeding four full quarterly dividends for any series of Preferred Stock entitles all holders of shares of Preferred Stock, voting separately as a class and regardless of series, to elect a majority of the Board of Directors of the Company. The remaining Directors are elected by the holders of Common Stock. The right of holders of shares of Preferred Stock to elect a majority of the Board of Directors ceases when and if the Company ceases to be in default in the payment of its Preferred Stock dividends. At that time, the terms of office of the Directors of the Company elected by the holders of Preferred Stock terminates and the resulting vacancies are to be filled by the vote of the remaining Common Stock Directors. Issuance of Preference Stock, which is subordinate to the Company's Preferred Stock, but senior to its Common Stock, with respect to declaration and payment of dividends and the right to receive amounts payable on any dissolution, does not require satisfaction of a net earnings test or any other coverage requirement, unless established by the Board of Directors for one or more series of Preference Stock, prior to the issuance of such series. No Preference Stock has been issued by the Company nor does the Company currently plan to issue any Preference Stock. Before paying any dividends, the Company's Board of Directors considers, among other factors, the Company's financial condition, its ability to comply with provisions of the Company's Restated and Amended Certificate of Incorporation and the availability of retained earnings, future earnings and cash. 17 22 SHOREHAM DECOMMISSIONING: As contemplated by the 1989 Settlement, the Company transferred Shoreham and the Company's possession-only license for Shoreham to LIPA on February 29, 1992, following a decision by the NRC that approved the transfer. The NRC decision requires that the Company maintain adequate capability to take over the possession-only license in the event LIPA ceases to exist or is otherwise found to be unqualified to hold the license. On June 11, 1992, the NRC issued an order authorizing the decommissioning of Shoreham by LIPA. The order requires that additional NRC approvals be obtained if certain conditions regarding fuel and solid radioactive waste are not met. The Company is required under an agreement with LIPA (the "Amended and Restated Asset Transfer Agreement") to reimburse LIPA for any of its costs associated with the decommissioning of Shoreham and recover these reimbursed amounts from its ratepayers. The Site Cooperation and Reimbursement Agreement (the "Site Agreement") entered into by the Company and LIPA describes the payment by the Company of LIPA's and NYPA's expenses attributable to the transfer, ownership, possession, maintenance and decommissioning of Shoreham, including certain taxes and payments in-lieu-of-taxes with respect to the Shoreham site, and governs, among other things, the conduct of the parties and of NYPA, and their access to facilities and properties at the Shoreham site. The NRC has granted the Company an exemption from decommissioning funding requirements which generally require utilities to maintain separate funds or obtain letters of credit dedicated to and sufficient to cover all expected decommissioning costs. Instead, the NRC has approved the dedication of a portion of the funds available to the Company under the 1989 Revolving Credit Agreement (the "1989 RCA") to support the Company's obligation to provide funding for the decommissioning of Shoreham. For additional information respecting the 1989 RCA, see Notes 2 and 7 of Notes to Financial Statements for the Year Ended December 31, 1993. The NRC also required that the Company establish an external fund of $10 million to cover emergency decommissioning costs. The RMA assumed that post settlement costs would total approximately $670 million, including $330 million for property taxes and payments-in-lieu-of-taxes ("PILOTS"). The remaining $340 million was estimated for decommissioning costs, fuel disposal costs and all other costs incurred at Shoreham after June 30, 1989. These post settlement costs are being capitalized and amortized over a 40-year period on a straight line remaining life basis. The RMA also contemplated that Shoreham would be transferred to LIPA on July 1, 1989. Certain of the assumptions in the RMA have changed. For example, the Company experienced delays in obtaining approval to transfer the plant, resulting in the payment of additional property taxes. In addition, PILOTS have been greater than had been assumed in the RMA. As a result, at December 31, 1993, Shoreham post settlement costs totalled approximately $777 million (net of accumulated amortization of $34 million). The $777 million includes $363 million of property taxes and PILOTS and $448 million of decommissioning costs, fuel disposal costs and all other costs incurred at Shoreham after June 30, 1989. The Company currently estimates that post settlement costs (other than property taxes and PILOTS) will total approximately $550 million. The precise amount of taxes and PILOTS that must be paid is the subject of the litigation described in Item 3, "Legal Proceedings -- Shoreham." Although the Company can give no assurance that the cost to decommission Shoreham will approximate its current estimate, the amount which is assumed in the LIPA decommissioning plan or the RMA, or that the decommissioning process will be completed within the period stated above, the PSC has determined that all costs associated with Shoreham which are prudently incurred by the Company subsequent to the effectiveness of the 1989 Settlement are decommissioning costs, and has confirmed that the RMA provides for the recovery of such 18 23 expenses through electric rates. It is the Company's position that, should the decommissioning costs be greater and the duration of decommissioning be longer than the amount and the time, respectively, assumed in the RMA, the additional prudently incurred costs relating to decommissioning, including maintenance of Shoreham during such longer period, will be recovered from the Company's ratepayers through electric rates over the balance of a 40-year period ending 2029. Pursuant to the 1989 Settlement, the Company reflects the costs of the nuclear fuel related to Shoreham as a deferred charge under the heading "Regulatory Assets." The RMA contemplates that the Company will recover from its ratepayers the costs of its Shoreham nuclear fuel. The Company is required under the Amended and Restated Asset Transfer Agreement to reimburse LIPA for any of its costs associated with the storage and disposal of Shoreham's fuel and recover these reimbursed amounts from its ratepayers as well. For additional information respecting the 1989 Settlement, see Note 2 of Notes to Financial Statements for the Year Ended December 31, 1993. EXECUTIVE OFFICERS OF THE COMPANY: Current information regarding the Company's Executive Officers, all of whom serve at the will of the Board of Directors, follows: William J. Catacosinos: Dr. Catacosinos has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since January 1984, and as a Director since December 1978. Dr. Catacosinos is currently serving as President on an interim basis and previously served in that capacity from March 1984 to January 1987. Dr. Catacosinos, 63, a resident of Mill Neck, Long Island, earned a bachelor of science degree, a masters degree in business administration and a doctoral degree in economics from New York University. He is the former chairman and chief executive officer of Applied Digital Data Systems, Inc., Hauppauge, New York, a manufacturer of computer and related products. Previously, Dr. Catacosinos served as chairman of the board and treasurer of Corometric Systems, Inc. of Wallingford, Connecticut and was Assistant Director at Brookhaven National Laboratory. Dr. Catacosinos currently chairs the Executive Committee of the Company's Board of Directors and he is a member of the board of Utilities Mutual Insurance Co. and Ketema, Inc., a diversified manufacturer of, among other things, electrical and aerospace equipment. In compliance with Section 305(b) of the Federal Power Act, Dr. Catacosinos has authorization from FERC to hold the position of an officer or director of a public utility and at the same time the position of an officer or director of a firm that supplies electrical equipment to such public utility. Theodore A. Babcock: Mr. Babcock was named Treasurer of the Company on February 4, 1994. As Treasurer, he will be responsible for Treasury Operations, Debt Management, Trust Asset Management, Risk Management and Remittance Processing. Mr. Babcock, 39, joined the Company in July 1992 as Assistant Treasurer. He previously spent five years in the AMBASE Corporation as an Assistant Vice President and was promoted in 1988 to Vice President and Treasurer. Prior to AMBASE, Mr. Babcock spent 11 years with the Associated Dry Goods Corporation where he was promoted to Assistant Treasurer and Director of Corporate Treasury Operations in 1984. Mr. Babcock received a bachelor of science degree in accounting from Manhattan College and a masters degree in finance from Iona College. William N. Dimoulas: Vice President of Information Systems and Technology since May 1990, Mr. Dimoulas, 50, joined the Company in 1988. He received a bachelor of science degree and a masters of business administration degree from Long Island University. Previously, Mr. Dimoulas was a vice president at Chemical Bank concentrating in Corporate Banking and Information Technology. 19 24 James T. Flynn: Mr. Flynn was named Chief Operating Officer of the Company on March 1, 1994 and will continue in his position of Executive Vice President which he assumed in April 1992. Mr. Flynn joined the Company in October 1986 as Vice President of Fossil Production and later assumed the position of Group Vice President, Engineering and Operations. Before joining the Company, Mr. Flynn, 60, was general manager-Eastern Service Department for General Electric. His career began as a member of General Electric's Technical Marketing Program in 1957. He holds a bachelor of science degree in mechanical engineering from Bucknell University and is a Licensed Professional Engineer in the State of Pennsylvania. Robert J. Grey: Mr. Grey joined the Company in September 1992 as General Counsel. Before joining the Company, Mr. Grey, 43, was senior utility partner and managing partner of the Portland office with the northwest law firm of Preston, Thorgrimson, Shidler, Gates & Ellis. Previously, Mr. Grey was staff counsel for the New York State Public Service Commission and an attorney for the United States Environmental Protection Agency. Mr. Grey has a bachelors degree from Columbia University, a juris doctorate from Emory University and an LL.M in Taxation from George Washington University. Robert X. Kelleher: Vice President of Human Resources since July 1986, Mr. Kelleher, 57, joined the Company in 1959 and has held various managerial positions in the Finance, Accounting, Purchasing, Stores and Employee Relations organizations. He was Industrial Relations Manager from 1975 to 1979, Manager of the Employee Relations Department from 1979 to 1985 and Assistant Vice President of the Employee Relations Department from 1985 to 1986. Mr. Kelleher is a graduate of St. Francis College and the Human Resources Management and Executive Management Programs of Pennsylvania State University. Mr. Kelleher is a member of the American Compensation Association, Personnel Directors Council, Industrial Relations Research Institute, Edison Electric Institute's Labor Relations Committee and is on the advisory council of New York Institute of Technology's Center for Labor Relations. John D. Leonard, Jr.: Mr. Leonard joined the Company in 1984, initially serving as Vice President of Nuclear Operations. In July 1989, he assumed additional duties as Vice President of Corporate Services. Mr. Leonard, 61, was the vice president and assistant chief engineer for design and analysis at the New York Power Authority, from 1980 to 1984. Prior to this position, he served as a resident manager of the Fitzpatrick Nuclear Power Plant for approximately five years. Before accepting a position at the New York Power Authority, Mr. Leonard served as corporate supervisor of operational quality assurance of the Virginia Electric Power Company from 1974 to 1976. In 1974, Mr. Leonard retired with the rank of Commander from the United States Navy, having commanded two nuclear powered submarines in a career that spanned 20 years. He holds a bachelor of science degree from Duke University and a master of science degree from the Naval Post Graduate School. He is a registered professional engineer in the State of New York. Adam M. Madsen: Vice President of Corporate Planning since 1984, Mr. Madsen, 57, holds a bachelors degree in electrical engineering from Manhattan College and a master of science degree in nuclear engineering from Long Island University. He has been with the Company since 1961, serving in various engineering positions including Manager of Engineering from 1978 to 1984. Prior to that time, he held the position of Manager of the Planning Department. Since 1978, Mr. Madsen has been the Company's representative to the Planning Committee of the New York Power Pool. He is a member of the Northeast Power Coordinating Council's Joint Coordinating Committee and an alternate to the Council's Executive Committee. He also serves on the Board of Directors of the Empire State Electric Energy Research Company. Mr. Madsen is a registered professional engineer in the State of New York. Kathleen A. Marion: Corporate Secretary since April 1992, Ms. Marion served as Assistant Corporate Secretary from April 1990 to 1992. Ms. Marion also continues to serve as Assistant to the Chairman, a position she has held since April 1987. Ms. Marion, 39, has a bachelor of science degree in business and finance from the State University of New York at Old Westbury. 20 25 Arthur C. Marquardt: Senior Vice President of Gas Business Unit since March 1992, Mr. Marquardt, 47, joined the Company in January 1991. He held the position of Vice President of Strategic Business Planning from January 1991 through March 1992. He is chairman of the New York Facilities executive committee and a director of the Huntington Chamber of Commerce and the Huntington Chamber Foundation. Mr. Marquardt has had extensive and varied business experience at Combustion Engineering Inc., General Electric Company, Quadrex Corporation, and at Pacific Nuclear Systems, Inc. where he was president and chief operating officer. He received a bachelor of science degree in mechanical engineering from Tufts University. Brian R. McCaffrey: Vice President of Administration since March 1987, Mr. McCaffrey, 48, joined the Company in 1973. Mr. McCaffrey holds a bachelor of science degree in aerospace engineering from the University of Notre Dame. He also received a master of science degree in aerospace engineering from Pennsylvania State University and a master of science degree in nuclear engineering from Polytechnic University. He is a licensed professional engineer in New York. Prior to this assignment as Vice President, Mr. McCaffrey served in many positions in the nuclear organizations of the Company and positions in engineering capacities associated with gas turbine and fossil power station projects. Mr. McCaffrey is a member of the executive board of the Suffolk County Council Boy Scouts of America. Joseph W. McDonnell: Vice President of External Affairs since July 1992, Dr. McDonnell, 42, joined the Company in 1984. Dr. McDonnell was Assistant to the Chairman from 1984 through 1988 when he was named Vice President of Communications. Prior to joining the Company, Dr. McDonnell was the director of strategic planning and business administration for Applied Digital Data Systems, Inc. and associate director of the University Hospital at the State University of New York at Stony Brook. He holds bachelor of arts and master of arts degrees in philosophy and a master of arts degree in theology from the State University of New York at Stony Brook and a Ph.D in communications from the University of Southern California. Anthony Nozzolillo: Mr. Nozzolillo was named Senior Vice President of Finance and Chief Financial Officer of the Company on February 4, 1994. His reporting responsibilities will include the offices of Controller, Treasurer, Tax & Benefits Planning, Investor Relations and Financial Planning. Prior to this appointment he had been the Company's Treasurer since July 1992. He has been with the Company since 1972 serving in various positions including Manager of Financial Planning and Manager of Systems Planning. Mr. Nozzolillo is a director of Utilities Mutual Insurance Company and Nuclear Mutual Ltd. Mr. Nozzolillo, 45, holds a bachelor of science degree in electrical engineering from the Polytechnic Institute of Brooklyn and a master of business administration degree from Long Island University C.W. Post Campus. William G. Schiffmacher: Vice President of Electric Operations since July 1990, Mr. Schiffmacher, 50, joined the Company in 1965 after receiving a bachelor of electrical engineering degree from Manhattan College. Mr. Schiffmacher also holds a master of science degree in management engineering from Long Island University. He has held a variety of positions in the Company, including Manager of Electric System Operation, Manager of Electrical Engineering and Vice President of Engineering and Construction. Robert B. Steger: Vice President of Fossil Production since February 1990, Mr. Steger, 57, joined the Company in 1963 and has since held progressive operating and engineering positions including Manager of Electric Production-Fossil from 1985 through 1989. He holds a bachelor of mechanical engineering degree from Pratt Institute and is a registered professional engineer in the State of New York. William E. Steiger, Jr.: Vice President of Engineering and Construction since July 1990, Mr. Steiger, 50, has been with the Company since 1968. During his career with the Company, Mr. Steiger has served, among other positions, as Lead Nuclear Engineer for Shoreham, Chief Operations Engineer for Shoreham, Plant Manager for Shoreham as well as Assistant Vice President of Nuclear Operations. He received a bachelor of science degree in marine engineering from the United States Merchant Marine Academy and a master of science degree in nuclear engineering from Long Island University. 21 26 Thomas J. Vallely, III: Controller and Chief Accounting Officer of the Company since February 1991, Mr. Vallely, 47, holds a bachelor of science degree in accounting from St. John's University and a masters degree in corporate financial management from Pace University. He is the former controller and chief accounting officer of the New York City Transit Authority, an agency of the Metropolitan Transportation Authority. Walter F. Wilm, Jr.: Vice President of Corporate Reorganization since March 1992, Mr. Wilm, 57, joined the Company in 1962. During his career with the Company, Mr. Wilm has served, among other positions, as Assistant Manager of Gas Construction and Maintenance, Manager of Meter and Test, Vice President of Administration, Vice President of Customer Relations and Vice President of Gas Operations. Mr. Wilm holds a bachelor of science degree in electrical engineering from Indiana Institute of Technology and is a licensed professional engineer. Edward J. Youngling: Vice President of Customer Relations and Conservation since March 1993, Mr. Youngling, 49, holds a bachelor of science degree in mechanical engineering from Lehigh University. He joined the Company in 1968 as an Assistant Engineer in the Electric Production Department and has held various positions in the offices of fossil production, engineering and nuclear operations including service as Department Manager of Nuclear Engineering. In 1988, Mr. Youngling was named Vice President of Conservation and Load Management. In 1990, Mr. Youngling became Vice President of Customer Relations. The Office of Customer Relations and the Office of Conservation were merged in March 1993. CAPITAL REQUIREMENTS, LIQUIDITY AND CAPITAL PROVIDED: Information as to Capital Requirements, Liquidity and Capital Provided appears in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations for the Year Ended December 31, 1993." ITEM 2. PROPERTIES The location and general character of the principal properties of the Company are described in Item 1, "Business" under the headings "Electric Operations" and "Gas Operations." ITEM 3. LEGAL PROCEEDINGS Shoreham The Company's Shoreham-related litigation includes a lawsuit against certain contractors and suppliers regarding the construction of Shoreham, a breach of contract suit against Suffolk County and a tax certiorari proceeding seeking review of certain tax assessments of Shoreham. On December 13, 1993, the United States District Court for the Eastern District of New York issued an opinion in Long Island Lighting Company v. Stone & Webster Engineering Corp. granting a motion by Stone & Webster Engineering Corp. ("SWEC") to dismiss the Company's complaint in this action and dismissing SWEC's counter-claim. The Company's complaint had sought to recover damages against SWEC for breach of contract, negligence, professional malpractice and gross negligence in connection with SWEC's work as architect-engineer and construction manager for Shoreham. The parties entered into a settlement in which both parties agreed not to pursue an appeal. On February 11, 1988, the Company began a lawsuit in Suffolk County Supreme Court against Suffolk County, seeking the recovery of approximately $54 million in damages for Suffolk County's breach of a contract to prepare an offsite emergency response plan for Shoreham (Long Island Lighting Company v. County of Suffolk). In addition, the complaint alleges that, because of the delays that have resulted, the Company has been 22 27 damaged in an additional amount of $706 million. On October 30, 1992, the court granted, in part, and denied, in part, Suffolk County's motion to amend its answer to assert additional defenses and counterclaims. Two proposed counterclaims were allowed seeking approximately $16 million in damages as well as $700 million in alleged punitive damages. The outcome of these counterclaims, if adverse, could have a material effect on the financial condition of the Company. The Company maintains that there is no basis for punitive damages and intends to vigorously prosecute its claims against Suffolk County and to defend against Suffolk County's counterclaims. Pursuant to the Long Island Power Authority Act ("LIPA Act"), LIPA is required to make PILOTS to the municipalities that impose real property taxes on Shoreham. Under the 1989 Settlement Agreement with New York State which resolved disputes over the Shoreham plant, the Company agreed to fund LIPA's PILOTS obligation. The timing and duration of PILOTS under the LIPA Act are the subject of the litigation entitled LIPA, et al. v. Shoreham-Wading River Central School District, et al. LIPA brought this action in Nassau County Supreme Court against, among others, Suffolk County, Town of Brookhaven and the Shoreham-Wading River Central School District. The Company was permitted to intervene in the lawsuit. On January 10, 1994, the Appellate Division, Second Department, affirmed a lower court's March 29, 1993 decision holding, in major part, that the Company is not obligated for any real property taxes that accrued after February 28, 1992, attributable to property that it conveyed to LIPA, that PILOTS commence on March 1, 1992, that PILOTS are subject to refunds and that the LIPA Act does not provide for the termination of PILOTS. The effects of this affirmance cannot yet be quantified. Furthermore, all of the parties have filed motions with the Second Department seeking leave to appeal to the New York Court of Appeals. Generally, these holdings are favorable to the Company. The proper amount of PILOTS is to be determined in pending litigation described in the next paragraph. The costs of Shoreham included real property taxes imposed by the Town of Brookhaven on Shoreham and capitalized by the Company during construction. The Company has sought judicial review in Suffolk County Supreme Court (Long Island Lighting Company v. The Assessor of the Town of Brookhaven, et al.) of the assessments upon which those taxes were based for the years 1976 through 1992 (excluding 1979). The Court has consolidated the review of the tax years at issue into two phases: 1976 through 1983, excluding 1979 (Phase 1); and 1984 through 1992 (Phase 2). On October 26, 1992, the court ruled that Shoreham had been overvalued for property tax purposes for Phase 1. Although the Court did not award a refund because of a need to make further factual findings, the Company estimates that it is entitled to a refund of approximately $34 million plus interest. In Phase 2, the Company is seeking to recover over $500 million, excluding interest, in property taxes paid on Shoreham during this period. A trial date of April 14, 1994 has been set by the Suffolk County Supreme Court. The amount of the Company's recovery, if any, in the 1984-1992 proceeding and the timing of all refunds cannot yet be determined. The Company has indicated to the PSC that all refunds, less litigation costs, will be used to reduce future electric costs. LIPA has been permitted to intervene for limited purposes in this pending litigation. Nine Mile Point 2 In 1988, the Company and the other cotenants of Nine Mile Point 2 commenced a lawsuit entitled Niagara Mohawk Power Corporation, et al. v. Stone & Webster Engineering Corp., ITT Fluid Products Corp. and ITT Fluid Technology Corporation in the United States District Court for the Northern District of New York, alleging damages arising from breach of contract, negligence, professional malpractice and gross negligence in connection with certain work performed at Nine Mile Point 2. SWEC furnished architect-engineering and construction management services, while ITT fabricated and erected piping for the Nine Mile Point 2 unit. The case against SWEC was settled in 1991. The case against the ITT defendants was not settled and went to trial before a jury in June 1992. The jury returned a verdict for the ITT defendants on all causes of action. The parties entered into a settlement in which the cotenants agreed not to pursue an appeal. ITT agreed to withdraw its claim for costs and to pay the cotenants $25,000. 23 28 Environmental On February 18, 1994, a lawsuit was filed in the United States District Court for the Eastern District of New York by the Town of Oyster Bay (the "Town"), New York, against the Company and 19 other potentially responsible parties ("PRPs"). The Town is seeking indemnification for remediation and investigation costs that have been or will be incurred for a federal Superfund site in Syosset, New York, which served as a Town-owned and operated landfill between 1954 and 1975. In a Record of Decision issued on or about September 27, 1990, the EPA set forth a remedial design plan, the cost of which was estimated at $27 million and is reflected in the Town's lawsuit. In an Administrative Consent Decree entered into between the EPA and the Town on December 6, 1990, the Town agreed to undertake remediation at the site. The Company has agreed to participate in a joint PRP defense effort with several other defendants. Liability, if imposed, would be joint and several. While the outcome of this matter is not certain, based upon the Company's past experience in similar matters and the number and financial condition of the corporate defendants named in the litigation, the Company does not believe that this proceeding will have a material impact on its financial condition. Human Resources Pending before federal courts, the Federal Equal Employment Opportunity Commission and the New York State Division of Human Rights are charges by individuals alleging that the Company discriminated against them on various grounds. The Civil Rights Bureau of the New York Attorney General's office has subpoenaed the Company for the production of documents to aid in its investigation as to whether the Company has engaged in discriminatory employment practices based upon age. No charges have been filed by the Attorney General. The Company has estimated that any costs to the Company resulting from these matters will not have a material adverse effect on its financial condition. Other Matters On January 13, 1993, the New York State Department of Law ("DOL") informed the Company that the DOL's Antitrust Bureau opened an investigation into its Full Service Pilot Program and Contractor Advisory Council, two programs designed to increase the Company's residential natural gas sales. The DOL stated that the implementation of the Full Service Pilot Program and the practices of the Contractor Advisory Council may have anticompetitive effects in the gas-fired heating equipment installation and conversion business and that a preliminary investigation has raised questions of possible violations of the New York General Business Law and the Sherman Act. The Company expects that it can demonstrate that the programs identified by the DOL for investigation are very limited in scope and do not involve any violations. The outcome of the investigation by the DOL, if adverse, is not expected to have a material effect on the financial condition of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 24 29 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS At February 22, 1994, the Company had 95,084 registered holders of record of Common Stock. The Common Stock of the Company is traded on the New York Stock Exchange and the Pacific Stock Exchange. Certain of the Company's Preferred Stock series are traded on the New York Stock Exchange. Information respecting the high and low sales prices and the dividends paid on the Company's Common Stock during the past two years is set forth in the table below.
============================================================ 1993 1992 ------------------------------ ---------------------------- Prices Dividends Prices Dividends ----------------- Paid Per ---------------- Paid Per High Low Share High Low Share =========================================================================== 1st Quarter 28 3/4 24 7/8 $0.435 24 5/8 22 1/8 $0.425 2nd Quarter 28 1/4 24 3/4 $0.435 24 1/4 22 3/8 $0.425 3rd Quarter 29 5/8 27 $0.435 25 5/8 23 3/8 $0.425 4th Quarter 27 3/4 23 1/4 $0.445 25 7/8 23 5/8 $0.435 ===========================================================================
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ITEM 6: SELECTED FINANCIAL DATA (In thousands of dollars) - ------------------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET TABLE 1 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Net Utility Plant $ 3,347,557 $ 3,161,148 $ 3,002,733 $ 2,888,079 $ 2,781,157 Regulatory Assets 7,610,639 5,221,143 4,951,086 4,723,357 4,335,845 Other assets 2,497,841 2,382,168 2,184,676 1,905,802 2,156,949 - ------------------------------------------------------------------------------------------------------------------------------------ Total Assets $ 13,456,037 $ 10,764,459 $ 10,138,495 $ 9,517,238 $ 9,273,951 ==================================================================================================================================== CAPITALIZATION AND LIABILITIES Capitalization Long-term debt $ 4,870,340 $ 4,741,002 $ 4,986,166 $ 4,532,891 $ 4,531,429 Preferred stock - redemption required 649,150 557,900 524,912 527,550 541,187 Preferred stock - no redemption required 64,038 154,276 154,371 154,674 155,592 Common shareowners' equity 2,232,950 2,184,775 2,130,491 2,067,234 1,941,745 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capitalization 7,816,478 7,637,953 7,795,940 7,282,349 7,169,953 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities 5,639,559 3,126,506 2,342,555 2,234,889 2,103,998 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capitalization and Liabilities $ 13,456,037 $ 10,764,459 $ 10,138,495 $ 9,517,238 $ 9,273,951 ====================================================================================================================================
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(In thousands of dollars except per share amounts) - ------------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------ SUMMARY OF OPERATIONS TABLE 2 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues $ 2,880,995 $ 2,621,839 $ 2,547,729 $ 2,456,902 $ 2,347,614 Total operating income (loss) $ 755,551 $ 741,105 $ 785,280 $ 802,630 $ 620,423 Income (loss) before cumulative effect of accounting change $ 296,563 $ 301,974 $ 305,538 $ 319,637 $ (95,803) Cumulative effect of accounting change for unbilled gas revenues (net of taxes) - - - $ 11,680 - Earnings (loss) for common stock $ 240,455 $ 238,020 $ 239,144 $ 263,156 $ (175,035) Average common shares outstanding (000) 112,057 111,439 111,348 111,290 111,215 - ------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) per common share before cumulative effect of accounting change $ 2.15 $ 2.14 $ 2.15 $ 2.26 $ (1.57) Cumulative effect of accounting change - - - .10 - - ------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) per common share $ 2.15 $ 2.14 $ 2.15 $ 2.36 $ (1.57) ============================================================================================================================== Common stock dividends declared per share $ 1.76 $ 1.72 $ 1.60 $ 1.25 $ .50 Common stock dividends paid per share $ 1.75 $ 1.71 $ 1.55 $ 1.125 $ .25 Book value per common share at year end $ 19.88 $ 19.58 $ 19.13 $ 18.57 $ 17.45 Common shareowners at year end 94,877 86,111 90,435 82,903 85,142 - ------------------------------------------------------------------------------------------------------------------------------
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(In thousands of dollars) - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS AND MAINTENANCE EXPENSE DETAILS TABLE 3 - ------------------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------------ Total payroll and employee benefits $ 410,329 $ 413,817 $ 398,000 $ 357,689 $ 329,694 Less-Charged to construction and other 116,988 124,076 123,838 97,650 117,761 - ------------------------------------------------------------------------------------------------------------------------------------ Payroll and employee benefits charged to operations 293,341 289,741 274,162 260,039 211,933 - ------------------------------------------------------------------------------------------------------------------------------------ Fuels-electric operations 287,349 282,138 354,859 444,458 461,576 Fuels-gas operations 248,559 182,201 175,046 175,877 188,139 Purchased power costs 292,136 280,914 197,154 168,749 128,368 Fuel cost adjustments deferred (453) (3,469) 41,643 (2,085) (5,631) - ------------------------------------------------------------------------------------------------------------------------------------ Total Fuel and Purchased Power 827,591 741,784 768,702 786,999 772,452 - ------------------------------------------------------------------------------------------------------------------------------------ All other 228,319 208,204 248,597 215,770 215,373 - ------------------------------------------------------------------------------------------------------------------------------------ Total Operations and Maintenance Expense $ 1,349,251 $ 1,239,729 $ 1,291,461 $ 1,262,808 $ 1,199,758 ==================================================================================================================================== Employees at December 31 6,337 6,541 6,605 6,630 6,239 - ------------------------------------------------------------------------------------------------------------------------------------
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(In thousands of dollars) - ----------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------- ELECTRIC OPERATING INCOME TABLE 4 - ----------------------------------------------------------------------------------------------------------------------------- REVENUES Residential $ 1,145,891 $ 1,045,799 $ 1,047,490 $ 997,868 $ 915,644 Commercial and industrial 1,132,487 1,076,302 1,070,098 1,017,387 981,740 Other system revenues 49,790 49,395 47,838 46,673 42,232 - ----------------------------------------------------------------------------------------------------------------------------- Total system revenues 2,328,168 2,171,496 2,165,426 2,061,928 1,939,616 Sales to other utilities 12,872 9,997 23,040 24,140 42,880 Other revenues 11,069 13,139 8,102 9,592 792 - ----------------------------------------------------------------------------------------------------------------------------- Total Revenues 2,352,109 2,194,632 2,196,568 2,095,660 1,983,288 - ----------------------------------------------------------------------------------------------------------------------------- EXPENSES Operations-fuel and purchased power 579,032 559,583 593,656 611,122 584,313 Operations-other 306,116 294,909 296,798 271,608 237,931 Maintenance 111,765 105,341 127,446 118,545 115,502 Depreciation and amortization 106,149 104,034 104,172 98,022 91,759 Base financial component amortization 100,971 100,971 100,971 100,971 50,485 Regulatory liability component amortization (79,359) (79,359) (79,359) (79,359) (39,679) 1989 Settlement credits amortization (9,214) (9,214) (9,214) (9,214) (4,607) Other regulatory amortizations (17,082) (21,984) 10,375 14,427 1,248 Rate moderation component 88,667 (30,444) (228,572) (297,214) (131,167) Regulatory liability component - - - - 793,592 Jamesport amortization - - - - 104,160 Operating taxes 326,407 331,122 338,429 322,197 312,456 Federal income tax-current 6,324 530 515 3,138 14,612 Federal income tax-deferred and other 158,941 158,908 173,259 169,274 (738,500) - ----------------------------------------------------------------------------------------------------------------------------- Total Expenses 1,678,717 1,514,397 1,428,476 1,323,517 1,392,105 - ----------------------------------------------------------------------------------------------------------------------------- ELECTRIC OPERATING INCOME $ 673,392 $ 680,235 $ 768,092 $ 772,143 $ 591,183 =============================================================================================================================
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(In thousands of dollars) - --------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 - --------------------------------------------------------------------------------------------------------------------------- GAS OPERATING INCOME TABLE 5 - --------------------------------------------------------------------------------------------------------------------------- REVENUES Residential-space heating $ 310,109 $ 243,950 $ 190,976 $ 198,734 $ 209,192 -other 39,515 33,035 29,383 30,854 31,692 Non-residential-space heating 106,140 90,363 70,938 68,441 72,351 -other 33,181 29,094 25,515 26,501 28,674 - --------------------------------------------------------------------------------------------------------------------------- Total firm revenues 488,945 396,442 316,812 324,530 341,909 Interruptible revenues 24,028 19,658 21,686 30,515 19,226 - --------------------------------------------------------------------------------------------------------------------------- Total system revenues 512,973 416,100 338,498 355,045 361,135 Other revenues 15,913 11,107 12,663 6,197 3,191 - --------------------------------------------------------------------------------------------------------------------------- Total Revenues 528,886 427,207 351,161 361,242 364,326 - --------------------------------------------------------------------------------------------------------------------------- EXPENSES Operations-fuel 248,559 182,201 175,046 175,877 188,139 Operations-other 81,692 77,300 78,469 68,910 59,587 Maintenance 22,087 20,395 20,046 16,746 14,286 Depreciation and amortization 16,322 15,103 14,783 12,862 11,671 Regulatory amortizations (962) (88) - - - Operating taxes 59,440 57,866 49,951 48,120 51,935 Federal income tax-current - - - 500 - Federal income tax-deferred and other 19,589 13,560 (4,322) 7,740 9,468 - --------------------------------------------------------------------------------------------------------------------------- Total Expenses 446,727 366,337 333,973 330,755 335,086 - --------------------------------------------------------------------------------------------------------------------------- GAS OPERATING INCOME $ 82,159 $ 60,870 $ 17,188 $ 30,487 $ 29,240 ===========================================================================================================================
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- ------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ ELECTRIC SALES AND CUSTOMERS TABLE 6 - ------------------------------------------------------------------------------------------------------------------ SALES-millions of kWh Residential 7,118 6,788 7,023 7,022 7,063 Commercial and industrial 8,257 8,181 8,322 8,359 8,636 Other 449 471 469 472 470 - ------------------------------------------------------------------------------------------------------------------ System sales 15,824 15,440 15,814 15,853 16,169 Sales to other utilities 304 227 598 532 633 - ------------------------------------------------------------------------------------------------------------------ Total Sales 16,128 15,667 16,412 16,385 16,802 - ------------------------------------------------------------------------------------------------------------------ CUSTOMERS-monthly average Residential 905,997 902,885 898,974 895,294 890,406 Commercial and industrial 102,254 101,838 101,740 101,562 100,481 Other 4,553 4,593 4,540 4,504 4,452 - ------------------------------------------------------------------------------------------------------------------ Customers-total monthly average 1,012,804 1,009,316 1,005,254 1,001,360 995,339 ================================================================================================================== Customers-total at year end 1,011,965 1,009,028 1,005,363 1,001,441 996,488 - ------------------------------------------------------------------------------------------------------------------ RESIDENTIAL kWh per customer 7,856 7,518 7,812 7,844 7,932 Revenue per kWh 16.10c. 15.41c. 14.92c. 14.21c. 12.96c. - ------------------------------------------------------------------------------------------------------------------ COMMERCIAL AND INDUSTRIAL Kwh per customer 80,749 80,346 81,797 82,304 85,943 Revenue per Kwh 13.72c. 13.16c. 12.86c. 12.17c. 11.37c. - ------------------------------------------------------------------------------------------------------------------ SYSTEM Kwh per customer 15,631 15,297 15,731 15,832 16,245 Revenue per Kwh 14.71c. 14.06c. 13.69c. 13.01c. 12.00c. - ------------------------------------------------------------------------------------------------------------------
31 36
- ----------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- GAS SALES AND CUSTOMERS TABLE 7 - ----------------------------------------------------------------------------------------------------------------------- SALES-thousands of dth Residential -space heating 37,191 35,089 29,687 29,810 32,024 -other 3,297 3,203 3,195 3,448 3,491 Non-residential -space heating 14,366 13,662 11,636 11,271 11,548 -other 4,329 4,338 4,171 4,352 4,539 - ----------------------------------------------------------------------------------------------------------------------- Total firm sales 59,183 56,292 48,689 48,881 51,602 Interruptible sales 5,920 5,090 4,538 6,347 5,300 Off system sales 2,894 - - - - - ----------------------------------------------------------------------------------------------------------------------- Total Sales 67,997 61,382 53,227 55,228 56,902 ======================================================================================================================= CUSTOMERS -monthly average Residential -space heating 233,882 227,834 220,562 211,400 204,982 -other 166,974 169,189 171,581 176,000 179,415 Non-residential -space heating 32,783 31,666 30,453 29,072 27,733 -other 10,631 10,777 11,003 11,310 11,517 - ----------------------------------------------------------------------------------------------------------------------- Total firm customers 444,270 439,466 433,599 427,782 423,647 Interruptible customers 542 531 472 410 359 - ----------------------------------------------------------------------------------------------------------------------- Customers-total monthly average 444,812 439,997 434,071 428,192 424,006 ======================================================================================================================= Customers-total at year end 446,384 442,117 436,853 430,571 426,060 - ----------------------------------------------------------------------------------------------------------------------- RESIDENTIAL dth per customer 101.0 96.4 83.9 85.8 92.4 Revenue per dth $ 8.64 $ 7.23 $ 6.70 $ 6.90 $ 6.78 - ----------------------------------------------------------------------------------------------------------------------- NON-RESIDENTIAL dth per customer 430.6 424.1 381.3 386.9 409.9 Revenue per dth $ 7.45 $ 6.64 $ 6.10 $ 6.08 $ 6.28 - ----------------------------------------------------------------------------------------------------------------------- SYSTEM dth per customer 146.4 139.5 122.6 128.9 134.2 Revenue per dth $ 7.88 $ 6.78 $ 6.36 $ 6.43 $ 6.35 - -----------------------------------------------------------------------------------------------------------------------
32 37
- ----------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------- ELECTRIC OPERATIONS TABLE 8 - ----------------------------------------------------------------------------------------------------------------------------- ENERGY-millions of kWh Net generation 10,514 10,592 13,570 13,981 15,220 Power purchased-net 6,719 6,211 3,638 2,989 2,087 - ----------------------------------------------------------------------------------------------------------------------------- Total system requirements 17,233 16,803 17,208 16,970 17,307 Company use and unaccounted for (1,387) (1,363) (1,395) (1,117) (1,138) - ----------------------------------------------------------------------------------------------------------------------------- System sales 15,846 15,440 15,813 15,853 16,169 Sales to other utilities 304 227 598 532 633 - ----------------------------------------------------------------------------------------------------------------------------- Total Energy Available 16,150 15,667 16,411 16,385 16,802 ============================================================================================================================= PEAK DEMAND-mW Station coincident demand 2,931 2,975 3,085 3,260 3,178 Power purchased-net 1,036 636 819 426 510 - ----------------------------------------------------------------------------------------------------------------------------- System Peak Demand 3,967 3,611 3,904 3,686 3,688 - ----------------------------------------------------------------------------------------------------------------------------- SYSTEM CAPABILITY-mW LILCO stations 4,063 4,091 4,078 4,077 4,066 Nine Mile Point 2 (LILCO's 18% share) 188 188 194 194 194 Firm purchases-net 548 432 423 408 400 - ----------------------------------------------------------------------------------------------------------------------------- Total Capability 4,799 4,711 4,695 4,679 4,660 - ----------------------------------------------------------------------------------------------------------------------------- FUEL CONSUMED FOR ELECTRIC OPERATIONS Oil-thousands of barrels 9,740 10,656 15,314 16,401 20,480 Gas-thousands of dth 36,269 34,475 32,924 36,477 26,490 Nuclear-thousands of mW days 181 124 154 108 105 Total-billions of Btu 98,025 102,126 129,937 139,874 154,669 Dollars per million Btu $ 2.79 $ 2.62 $ 2.61 $ 3.07 $ 2.86 Cents per kWh of net generation 2.97c. 2.76c. 2.73c. 3.24c. 3.06c. Heat rate-Btu per net kWh 10,628 10,558 10,484 10,564 10,704 - ----------------------------------------------------------------------------------------------------------------------------- FUEL MIX (Percentage of system requirements) Oil 33% 37% 50% 56% 67% Gas 19 19 18 20 13 Purchased Power 41 38 25 20 16 Nuclear Fuel 7 6 7 4 4 - ----------------------------------------------------------------------------------------------------------------------------- Total 100% 100% 100% 100% 100% =============================================================================================================================
33 38
- ------------------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------------ GAS OPERATIONS TABLE 9 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY-thousands of dth Natural gas 69,970 64,911 55,579 55,407 60,359 Manufactured gas and change in storage (68) 48 60 (15) 53 - ------------------------------------------------------------------------------------------------------------------------------------ Total Natural and Manufactured Gas 69,902 64,959 55,639 55,392 60,412 ==================================================================================================================================== Total system requirements 69,902 64,959 55,639 55,392 60,412 Company use and unaccounted for (1,905) (3,577) (2,412) (164) (3,510) - ------------------------------------------------------------------------------------------------------------------------------------ Total Energy Available 67,997 61,382 53,227 55,228 56,902 ==================================================================================================================================== MAXIMUM DAY SENDOUT-dth 485,896 448,726 435,050 406,177 462,610 - ------------------------------------------------------------------------------------------------------------------------------------ SYSTEM CAPABILITY-dth per day Natural gas 561,584 561,584 507,344 507,344 461,788 LNG manufactured or LP gas 120,700 120,700 128,200 128,200 145,600 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capability 682,284 682,284 635,544 635,544 607,388 ==================================================================================================================================== CALENDAR DEGREE DAYS (67-year average 5,027) 4,899 5,066 4,378 4,139 5,169 - ------------------------------------------------------------------------------------------------------------------------------------
34 39 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis addresses matters of significance with regard to the Company and its financial condition, liquidity, capital requirements and results of operations for the last three years. OVERVIEW Nearly five years have passed since the effective date of the 1989 Settlement, discussed in Note 2 of Notes to Financial Statements, which resolved the controversy surrounding the Shoreham Nuclear Power Station (Shoreham). Over this period of time, the Company has focused on managing costs and improving operating efficiencies. This, coupled with six electric rate increases, lower than anticipated fuel and financing costs and significantly lower production expenses has helped to improve the Company's financial health. This also enabled the Company to file with the Public Service Commission of the State of New York (PSC) on December 31, 1993 an electric rate plan requesting that base rates be frozen for a two-year period beginning December 1, 1994. The Company's electric rate plan to freeze base rates is designed to moderate the rate increases that were originally contemplated in the 1989 Settlement. The two-year base rate freeze will help better position the Company to respond to the current environment in the utility industry and to assist in Long Island's economic recovery. Other significant events during 1993 included: o Approval, by the PSC, of the third annual electric rate increase of 4.0% effective December 1, 1993, under the three-year electric rate plan authorized in 1991. o For the first time since the 1989 Settlement became effective, revenues provided under the Rate Moderation Agreement exceeded revenues that would have been provided under conventional ratemaking, resulting in the decline of the Rate Moderation Component balance and an improvement in the Company's cash flow position. o An increase in the Company's common stock quarterly dividend from 43 1/2 cents per share to 44 1/2 cents per share, representing the fourth consecutive year of dividend increases. Earnings for common stock in 1993 were $2.15 per common share compared to $2.14 per common share in 1992. o The approval by the PSC of a three-year gas rate plan providing annual rate increases of 4.7%, 3.8% and 2.8%, for the rate years beginning December 1, 1993, 1994, and 1995, respectively. This follows an increase in 35 40 gas rates of 7.1% that was effective December 1, 1992. o The addition of over 9,000 new gas space heating customers, resulting from the Company's gas expansion program. o The refinancing of a significant amount of the Company's higher-cost securities as a result of very favorable long-term interest rates. Refinancing of approximately $983 million of higher-cost securities significantly lowered the Company's cost of debt and preferred stock. These 1993 refinancings will result in more than $18 million in annual cash savings through lower interest expense and preferred stock dividends. Since the 1989 Settlement became effective, the Company's aggressive refinancing program has resulted in annual cash savings of approximately $88 million. LIQUIDITY AND CAPITAL RESOURCES CASH AND REVOLVING CREDIT At December 31, 1993, the Company's cash and cash equivalents amounted to approximately $249 million, compared to $309 million at December 31, 1992. In addition, the Company has approximately $276 million available through October 1, 1994, provided by its 1989 Revolving Credit Agreement (1989 RCA). At December 31, 1993, no amounts were outstanding under the 1989 RCA. For a further discussion of the 1989 RCA, see Note 7 of Notes to Financial Statements. CAPITAL REQUIREMENTS AND CAPITAL PROVIDED During 1993, the Company continued its aggressive refinancing of higher-cost debt and preferred stock, taking advantage of declining interest rates. In 1993, the Company redeemed $568 million of higher-cost securities through the issuance of approximately $382 million of debentures and $204 million of preferred stock. The Company also issued $420 million of debentures to redeem $415 million of maturing debt. In addition to these refinancings, the Company issued $200 million of debentures and $100 million of tax-exempt securities and used the proceeds to reimburse the Company's treasury for previously incurred capital expenditures. In November 1993, the Company satisfied the maturity of $175 million of debentures with cash on hand. For a further discussion on the Company's capital stock and long-term debt, see Notes 6 and 7 of Notes to Financial Statements. 36 41 The Company expects that it will seek external financing of approximately $1.1 billion solely for the purpose of refunding maturing debt in the years 1994, 1995 and 1996 as follows:
(In millions of dollars) ------------------------ 1994 1995 1996 ------------------------ First Mortgage Bonds $ 25 $ 25 $ 40 General and Refunding Bonds - - 415 Debentures 575 - - ------------------------ $600 $ 25 $455 ========================
The Company is planning, subject to market conditions, to fund a portion of these mandatory redemptions with the issuance of common equity in order to improve its debt-to-equity ratio. Capital requirements and capital provided for 1993 and 1992 were as follows:
(In millions of dollars) - --------------------------------------------------------------------------- CAPITAL REQUIREMENTS 1993 1992 - --------------------------------------------------------------------------- CONSTRUCTION Electric $ 136 $ 137 Gas 125 104 Common 41 27 - --------------------------------------------------------------------------- Total Construction 302 268 - --------------------------------------------------------------------------- REFUNDINGS AND DIVIDENDS Long-term debt 960 1,344 Preferred stock 206 389 Preferred stock dividends 57 70 Common stock dividends 196 191 Redemption costs 15 159 - --------------------------------------------------------------------------- Total Refundings and Dividends 1,434 2,153 - --------------------------------------------------------------------------- Shoreham post settlement costs 207 228 - --------------------------------------------------------------------------- TOTAL CAPITAL REQUIREMENTS $ 1,943 $ 2,649 =========================================================================== - --------------------------------------------------------------------------- CAPITAL PROVIDED 1993 1992 - --------------------------------------------------------------------------- Decrease (increase) in cash $ 61 $ (11) Long-term debt 1,090 1,660 Preferred stock 202 411 Financing costs (2) (7) Other financing activities 10 6 Internal cash generation from operations 582 590 - --------------------------------------------------------------------------- TOTAL CAPITAL PROVIDED $ 1,943 $ 2,649 ===========================================================================
For further information, see the Statement of Cash Flows. 37 42 For 1994, total capital requirements (excluding common stock dividends) are estimated at $1.1 billion, of which mandatory redemptions are $600 million, construction requirements are $327 million, preferred stock sinking fund requirements are $5 million, preferred stock dividends are $53 million and Shoreham post settlement costs are $158 million. During 1994, the Company expects to access the capital markets only for funds required to satisfy maturing securities or to refund outstanding securities to reduce financing costs. It is anticipated that the internal funds generated from operations will be sufficient to satisfy all other capital requirements, including both common and preferred stock dividends. CAPITALIZATION The Company's capitalization, including current maturities of long-term debt and current redemption requirements of preferred stock, at December 31, 1993, was approximately $8.4 billion, as compared to $8.2 billion at December 31, 1992. This increase in capitalization of approximately $185 million principally reflects an increase in long-term debt and preferred stock associated with the Company's financing activities in 1993 and an increase in common shareowners' equity comprising 1993 net income of approximately $296 million reduced by common and preferred stock dividends of approximately $253 million. At December 31, 1993 and 1992, the components of the Company's capitalization ratios were as follows:
- ----------------------------------------------------------------- CAPITALIZATION RATIOS 1993 1992 - ----------------------------------------------------------------- Long-term debt 65.0% 64.7% Preferred stock 8.5 8.8 Common shareowners' equity 26.5 26.5 - ----------------------------------------------------------------- 100.0% 100.0% =================================================================
The Company's debt-to-equity ratio reflects two substantial charges to common shareowners' equity made in 1988 and 1989. In 1988, the Company was required to write-down net assets of approximately $1.3 billion, net of tax effects, relating to its investments in Shoreham and Nine Mile Point Nuclear Power Station, Unit 2 (NMP2). In 1989, the Company incurred a loss for common stock of approximately $175 million, reflecting the effects of the 1989 Settlement and the Class Settlement, discussed in Notes 2 and 4 of Notes to Financial Statements. The Company is committed to improving its debt-to-equity ratio through growth in retained earnings, debt reduction through improved cash flows, and the issuance of common equity. 38 43 RATE MATTERS ELECTRIC In conjunction with the 1989 Settlement, the PSC authorized the recognition of a regulatory asset known as the Financial Resource Asset (FRA). The FRA consists of two components, the Base Financial Component (BFC) and the Rate Moderation Component (RMC). The Rate Moderation Agreement (RMA), one of the constituent documents of the 1989 Settlement, provides for the full recovery of the FRA. The RMA, by its terms, specifies that the FRA was created to provide the Company adequate financial indicia for the period 1989 through 1999 and to restore the Company's debt securities to investment grade levels as determined by independent rating agencies. The BFC, as initially established, represents the present value of the future net-after-tax cash flows which the RMA provided the Company for its financial recovery. The BFC was granted rate base treatment under the terms of the RMA and is included in the Company's revenue requirements through an amortization included in rates over forty years on a straight-line basis that began July 1, 1989. The RMC reflects the difference between the Company's revenue requirements under conventional ratemaking and the revenues resulting from the implementation of the rate moderation plan provided for in the RMA. This revenue difference, together with a carrying charge equal to the allowed rate of return on rate base, has been deferred. The RMC has provided the Company with a substantial amount of non-cash earnings since the effective date of the 1989 Settlement through December 31, 1992, because the revenues provided under the RMA were less than the revenues required under conventional ratemaking. During 1993, however, as revenues provided under the RMA began to exceed the revenues that would have been provided under conventional ratemaking the RMC balance began to decline. Pursuant to the 1989 Settlement, the Company has received six electric rate increases consistent with the objectives of the RMA. In response to the Company's rate filing in December 1990, the PSC approved the Long Island Lighting Company Ratemaking and Performance Plan (LRPP) in November 1991, which provided for annual electric rate increases of 4.15%, 4.1% and 4.0% effective December 1, 1991, 1992 and 1993, respectively. Effective December 1, 1993, the Company began receiving the third of these three annual electric rate increases. The LRPP provides for an allowed return on common equity from electric operations of 11.6% for each of the three rate years. 39 44 The LRPP was designed to be consistent with the RMA's long-term goals. One principal objective of the LRPP is to reassign risk so that the Company assumes the responsibility for risks within the control of management, whereas risks largely beyond the control of management would be assumed by the ratepayers. One of the major components of the LRPP provides for a revenue reconciliation mechanism that mitigates the impact on earnings of experiencing electric sales that are above or below the LRPP forecast by providing a fixed annual net margin level (defined as sales revenues, net of fuel and gross receipts taxes) that the Company will receive for each of the three rate years under the LRPP. Another component of the LRPP allows the Company to earn for each rate year up to 60 additional basis points, or forfeit up to 38 basis points, of the allowed return on common equity as a result of its performance within certain incentive and/or penalty programs. These programs consist of a customer service performance plan, a demand side management program, a time-of-use program, a partial pass through fuel cost incentive plan and effective December 1, 1993, an electric transmission and distribution reliability plan. For the rate years ended November 30, 1993 and 1992, the Company earned approximately $9.2 million and $4.3 million, net of tax effects, respectively, based upon its performance within these programs. The LRPP contains a mechanism whereby earnings in excess of the allowed rate of return on common equity (11.6%), excluding the impacts of the various incentive and/or penalty programs, are shared equally between ratepayers and shareowners. For the rate years ended November 30, 1993 and 1992, the Company earned approximately $8.9 million and $21.4 million, net of tax effects, respectively, in excess of its allowed rate of return on common equity which was shared equally between ratepayers and shareowners. In December 1993, the Company filed a three-year electric rate plan with the PSC for the period beginning December 1, 1994 that minimizes future electric rate increases while retaining consistency with the RMA's objective of continuing the restoration of the Company's financial health. The filing provides for zero percentage base rate increases in years one and two of the plan and a rate increase of 4.3% in the third year. Although base electric rates would be frozen during the first two years of the plan, annual rate increases of approximately 1% to 2% are expected to result in these years from the operation of the Company's fuel cost adjustment (FCA) clause. The FCA captures, among other amounts, any increases in the cost of fuel above the level recovered in base rates and, under a continuation of the rate mechanisms provided by the LRPP, any amounts to be recovered or refunded to ratepayers in excess of $15 million which result from the reconciliation of revenue, certain expenses and earned performance incentive components. The electric rate plan requests an allowed rate of return on equity of 11.0%. The Company's rate filing reflects four underlying objectives: (i) to limit the balance of the RMC during the three-year period to no more than its 1992 peak balance of $652 million; (ii) to recover the RMC within no more than thirteen years of its 1989 inception; (iii) to minimize the final three rate increases that will follow the two-year rate freeze period; and (iv) to continue the Company's gradual return to financial health. The Company's electric rate plan is subject to approval by the PSC. The Company's current electric rate plan provides for lower annual electric rate increases than originally anticipated under the 1989 Settlement. However, as a result of changes in certain assumptions upon which the RMA was based, their impact on the RMC, and the Company's plans to reduce demand side management (DSM), operations, maintenance and capital expenditures, the Company has determined that the overall objectives of the RMA can be met under the multi-year plan described above. As a result of 40 45 lower than originally anticipated inflation rates, interest costs, property taxes, fuel costs and the return on common equity allowed by the PSC, the RMC, which originally had been anticipated to peak at $1.2 billion in 1994, has already peaked at $652 million in 1992. With the exception of an increase in the 1995-1996 period, which is not now projected to cause the RMC to increase above its $652 million peak, the RMC is expected to decline until it is fully amortized. Under this electric rate plan, the recovery of the RMC would be extended, if necessary, for an additional period of not more than three years beyond the approximate ten-year period envisioned in the RMA. The actual length of the RMC extension will depend on the extent to which the assumptions underlying the rate plan materialize. The Company's current projections indicate that the RMC will be recovered in eleven years. For a further discussion of the 1989 Settlement and Rate Matters, see Notes 2 and 3 of Notes to Financial Statements. GAS In December 1993, the PSC approved a three-year gas rate settlement between the Company and the staff of the PSC. The gas rate settlement provides that the Company receive, for the rate years beginning December 1, 1993, 1994 and 1995, annual gas rate increases of 4.7%, 3.8% and 2.8%, respectively. In the determination of the revenue requirements for the first year of the gas rate settlement an allowed rate of return on equity of 10.1% was used. The gas rate decision also provides for earnings in excess of a 10.6% return on equity in any of the three rate years covered by the settlement be shared equally between the Company's firm gas customers and its shareowners. The allowed rate of return for the rate year that began December 1, 1992 was 11.0 %. ELECTRIC COMPETITION NON-UTILITY GENERATORS (NUGs) The development of the NUG industry has been encouraged by federal and state legislation. There are two ways that NUGs may negatively impact the Company: first, NUGs may locate on a customer's site, providing part or all of that customer's electric energy requirements. The Company estimates that in 1993 sales lost to such on-site NUGs totalled 234 gigawatt-hours (Gwh) in sales or approximately $20 million in revenues, net of fuel. This represents only 1.0% of the Company's 1993 net revenues. Second, in accordance with the Public Utility Regulatory Policy Act of 1978 (PURPA), the Company is required to purchase all the power offered by NUGs that are Qualified Facilities (QF). QFs have the choice of pricing these sales at either (i) PSC published estimates of the Company's long run avoided costs (LRAC) or (ii) the Company's tariff rates. Additionally, until repeal in 1992, New York State law set a minimum price of six cents per kilowatt-hour (Kwh) for certain categories of QFs, considerably above the Company's avoided cost. The six-cent minimum now only applies to contracts entered into before June 1992. The Company believes that the repeal of the six-cent law, coupled 41 46 with the PSC's updates which resulted in lower LRAC estimates, has significantly reduced the economic advantage to entrepreneurs seeking to compete with the Company. As of December 31, 1993, 39 QFs were on line and selling approximately 200 megawatts (MW) of power to the Company. The Company estimates that in 1993, the purchases federal and state law required it to make from QFs cost the Company $47 million more than it would have cost to generate this power itself. With the exception of approximately 40 MW of power to be produced at the Stony Brook campus of the State University of New York beginning in early 1995, the Company does not expect any new major NUGs to be built on Long Island in the foreseeable future. RETAIL COMPETITION For over a decade, the Company has voluntarily provided wheeling of New York Power Authority (NYPA) power for economic development. As a result, NYPA power has displaced approximately 400 Gwh of energy sales. The net revenue loss associated with this amount of sales is approximately $27 million or 1.3% of the Company's 1993 net revenues. The potential loss of additional load is limited by conditions in the Company's current transmission agreements with NYPA. Competition for customer loads also comes from other electric utilities (including those in Connecticut, New York, and New Jersey) which seek to entice commercial and industrial customers to relocate within their service territories by offering reduced rates and other incentives. In order to retain existing and attract new commercial and industrial customers, the Company offers an Economic Development Rate which provides rate abatement to new or existing customers that qualify under the program approved by the PSC. Neither federal nor New York State law mandates retail wheeling. The Staff of the PSC has recently recommended that the PSC examine the issues attending retail wheeling. 42 47 CONSERVATION AND SUPPLY The Company's 1993 Electric Conservation and Load Management Plan called for a cumulative 194 MW reduction in coincident peak demand by December 31, 1993 and a cumulative annualized energy savings of 578 Gwh, at a cost of $33.5 million. The Company has met these targets. These reductions were achieved through several different programs including customer education/information, rebate, audit and direct installation which targeted a number of energy efficient technologies. In the fourth quarter of 1993, a modified DSM Plan was filed with the PSC to support the objectives of the Company's December 31, 1993 electric rate plan filing. Under this modified plan a greater emphasis will be placed on the educational aspect of the Company's conservation efforts in lieu of the conventional reliance on rebates. This will help to shift the responsibility for adopting and implementing energy efficient practices away from the utility and to the customer. The Company's current electric load forecasts indicate that, with continued implementation of its conservation and load management programs and with the availability of electricity provided by QFs located within the Company's service territory, the Company's existing generating facilities, its portion of nuclear energy generated at NMP2 and power purchased from other electric systems are adequate to meet the energy demands on Long Island beyond the end of the century. INVESTMENT RATING The Company's securities are rated by Moody's Investors Service, Inc. (Moody's), Standard and Poor's Corporation (S&P), Fitch Investors Service, Inc. (Fitch) and Duff and Phelps (D&P). During the period 1989 through 1992, the rating agencies significantly upgraded their ratings of the Company's securities. In 1993, both Moody's and Fitch reaffirmed their assigned ratings on the Company's securities. S&P however, lowered its ratings on the Company's First Mortgage Bonds and G&R Bonds one level to minimum investment grade and lowered its ratings on the Company's Debentures and Preferred Stock to one level below minimum investment grade. D&P lowered its ratings on the Company's debentures and preferred stock one level. S&P's actions reflect its concerns regarding the utility industry's challenges relating to intensified competitive pressures, sluggish demand expectations, slow earnings growth prospects, high common dividend payouts, environmental cost pressures and nuclear operating and decommissioning costs. 43 48 CLEAN AIR ACT In late 1990, significant amendments to the federal Clean Air Act were adopted. As a result, the Company expects that it will have to expend $4.3 million in 1994 to meet continuous emission monitoring requirements and $3.5 million in 1994 and $2.0 million in 1995 to meet Phase I nitrogen oxide (NOx) reduction requirements. In addition, subject to regulations that have not yet been issued, the Company estimates that it may be required to expend as much as $125 million by May 1999 to meet Phase II NOx reduction requirements and approximately $50 million by 2000 to meet requirements for the control of hazardous air pollutants from power plants. The Company believes that all such costs would be recoverable in rates. 44 49 RESULTS OF OPERATIONS EARNINGS Summary results of earnings for the years 1993, 1992 and 1991 were as follows:
1993 1992 1991 ------- ------- ------- (In millions of dollars and shares except earnings per share) Net Income $296 $302 $305 Preferred Stock Dividend Requirements 56 64 66 ----- ----- ---- Earnings for Common Stock $240 $238 $239 ===== ===== ===== Average Shares Outstanding 112.1 111.4 111.3 Earnings per Common Share $2.15 $2.14 $2.15 AFC & RMC (Deducted) Included in Net Income $(25) $60 $183 AFC & RMC - % of Net Income (8)% 20% 60%
For all periods, net income, earnings for common stock and earnings per common share include a non-cash allowance for funds used during construction (AFC) and the effects of the RMC. Overall earnings remained stable in 1993 while the Company's improved cash flow continued, consistent with the 1989 Settlement. The earnings in the electric business were lower in 1993 when compared to 1992 due primarily to the expensing of previously deferred storm costs, lower interest rates associated with the short-term investments, and regulatory adjustments. The lower level of earnings in the electric business was offset by a significant increase in the gas business earnings. The Company saw continued expansion in the gas business in 1993. 45 50 REVENUES Total revenues in 1993, including revenues from recovery of fuel costs, were $2.9 billion, representing an increase of $259 million or 9.9% over 1992 revenues. Total revenues for the Company's electric and gas operations for the years 1993, 1992 and 1991 were as follows:
1993 1992 1991 ------ ------ ------ (In millions of dollars) Electric $2,352 $2,195 $2,197 Gas 529 427 351 ------ ------ ------ Total Revenues $2,881 $2,622 $2,548 ====== ====== ======
ELECTRIC REVENUES In 1993, electric revenues increased $157 million when compared to 1992. Revenues in 1992 had decreased $2 million compared with 1991. The changes in the level of revenues when compared to the prior year resulted from the following factors:
'93/'92 '92/'91 ------- ------- (In millions of dollars) Rate Increases $ 75 $ 72 Sales Volumes 60 (61) Fuel Cost Recoveries 22 (13) ------ ------ Total $ 157 $ (2) ====== ======
RATE INCREASES The Company received electric rate increases of 4.0% effective December 1, 1993 and 4.1% effective December 1, 1992. These rate increases provided $75 million in additional revenues for 1993 when compared to 1992. A 4.15% rate increase effective December 1, 1991 provided $72 million in additional revenues for 1992 when compared to 1991. SALES VOLUMES The increase in revenue from sales volumes was primarily attributable to warmer weather experienced in the summer of 1993 when compared to the same period in 1992. The decrease in revenues from sales volumes for 1992 when compared to 1991 is also attributable to weather. The Company's current electric rate structure, discussed above under the heading "Rate Matters," provides for a revenue reconciliation mechanism which mitigates the impact on earnings of experiencing electric sales that are above or below the levels reflected in rates. As a result of lower than adjudicated electric sales, the Company recorded non-cash income, which is included in "Other Regulatory Amortizations" of $43.5 million, $78.5 million and $0.4 million in 1993, 1992 and 1991, respectively. For a further discussion on the recoverability of these amounts see the discussion under the heading "Rate Matters." 46 51 Summary of electric kilowatt hour (Kwh) sales for the years 1993, 1992 and 1991 were as follows:
1993 1992 1991 ------- ------- ------- (In millions of Kwh) Residential 7,118 6,788 7,023 Commercial/Industrial 8,257 8,181 8,322 Other 449 471 469 ------ ------ ------ System Sales 15,824 15,440 15,814 Power Pool Sales 304 227 598 ------ ------ ------ Total Sales 16,128 15,667 16,412 ====== ====== ======
The increase in residential and commercial/industrial sales in 1993 was largely due to the warmer weather experienced during the summer months. Residential sales, representing 45% of system sales, were up by 4.9% when compared with 1992, while commercial/industrial sales, which accounted for 52% of system sales, increased by 0.9%. Power pool sales fluctuate with relative costs and power pool system availabilities. The average number of electric customers served in 1993 and 1992 was approximately 1,013,000 and 1,009,000, respectively. The customer increase in 1993 is similar to the increase experienced in 1992 when compared to 1991. FUEL COST RECOVERIES Total electric fuel cost recoveries for 1993 were up $22 million compared with 1992, primarily as a result of higher sales volumes, partially offset by a decrease in the average cost of fuel. In 1992, fuel cost recoveries decreased by $13 million compared with 1991, principally due to lower sales volumes, partially offset by an increase in the average cost of fuel. GAS REVENUES In 1993, gas revenues increased by $102 million, or 23.8%, when compared to 1992. Revenues in 1992 increased by $76 million, or 21.7%, when compared to 1991. The changes in the level of revenues when compared to the prior year resulted from the following factors:
'93/'92 '92/'91 ------- ------- (In millions of dollars) Rate Increases $ 35 $ 17 Sales Volumes 34 50 Fuel Cost Recoveries 33 9 ------ ------ Total $ 102 $ 76 ====== ======
47 52 RATE INCREASES The Company received a gas rate increase of 4.7%, effective December 31, 1993, but was permitted by the PSC to recognize additional revenues of $4.6 million in 1993, as if the rate increase had been effective on December 1, 1993. The Company had also received rate increases of 7.1%, effective December 1, 1992, and 4.1%, effective December 1, 1991. The effects of these rate increases was to increase revenues by $35 million in 1993 when compared with 1992, and by $17 million in 1992 when compared with 1991. SALES VOLUMES The increase in 1993 revenues due to sales volumes was primarily due to customer additions and conversions resulting from the Company's gas expansion program. The Company added over 9,000 new gas space heating customers to its system in 1993. In 1992, the Company added approximately 10,000 new gas space heating customers. Summary of gas decatherm (dth) sales for the years 1993, 1992 and 1991 were as follows:
1993 1992 1991 ------ ------ ------ (In thousands of dth) Space Heating 51,557 48,751 41,323 Non-Space Heating 7,626 7,541 7,366 ------ ------ ------ Total Firm 59,183 56,292 48,689 Interruptible 5,920 5,090 4,538 ------ ------ ------ Total System 65,103 61,382 53,227 ------ ------ ------ Off-System Sales 2,894 - - ------ ------ ------ Total Sales 67,997 61,382 53,227 ====== ====== ======
FUEL COST RECOVERIES Recoveries of gas fuel expenses in 1993 revenues increased by $33 million compared with 1992, primarily due to higher sales volumes. In 1992, fuel recovery revenues had increased by $9 million, primarily due to higher average gas prices. 48 53 FUELS AND PURCHASED POWER Expenses for fuels and purchased power increased by $86 million in 1993 compared with 1992, and decreased by $27 million in 1992 compared with 1991. Summary of fuel and purchased power expenses for the years 1993, 1992 and 1991 were as follows:
1993 1992 1991 ---- ---- ---- (In millions of dollars) Fuels for Electric Operations Oil $180 $190 $301 Gas 93 79 66 Nuclear 13 11 13 Purchased Power 293 280 214 ---- ---- ---- Total 579 560 594 ---- ---- ---- Gas Fuels 249 182 175 ---- ---- ---- Total $828 $742 $769 ==== ==== ====
The Company has significantly reduced the amount of oil it would otherwise have used to generate electricity by burning gas, purchasing power and utilizing nuclear generation from NMP2. Summary of electric fuel and purchased power mix for the years 1993, 1992 and 1991 were as follows:
1993 1992 1991 ---- ---- ---- (Percent of system energy requirements) Oil 33% 37% 50% Gas 19 19 18 Nuclear 7 6 7 Purchased Power 41 38 25 --- --- --- Total 100% 100% 100% === === ===
OPERATIONS AND MAINTENANCE EXPENSES Total operations and maintenance expenses, excluding fuel and purchased power, for 1993, 1992 and 1991 were $522 million, $498 million and $523 million, respectively. The $24 million, or 4.8%, increase in 1993 when compared to 1992 was primarily due to the recognition of previously deferred storm costs, the recording of higher accruals for uncollectible accounts and higher transmission and distribution costs for both the electric and gas businesses. The $25 million, or 4.8%, decrease in 1992 compared to 1991 was primarily attributable to lower electric operations expenses. 49 54 INTEREST EXPENSE Interest expense for 1993, 1992 and 1991 was $534 million, $513 million and $524 million, respectively. The increase in 1993 when compared to 1992 was attributable to higher debt levels and the conversion in June 1992 of $400 million of tax-exempt securities from a weekly variable interest rate to a higher 30-year fixed rate. Also contributing to the increase, was the issuance in November 1992 of 30-year fixed rate debentures, the proceeds of which were used to eliminate variable rate bank debt. The conversion of the tax-exempt securities and refinancing of bank debt was done in order to take advantage of historically low interest rates. Partially offsetting this increase in interest expense were the effects of the Company's aggressive refinancing of higher-cost debt in 1993. The decrease in 1992 when compared to 1991 is due to significantly lower interest rates on the Company's outstanding debt, primarily resulting from the Company's aggressive refinancing efforts in the latter part of 1991 and during 1992. RATE MODERATION COMPONENT In 1993, the Company recorded non-cash charges to income of approximately $49 million reflecting the amortization of the RMC offset by related carrying charges. In 1992 and 1991, the Company recorded non-cash credits to income of approximately $73 million and $269 million, respectively, representing the accretion of the RMC and related carrying charges. For a discussion of the RMC and RMA, see Notes 2 and 3 of Notes to Financial Statements. BASE FINANCIAL COMPONENT For each of the years 1993, 1992 and 1991, the Company recorded non-cash charges to income of approximately $101 million, reflecting the continuing amortization of the BFC, which is afforded rate base treatment under the RMA. For a further discussion of the BFC and 1989 Settlement, see Notes 1 and 2 of Notes to Financial Statements. ACCOUNTING PRONOUNCEMENTS Effective January 1, 1993 the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 106 requires the Company to recognize the expected cost of providing postretirement benefits when employee services are rendered rather than on a pay-as-you-go method. The Company recorded an accumulated postretirement benefit obligation and corresponding regulatory asset of approximately $376 million which represents the transition obligation at January 1, 1993. As a result of adopting SFAS No. 106, the Company's annual postretirement benefit cost for 1993 increased by approximately $28 million above the amount that would have been recorded under the pay-as-you-go method. This additional non-cash 50 55 postretirement benefit cost has been accounted for as a regulatory asset. The PSC has permitted recovery of these regulatory assets through rates. The adoption of SFAS No. 106 had no impact on net income for the year ended December 31, 1993. For a further discussion of SFAS No. 106, see Note 8 of Notes to Financial Statements. Effective January 1, 1993 the Company adopted SFAS No. 109, Accounting for Income Taxes. As permitted under SFAS No. 109, the Company has elected not to restate the financial statements of prior years. The adoption of SFAS No. 109 is in compliance with the PSC's Statement of Interim Policy on Accounting and Ratemaking issued in January 1993. This statement asserts that the adoption and ongoing implementation of SFAS No. 109 on an interim basis will be done in such a manner that all its provisions shall be complied with on a revenue neutral basis. As of January 1, 1993, the cumulative adjustment to the deferred tax liability and the corresponding regulatory asset is approximately $1.6 billion. The $800 million increase from the amount reported in interim financial statements results from the Company's further analysis of deferred taxes to recognize SFAS No. 109 requirements to present tax assets and liabilities gross. SFAS No. 109 requires, among other matters, recognition of the amount of current and deferred taxes payable or refundable at the date of the financial statements as a result of all events that have been recognized in the financial statements and adjustment of deferred income taxes for an enacted change in tax laws. For regulated enterprises, SFAS No. 109 prohibits net of tax accounting and reporting and requires recognition of a deferred tax liability for the tax benefits which are flowed through to its customers. A regulatory asset or liability will be recognized relating to such items if it is probable that the future increase or decrease in taxes payable thereon shall be recovered from or returned to customers through future rates. For a further discussion of SFAS No. 109, see Notes 1 and 10 of Notes to Financial Statements. SELECTED FINANCIAL DATA Additional information respecting revenues, expenses, electric and gas operating income and operations data and balance sheet information for the last five years is provided in Tables 1 through 9 of Item 6, Selected Financial Data. Information with regard to the Company's business segments for the last three years is provided in Note 11 of Notes to Financial Statements. 51 56 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE ---- Statement of Income for each of the three years in the period ended December 31, 1993. 53 Balance Sheet at December 31, 1993 and 1992. 54 Statement of Capitalization at December 31, 1993 and 1992. 56 Statement of Cash Flows for each of the three years in the period ended December 31, 1993. 58 Statement of Retained Earnings for each of the three years in the period ended December 31, 1993. 59 Notes to Financial Statements. 60 Report of Ernst & Young, Independent Auditors. 87 Financial Statement Schedules - 89 The following Financial Statement Schedules are submitted as part of Item 14, "Exhibits, Financial Statement Schedules and Reports on Form 8-K", of this Annual Report. (All other Financial Statement Schedules are omitted because they are not applicable, or the required information appears in the Financial Statements or the Notes thereto.) - Property, Plant and Equipment (Schedule V) 111 - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment (Schedule VI) 114 - Valuation and Qualifying Accounts (Schedule VIII) 117 - Supplementary Income Statement Information (Schedule X) 118
52 57 FINANCIAL STATEMENTS
STATEMENT OF INCOME (In thousands of dollars except per share amounts) - ------------------------------------------------------------------------------------------------------------------- For year ended December 31 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- REVENUES Electric $ 2,352,109 $ 2,194,632 $ 2,196,568 Gas 528,886 427,207 351,161 - ------------------------------------------------------------------------------------------------------------------- Total Revenues 2,880,995 2,621,839 2,547,729 - ------------------------------------------------------------------------------------------------------------------- EXPENSES Operations-fuel and purchased power 827,591 741,784 768,702 Operations-other 387,808 372,209 375,267 Maintenance 133,852 125,736 147,492 Depreciation and amortization 122,471 119,137 118,955 Base financial component amortization 100,971 100,971 100,971 Regulatory liability component amortization (79,359) (79,359) (79,359) 1989 Settlement credits amortization (9,214) (9,214) (9,214) Other regulatory amortizations (18,044) (22,072) 10,375 Rate moderation component 88,667 (30,444) (228,572) Operating taxes 385,847 388,988 388,380 Federal income tax-current 6,324 530 515 Federal income tax-deferred and other 178,530 172,468 168,937 - ------------------------------------------------------------------------------------------------------------------- Total Expenses 2,125,444 1,880,734 1,762,449 - ------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 755,551 741,105 785,280 - ------------------------------------------------------------------------------------------------------------------- OTHER INCOME AND (DEDUCTIONS) Allowance for other funds used during construction 2,473 4,725 2,202 Rate moderation component carrying charges 40,004 42,837 40,456 Other income and deductions, net 38,997 29,273 35,492 Class Settlement (23,178) (22,541) (25,467) Federal income tax (charge)- deferred and other 12,578 12,036 (12,201) - ------------------------------------------------------------------------------------------------------------------- Total Other Income and (Deductions) 70,874 66,330 40,482 - ------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INTEREST CHARGES 826,425 807,435 825,762 - ------------------------------------------------------------------------------------------------------------------- INTEREST CHARGES AND (CREDITS) Interest on long-term debt 466,538 450,621 472,974 Other interest 67,534 62,226 50,842 Allowance for borrowed funds used during construction (4,210) (7,386) (3,592) - ------------------------------------------------------------------------------------------------------------------- Total Interest Charges and (Credits) 529,862 505,461 520,224 - ------------------------------------------------------------------------------------------------------------------- NET INCOME 296,563 301,974 305,538 Preferred stock dividend requirements 56,108 63,954 66,394 - ------------------------------------------------------------------------------------------------------------------- EARNINGS FOR COMMON STOCK $ 240,455 $ 238,020 $ 239,144 =================================================================================================================== AVERAGE COMMON SHARES OUTSTANDING (000) 112,057 111,439 111,348 EARNINGS PER COMMON SHARE $ 2.15 $ 2.14 $ 2.15 DIVIDENDS DECLARED PER COMMON SHARE $ 1.76 $ 1.72 $ 1.60 - -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 53 58
BALANCE SHEET (In thousands of dollars) - ------------------------------------------------------------------------------------------------------------------------------- ASSETS at December 31 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------- UTILITY PLANT Electric $ 3,544,569 $ 3,429,803 Gas 860,899 760,635 Common 201,418 172,703 Construction work in progress 176,504 161,663 Nuclear fuel in process and in reactor 16,533 19,216 - ------------------------------------------------------------------------------------------------------------------------------- 4,799,923 4,544,020 Less-Accumulated depreciation and amortization 1,452,366 1,382,872 - ------------------------------------------------------------------------------------------------------------------------------- Total Net Utility Plant 3,347,557 3,161,148 - ------------------------------------------------------------------------------------------------------------------------------- REGULATORY ASSETS Base financial component (less accumulated amortization of $454,369 and $353,398) 3,584,461 3,685,432 Rate moderation component 609,827 651,657 Shoreham post settlement costs 777,103 586,045 Shoreham nuclear fuel 75,497 77,629 Postretirement benefits other than pensions 402,921 - Regulatory tax asset 1,848,998 - Other 311,832 220,380 - ------------------------------------------------------------------------------------------------------------------------------- Total Regulatory Assets 7,610,639 5,221,143 - ------------------------------------------------------------------------------------------------------------------------------- NONUTILITY PROPERTY AND OTHER INVESTMENTS 23,029 20,730 - ------------------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents 248,532 309,485 Special deposits 23,439 23,683 Customer accounts receivable (less allowance for doubtful accounts of $23,889 and $24,375) 249,074 208,049 Other accounts receivable 12,199 6,937 Accrued unbilled revenues 170,042 143,172 Materials and supplies at average cost 68,882 86,482 Fuel oil at average cost 35,857 51,702 Gas in storage at average cost 75,182 47,002 Prepayments and other current assets 41,652 40,402 - ------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 924,859 916,914 - ------------------------------------------------------------------------------------------------------------------------------- DEFERRED CHARGES Unamortized cost of issuing securities 350,239 380,267 Accumulated deferred income taxes 1,157,009 1,027,733 Other 42,705 36,524 - ------------------------------------------------------------------------------------------------------------------------------- Total Deferred Charges 1,549,953 1,444,524 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $13,456,037 $10,764,459 ===============================================================================================================================
See Notes to Financial Statements. 54 59
(In thousands of dollars) - ------------------------------------------------------------------------------------------------------------------------ CAPITALIZATION AND LIABILITIES at December 31 1993 1992 - ------------------------------------------------------------------------------------------------------------------------ CAPITALIZATION Long-term debt $ 4,887,733 $ 4,755,733 Unamortized premium and (discount) on debt (17,393) (14,731) - ------------------------------------------------------------------------------------------------------------------------ 4,870,340 4,741,002 - ------------------------------------------------------------------------------------------------------------------------ Preferred stock-redemption required 649,150 557,900 Preferred stock-no redemption required 64,038 154,276 - ------------------------------------------------------------------------------------------------------------------------ Total Preferred Stock 713,188 712,176 - ------------------------------------------------------------------------------------------------------------------------ Common stock 561,662 558,002 Premium on capital stock 1,010,283 998,089 Capital stock expense (50,427) (39,304) Retained earnings 711,432 667,988 - ------------------------------------------------------------------------------------------------------------------------ Total Common Shareowners' Equity 2,232,950 2,184,775 - ------------------------------------------------------------------------------------------------------------------------ Total Capitalization 7,816,478 7,637,953 - ------------------------------------------------------------------------------------------------------------------------ REGULATORY LIABILITIES Regulatory liability component 436,476 515,835 1989 Settlement credits 155,081 164,294 Regulatory tax liability 177,669 - Other 138,612 100,470 - ------------------------------------------------------------------------------------------------------------------------ Total Regulatory Liabilities 907,838 780,599 - ------------------------------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Current maturities of long-term debt 600,000 590,000 Current redemption requirements of preferred stock 4,800 8,200 Accounts payable and accrued expenses 277,519 275,612 Accrued taxes (including federal income tax of $28,424 and $27,100) 52,656 67,525 Accrued interest 142,409 131,179 Dividends payable 54,542 53,966 Class Settlement 30,000 30,000 Customer deposits 27,046 24,815 - ------------------------------------------------------------------------------------------------------------------------ Total Current Liabilities 1,188,972 1,181,297 - ------------------------------------------------------------------------------------------------------------------------ DEFERRED CREDITS Class Settlement 164,942 167,066 Accumulated deferred income taxes 2,932,029 970,373 Other 12,622 9,871 - ------------------------------------------------------------------------------------------------------------------------ Total Deferred Credits 3,109,593 1,147,310 - ------------------------------------------------------------------------------------------------------------------------ RESERVES FOR CLAIMS AND DAMAGES 8,714 2,687 - ------------------------------------------------------------------------------------------------------------------------ PENSIONS AND OTHER POSTRETIREMENT BENEFITS 424,442 14,613 - ------------------------------------------------------------------------------------------------------------------------ COMMITMENTS AND CONTINGENCIES - - - ------------------------------------------------------------------------------------------------------------------------ TOTAL CAPITALIZATION AND LIABILITIES $ 13,456,037 $ 10,764,459 ========================================================================================================================
See Notes to Financial Statements. 55 60
STATEMENT OF CAPITALIZATION (In thousands of dollars) - ---------------------------------------------------------------------------------------------------------------------------------- At December 31 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Shares Outstanding ------------------------ 1993 1992 ------------------------ COMMON SHAREOWNERS' EQUITY Common stock, $5.00 par value 112,332,490 111,600,376 $ 561,662 $ 558,002 Premium on capital stock 1,010,283 998,089 Capital stock expense (50,427) (39,304) Retained earnings 711,432 667,988 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL COMMON SHAREOWNERS' EQUITY 2,232,950 2,184,775 - ---------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCK - REDEMPTION REQUIRED PAR VALUE $100 PER SHARE 7.40% Series L 192,500 203,000 19,250 20,300 8.40% Series M - 238,000 - 23,800 8.50% Series R 112,500 150,000 11,250 15,000 7.66% Series CC 570,000 570,000 57,000 57,000 Less - Sinking fund requirement 4,800 6,200 - ---------------------------------------------------------------------------------------------------------------------------------- 82,700 109,900 - ---------------------------------------------------------------------------------------------------------------------------------- PAR VALUE $25 PER SHARE $2.47 Series O - 880,000 - 22,000 $2.35 Series Z - 2,600,000 - 65,000 7.95% Series AA 14,520,000 14,520,000 363,000 363,000 $1.67 Series GG 880,000 - 22,000 - $1.95 Series NN 1,554,000 - 38,850 - 7.05% Series QQ 3,464,000 - 86,600 - 6.875% Series UU 2,240,000 - 56,000 - Less - Sinking fund requirement - 2,000 - ---------------------------------------------------------------------------------------------------------------------------------- 566,450 448,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total Preferred Stock - Redemption Required 649,150 557,900 - ---------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCK - NO REDEMPTION REQUIRED PAR VALUE $100 PER SHARE 5.00% Series B 100,000 100,000 10,000 10,000 4.25% Series D 70,000 70,000 7,000 7,000 4.35% Series E 200,000 200,000 20,000 20,000 4.35% Series F 50,000 50,000 5,000 5,000 5 1/8% Series H 200,000 200,000 20,000 20,000 5 3/4% Series I - Convertible 20,375 22,757 2,038 2,276 8.12% Series J - 250,000 - 25,000 8.30% Series K - 300,000 - 30,000 - ---------------------------------------------------------------------------------------------------------------------------------- 64,038 119,276 - ---------------------------------------------------------------------------------------------------------------------------------- PAR VALUE $25 PER SHARE $2.43 Series P - 1,400,000 - 35,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total Preferred Stock - No Redemption Required 64,038 154,276 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL PREFERRED STOCK 713,188 712,176 - ----------------------------------------------------------------------------------------------------------------------------------
56 61
LONG-TERM DEBT at December 31 (In thousands of dollars) - ------------------------------------------------------------------------------------------------------------------- Maturity Interest Rate Series 1993 1992 - ------------------------------------------------------------------------------------------------------------------- FIRST MORTGAGE BONDS (EXCLUDES PLEDGED BONDS) April 1, 1993 4.40% M - 40,000 June 1, 1994 4 5/8% N 25,000 25,000 June 1, 1995 4.55% 0 25,000 25,000 March 1, 1996 5 1/4% P 40,000 40,000 April 1, 1997 5 1/2% Q 35,000 35,000 September 1, 1999 8.20% R - 35,000 April 1, 2001 7 1/4% U - 40,000 December 1, 2001 7 1/2% V - 50,000 September 1, 2002 7 5/8% W - 50,000 December 1, 2003 8 1/8% X - 60,000 - ------------------------------------------------------------------------------------------------------------------- Total First Mortgage Bonds 125,000 400,000 - ------------------------------------------------------------------------------------------------------------------- GENERAL AND REFUNDING BONDS May 1, 1996 8 3/4% 415,000 415,000 February 15, 1997 8 3/4% 250,000 250,000 May 15, 1999 7.85% 56,000 56,000 May 15, 2006 8.50% 75,000 75,000 December 1, 2006 8 5/8% - 50,000 May 1, 2007 8 5/8% - 85,000 July 15, 2008 7.90% 80,000 80,000 May 1, 2021 9 3/4% 415,000 415,000 July 1, 2024 9 5/8% 375,000 375,000 - ------------------------------------------------------------------------------------------------------------------- Total General and Refunding Bonds, 1,666,000 1,801,000 - ------------------------------------------------------------------------------------------------------------------- DEBENTURES April 1, 1993 11 3/8% - 375,000 November 15, 1993 11.70% - 175,000 June 15, 1994 10.25% 400,000 400,000 November 15, 1994 11.75% 175,000 175,000 June 15, 1999 10.875% 30,545 30,545 July 15, 1999 7.30% 397,000 397,000 January 15, 2000 7.30% 36,000 - July 15, 2001 6.25% 145,000 - March 15, 2003 7.05% 150,000 - March 1, 2004 7.00% 59,000 - June 1, 2005 7.125% 200,000 - March 1, 2007 7.50% 142,000 - June 15, 2019 11.375% 4,513 4,513 July 15, 2019 8.90% 420,000 420,000 November 1, 2022 9% 451,000 451,000 March 15, 2023 8.20% 270,000 - - ------------------------------------------------------------------------------------------------------------------- Total Debentures 2,880,058 2,428,058 - ------------------------------------------------------------------------------------------------------------------- AUTHORITY FINANCING NOTES Pollution Control Revenue Bonds December 1, 2006 7.5% 1976 A 28,375 28,375 December 1, 2009 7.8% 1979 B 19,100 19,100 October 1, 2012 8 1/4% 1982 17,200 17,200 March 1, 2016 2.5% 1985 A,B 150,000 150,000 Electric Facilities Revenue Bonds September 1, 2019 7.15% 1989 A,B 100,000 100,000 June 1, 2020 7.15% 1990 A 100,000 100,000 December 1, 2020 7.15% 1991 A 100,000 100,000 February 1, 2022 7.15% 1992 A,B 100,000 100,000 August 1, 2022 6.90% 1992 C,D 100,000 100,000 November 1, 2023 2.95% 1993 A 50,000 - November 1, 2023 2.85% 1993 B 50,000 - Industrial Development Revenue Bonds December 1, 2006 7.5% 1976 A,B 2,000 2,000 - ------------------------------------------------------------------------------------------------------------------- Total Authority Financing Notes 816,675 716,675 - ------------------------------------------------------------------------------------------------------------------- Unamortized Premium and (Discount) on Debt (17,393) (14,731) - ------------------------------------------------------------------------------------------------------------------- Total Long-Term Debt 5,470,340 5,331,002 Less--Current maturities 600,000 590,000 - ------------------------------------------------------------------------------------------------------------------- TOTAL LONG-TERM DEBT LESS CURRENT MATURITIES 4,870,340 4,741,002 - ------------------------------------------------------------------------------------------------------------------- TOTAL CAPITALIZATION $ 7,816,478 $ 7,637,953 ===================================================================================================================
See Notes to Financial Statements. 57 62
STATEMENT OF CASH FLOWS (In thousands of dollars) - ---------------------------------------------------------------------------------------------------------------------------- For year ended December 31 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income $ 296,563 $ 301,974 $ 305,538 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization 122,471 119,137 118,955 Fuel moderation component - - 34,025 Provision for doubtful accounts 18,555 16,329 35,431 Base financial component amortization 100,971 100,971 100,971 Regulatory liability component amortization (79,359) (79,359) (79,359) 1989 Settlement credits amortization (9,214) (9,214) (9,214) Rate moderation component 88,667 (30,444) (228,572) Rate moderation component carrying charges (40,004) (42,837) (40,456) Other regulatory amortizations (18,044) (22,072) 10,375 Class Settlement 23,178 22,541 25,467 Amortization of cost of issuing and redeeming securities 52,063 41,204 27,456 Federal income tax-deferred and other 165,952 160,432 181,138 Allowance for other funds used during construction (2,473) (4,725) (2,202) Other (2,197) 699 38,068 CHANGES IN OPERATING ASSETS AND LIABILITIES Accounts receivable (65,898) (14,275) (26,045) Accrued unbilled revenues (26,870) (6,607) 2,352 Materials and supplies, fuel oil and gas in storage 5,265 (10,933) 28,217 Prepayments and other current assets (1,250) (5,548) (1,035) Accounts payable and accrued expenses (8,800) 62,513 34,560 Accrued taxes (14,869) 7,351 3,926 Other (22,694) (17,073) (39,168) - ---------------------------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 582,013 590,064 520,428 - ---------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Construction and nuclear fuel expenditures (302,220) (268,179) (235,349) Shoreham post settlement costs (207,114) (227,658) (158,432) Other (934) (1,484) (3,923) - ---------------------------------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (510,268) (497,321) (397,704) - ---------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt 1,089,770 1,659,928 1,532,247 Redemption of long-term debt (960,000) (1,344,283) (1,129,000) Proceeds from sale of preferred stock 201,709 411,373 63,130 Redemption of preferred stock (205,600) (389,428) (70,638) Preferred stock dividends paid (56,727) (69,923) (65,838) Common stock dividends paid (195,794) (190,477) (172,584) Cost of issuing and redeeming securities (17,036) (166,066) (88,586) Other 10,980 7,520 3,707 - ---------------------------------------------------------------------------------------------------------------------------- Net Cash (Used in) Provided by Financing Activities $ (132,698) (81,356) 72,438 - ---------------------------------------------------------------------------------------------------------------------------- Net (Decrease) Increase in Cash and Cash Equivalents $ (60,953) $ 11,387 $ 195,162 ============================================================================================================================ Cash and cash equivalents at beginning of year $ 309,485 $ 298,098 $ 102,936 Net (decrease) increase in cash and cash equivalents (60,953) 11,387 195,162 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 248,532 $ 309,485 $ 298,098 ============================================================================================================================ SUPPLEMENTARY INFORMATION Interest paid, before reduction for the allowance for borrowed funds used during construction $ 469,978 $ 424,842 $ 477,240 Federal income tax paid $ 6,000 $ 2,100 $ 1,650 Federal income tax refunded $ 1,000 $ 1,566 $ 642 - ----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 58 63
STATEMENT OF RETAINED EARNINGS (In thousands of dollars) - --------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------- Balance at January 1 $ 667,988 $ 620,373 $ 560,405 Net income for the year 296,563 301,974 305,538 - --------------------------------------------------------------------------------------------------------------------- 964,551 922,347 865,943 Deductions Cash dividends declared on preferred stock 55,861 62,387 67,261 Cash dividends declared on common stock 197,236 191,693 178,169 Capital stock expense 22 279 140 - --------------------------------------------------------------------------------------------------------------------- Balance at December 31 $ 711,432 $ 667,988 $ 620,373 =====================================================================================================================
See Notes to Financial Statements. 59 64 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REGULATION The Company's accounting policies conform to generally accepted accounting principles (GAAP) as they apply to a regulated enterprise. Its accounting records are maintained in accordance with the Uniform Systems of Accounts prescribed by the Public Service Commission of the State of New York (PSC) and the Federal Energy Regulatory Commission (FERC). UTILITY PLANT Additions to and replacements of utility plant are capitalized at original cost, which includes material, labor, overhead and an allowance for the cost of funds used during construction. The cost of renewals and betterments relating to units of property is added to utility plant. The cost of property replaced, retired or otherwise disposed of is deducted from utility plant and, generally, together with dismantling costs less any salvage, is charged to accumulated depreciation. The cost of repairs and minor renewals is charged to maintenance expense. Mass properties (such as poles, wire and meters) are accounted for on an average unit cost basis by year of installation. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION The Uniform Systems of Accounts defines the allowance for funds used during construction (AFC) as the net cost of borrowed funds for construction purposes and a reasonable rate of return upon the utility's equity when so used. AFC is not an item of current cash income. AFC is computed monthly using a rate permitted by FERC on a portion of construction work in progress. The average annual AFC rate, without giving effect to compounding, was 9.73%, 9.98% and 10.74% for the years 1993, 1992 and 1991, respectively. DEPRECIATION The provisions for depreciation result from the application of straight-line rates to the original cost, by groups, of depreciable properties in service. The rates are determined by age-life studies performed annually on depreciable properties. Depreciation for electric properties was equivalent to approximately 3.0%, 3.2% and 3.3% of respective average depreciable plant costs for the years 1993, 1992 and 1991. Depreciation for gas properties was equivalent to approximately 2.0%, 2.6% and 2.9% of respective average depreciable plant costs for the years 1993, 1992 and 1991. FINANCIAL RESOURCE ASSET GAAP authorizes recognition of the existence of a regulatory asset when it is probable that a regulator will permit full recovery of a previously incurred cost. Pursuant to the 1989 Settlement and in accordance with GAAP, the Company recorded a regulatory asset known as the Financial Resource Asset (FRA). The FRA is designed to provide the Company with sufficient cash flows to assure its financial recovery. The FRA has two components, the Base Financial Component (BFC) and the Rate Moderation 60 65 Component (RMC). The Rate Moderation Agreement (RMA), one of the constituent documents of the 1989 Settlement, provides for the full recovery of the FRA. For a further discussion of the 1989 Settlement and the FRA, see Note 2. CASH AND CASH EQUIVALENTS Cash equivalents are highly liquid investments with maturities of three months or less when purchased. The carrying amount approximates fair value because of the short maturity of these investments. FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values for the Company's long-term debt and redeemable preferred stock are based on quoted market prices, where available. The fair values for all other long-term debt and redeemable preferred stock are estimated using a discounted cash flow analyses which is based upon the Company's current incremental borrowing rate for similar types of securities. CAPITALIZATION-PREMIUMS, DISCOUNTS AND EXPENSES Premiums or discounts and expenses related to the issuance of long-term debt are amortized over the life of each issue. Unamortized premiums or discounts and expenses related to issues of long-term debt that are refinanced are amortized and recovered through rates over the shorter life of either the redeemed or new issues. Capital stock expense and redemption costs related to certain issues of preferred stock that have been refinanced as well as the cost of issuance of the preferred stock issued are recorded as deferred charges. These amounts are being amortized and recovered through rates over the shorter life of the redeemed or new issues. REVENUES The Company accrues electric and gas revenues for services rendered to customers but not billed at month-end. FUEL COST ADJUSTMENTS The Company's electric and gas tariffs include fuel cost adjustment (FCA) clauses which provide for the disposition of the difference between actual fuel costs and the fuel costs allowed in the Company's base tariff rates (base fuel costs). The Company defers these differences to future periods in which they will be billed or credited to customers, except for base electric fuel costs in excess of actual electric fuel costs, which are currently credited to the RMC as incurred. FEDERAL INCOME TAXES Effective January 1, 1993, the Company adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. As permitted under SFAS No. 109, the Company has elected not to restate the financial statements of prior years. The adoption of SFAS No. 109 is in compliance with the PSC's Statement of Interim Policy on Accounting and Ratemaking issued 61 66 January 15, 1993. This statement asserts that the adoption and ongoing implementation of SFAS No. 109 on an interim basis will be done in such a manner that all its provisions shall be complied with on a revenue neutral basis. As of January 1, 1993, the cumulative adjustment to the deferred tax liability and the corresponding regulatory asset is approximately $1.6 billion. The $800 million increase from the amount reported in interim financial statements results from the Company's further analysis of deferred taxes to recognize SFAS No. 109 requirements to present tax assets and liabilities gross. SFAS No. 109 requires, among other matters, recognition of the amount of current and deferred taxes payable or refundable at the date of the financial statements as a result of all events that have been recognized in the financial statements and adjustment of deferred income taxes for an enacted change in tax laws. For regulated enterprises, SFAS No. 109 prohibits net of tax accounting and reporting and requires recognition of a deferred tax liability for the tax benefits which are flowed through to its customers. A regulatory asset or liability will be recognized relating to such items if it is probable that the future increase or decrease in taxes payable thereon shall be recovered from or returned to customers through future rates. The tax effects of other differences between income for financial statement purposes and for federal income tax purposes are accounted for as current adjustments in federal income tax provisions. Prior to the adoption of SFAS No. 109 the Company provided deferred federal income taxes with respect to certain items of income and expense that were reported in different years in the financial statements and the tax return. The Company defers the benefit of 60% of pre-1982 gas and pre-1983 electric and 100% of all other investment tax credits, with respect to regulated properties, when realized on its tax returns. Accumulated deferred investment tax credits are amortized ratably over the lives of the related properties. For ratemaking purposes, the Company provides deferred federal income taxes with respect to certain differences between net income before income taxes and taxable income in certain instances when approved by the PSC, as disclosed in Note 10. Also certain accumulated deferred federal income taxes are deducted from rate base and amortized or otherwise applied as a reduction (increase) in federal income tax expense in future years. RESERVES FOR CLAIMS AND DAMAGES Losses arising from claims against the Company, including worker's compensation claims, property damage, extraordinary storm costs and general liability claims, are partially self-insured. Extraordinary storm losses incurred by the Company are partially insured by certain commercial insurance carriers. These insurance carriers provide partial insurance coverage for individual storm losses between $5 million and $50 million. Storm losses which are outside of the above-mentioned range are self-insured by the Company. Reserves for these losses are based on, among other things, experience, risk of loss and the ratemaking practices of the PSC. 62 67 RECLASSIFICATIONS To conform with an order of the FERC, dated March 31, 1993, the Company reclassified certain deferred items as regulatory assets and regulatory liabilities on its Balance Sheet. Regulatory assets and liabilities, as defined in this order, are assets and liabilities created through the ratemaking actions of regulatory agencies. Certain other prior year amounts have been reclassified in the financial statements to be consistent with the current year's presentation. 63 68 NOTE 2. THE 1989 SETTLEMENT On February 28, 1989, the Company and the State of New York (by its Governor) entered into the 1989 Settlement resolving certain issues relating to the Company and providing, among other matters, for the transfer of the Shoreham Nuclear Power Station (Shoreham) and its subsequent decommissioning. On February 29, 1992, the Company transferred ownership of Shoreham to the Long Island Power Authority (LIPA), an agency of the State of New York. Pursuant to the 1989 Settlement, LIPA is responsible for the decommissioning of Shoreham and has estimated that the decommissioning, in which Company employees are participating, will be completed in 1994. Based on the latest available information, LIPA has projected that the cost of decommissioning Shoreham will total approximately $164 million. This estimate excludes the costs associated with the disposal of Shoreham's fuel which is estimated to be $122 million. At December 31, 1993, the Company has funded approximately $140 million and $30 million of these costs, respectively. LIPA anticipates that the Nuclear Regulatory Commission (NRC) will terminate its license for Shoreham by the end of 1994. Upon the effectiveness of the 1989 Settlement, in June of 1989, the Company simultaneously recorded on its Balance Sheet the retirement of its investment of approximately $4.2 billion principally in Shoreham and the establishment of the FRA, discussed in Note 1. The BFC, a component of the FRA, as initially established, represents the present value of the future net-after-tax cash flows which the RMA provided the Company for its financial recovery. The BFC was granted rate base treatment under the terms of the RMA and is included in the Company's revenue requirements through an amortization included in rates over forty years on a straight-line basis that began July 1, 1989. At December 31, 1993 and 1992, the unamortized balance of the BFC was approximately $3.6 billion and $3.7 billion, respectively. The RMC, a component of the FRA, reflects the difference between the Company's revenue requirements under conventional ratemaking and the revenues resulting from the implementation of the rate moderation plan provided for in the RMA. The RMC is currently adjusted, on a monthly basis, for the Company's share of certain Nine Mile Point Nuclear Power Station, Unit 2 (NMP2) operations and maintenance expenses, fuel credits resulting from the Company's electric fuel cost adjustment clause discussed in Note 1 and state gross receipts tax adjustments related to the FRA. The RMC has provided the Company with a substantial amount of non-cash earnings from the effective date of the 1989 Settlement through December 31, 1992. At December 31, 1993 and 1992, the RMC balance was $610 million and $652 million, respectively. Prior to December 31, 1992 the RMC had increased as the difference between revenues resulting from the implementation of the rate moderation plan provided for in the RMA and revenue requirements under conventional ratemaking, together with a carrying charge equal to the allowed rate of return on rate base, had 64 69 been deferred. Subsequent to December 31, 1992, the RMC balance has been decreasing as revenues resulting from the implementation of the rate moderation plan are greater than revenue requirements under conventional ratemaking. For a further discussion of the impact on the amortization of the RMC under the Company's current electric rate structure and the Company's proposed electric rate plan for the three-year period beginning December 1, 1994, see Note 3. Under the 1989 Settlement, certain tax benefits attributable to the Shoreham abandonment are to be shared between ratepayers and shareowners. A regulatory liability of approximately $794 million was recorded in June 1989 to preserve an amount equivalent to the ratepayer tax benefits attributable to the Shoreham abandonment. This amount is being amortized over a ten-year period on a straight-line basis from the effective date of the 1989 Settlement. The Company has reclassified the regulatory liability component which was previously reported as a reduction of the corresponding deferred tax asset arising from the abandonment loss deduction. Shoreham post settlement costs (decommissioning, payments in lieu of property taxes and other costs as incurred) are being capitalized and amortized and recovered through rates over a forty-year period on a straight-line remaining life basis. Upon the effectiveness of the 1989 Settlement, Shoreham nuclear fuel was reclassified to deferred charges included in the Regulatory Asset section of the Balance Sheet and is being amortized and recovered through rates over a forty-year period on a straight-line remaining life basis. The 1989 Settlement credits on the Balance Sheet of approximately $155 million, net of amortization, reflect an adjustment of the book write- off to the negotiated 1989 Settlement amount. A portion of this amount is being amortized over a ten-year period. The remaining portion is not currently being recognized for ratemaking purposes under the 1989 Settlement. 65 70 NOTE 3. RATE MATTERS ELECTRIC Pursuant to the 1989 Settlement, discussed in Note 2, the Company received electric rate increases contemplated by the RMA for each of the three rate years in the period ended November 30, 1991. The RMA contemplates that the Company will apply to the PSC for targeted annual rate increases of 4.5% to 5.0% in each year for an eight-year period beginning December 1, 1991. In response to the Company's December 1990 rate filing, the PSC approved the Long Island Lighting Company Ratemaking and Performance Plan (LRPP) in November 1991, which provides that the Company receive, for each of the three rate years in the period beginning December 1, 1991, annual electric rate increases of 4.15%, 4.1% and 4.0%, respectively, with an allowed return on common equity from electric operations of 11.6% for each of the three rate years. After giving effect to the reductions required by the Class Settlement discussed in Note 4, the Company's annual electric rate increases were approximately 4.15%, 3.9% and 3.9%, with an allowed return on common equity from electric operations of 10.92%, 10.72% and 10.58%, for the rate years beginning December 1, 1991, 1992 and 1993, respectively. The LRPP was designed to be consistent with the RMA's long-term goals. One principal objective of the LRPP is to reassign risk so that the Company assumes the responsibility for risks within the control of management, whereas risks largely beyond the control of management would be assumed by the ratepayers. The LRPP reflects an update of the long-range forecast of the Company's revenue requirements which was the basis of the RMA's initial three rate increases. The LRPP contains three major components--revenue reconciliation, expense attrition and reconciliation, and performance incentives. Revenue reconciliation is provided through a mechanism that reduces the impact of experiencing electric sales that are above or below the LRPP forecast by providing a fixed annual net margin level (defined as sales revenues, net of fuel and gross receipts taxes) that the Company will receive over the three rate years under the LRPP. The differences between the actual electric net revenues and the annual net margin level are deferred on a monthly basis during the rate year. The expense attrition and reconciliation component permits the Company to make adjustments for certain expenses recognizing that certain cost increases are unavoidable due to inflation and changes in the business. The LRPP includes the annual reconciliation of certain expenses for wage rates, property taxes, interest charges and demand side management (DSM) costs, the deferral and amortization of certain costs for enhanced reliability, production operations and maintenance expenses, and the application of an inflation index to other expenses for the rate years beginning December 1, 1992 and 1993. Under the performance incentive component of the LRPP, the Company is allowed to earn for each rate year up to 60 additional basis points, or forfeit up to 38 basis points, of the allowed return on common equity as a result of its performance within certain incentive and/or penalty programs. These programs consist of a customer service program, a time-of-use program, a partial pass through fuel cost incentive plan and, effective December 1, 1993, an electric transmission and distribution reliability plan. The incentives and/or penalties related to the customer 66 71 service performance plan, the time-of-use program, the electric transmission and distribution reliability plan and the partial pass through fuel cost incentive plan are determined on a monthly basis during the rate year and deferred until final approval from the PSC. The incentives earned from the DSM program are collected in rates on a monthly basis through the FCA. Based upon the Company's performance within these programs, the Company earned a total of approximately 49 basis points or approximately $9.2 million, net of tax effects, and 23 basis points, or approximately $4.3 million, net of tax effects, for the rate years ended November 30, 1993 and 1992, respectively. The deferred balances resulting from the net margin, property taxes, interest expense, wage rates, performance incentives and associated carrying charges, excluding DSM incentives, are netted at the end of each rate year. The LRPP established a band whereby the first $15 million of the total net deferrals are used to increase or decrease the RMC balance. The LRPP provides for the disposition of the total net deferrals in excess of the $15 million band. Upon approval by the PSC, the total net deferrals in excess of $15 million are refunded or recovered from the ratepayers through the FCA over a twelve-month period in the following rate year. During 1993, the PSC authorized the Company recovery of $45.2 million of the total net deferrals for the rate year ended November 30, 1992. The first $15 million of the total net deferrals was recorded as an increase to the RMC, with the remaining $30.2 million being recovered from the ratepayers through the FCA through July 31, 1994. For the rate year ended November 30, 1993, the total net deferrals, to be recovered from the ratepayers, subject to PSC review, amounted to approximately $63 million of which $48 million will be recovered through the FCA, over a twelve-month period beginning December 1, 1994. The Company earned $8.9 million and $21.4 million, net of tax effects, for the rate years ended November 30, 1993 and 1992, respectively, in excess of its allowed rate of return on common equity of 11.6% which, in accordance with the LRPP, was shared equally between ratepayers (by a reduction to the RMC) and shareowners. Prior to December 1, 1991, the RMA provided that earned returns on common equity in excess of targeted allowed rates of return, were to be applied to reduce the RMC or mitigate rates, as determined by the PSC, at the end of each rate year. For the rate year ended November 30, 1991, the Company earned $10.1 million, net of tax effects, in excess of its allowed rate of return, which was applied as a reduction to the RMC. To assist in the recovery of the RMC balance under the rates provided by the LRPP, the Company, in accordance with the LRPP, has credited the RMC with several deferred ratepayer benefits. In December 1993 and 1992, the Company applied a total of approximately $10.1 million and $22.5 million of various deferred ratepayer benefits to the RMC including the ratepayers portion of the excess earnings for the rate years ended November 30, 1993 and 1992, respectively. In December 1993, the Company filed a three-year electric rate plan with the PSC for the period beginning December 1, 1994 that minimizes future electric rate increases while retaining consistency with the RMA's objective of continuing the restoration of the Company's financial health. The electric rate plan provides for zero percentage base rate increases before giving effect to the reductions required by the Class Settlement, 67 72 discussed in Note 4, in years one and two of the plan and a base rate increase of 4.3% in the third year prior to giving effect to the reductions required by the Class Settlement. Although base electric rates would be frozen during the first two years of the plan, annual rate increases of approximately 1% to 2% are expected to result in these years from the operation of the Company's FCA. The FCA captures, among other amounts, any increases in the cost of fuel above the level recovered in base rates, and under the LRPP, any amounts to be recovered or refunded to ratepayers in excess of $15 million which result from the reconciliation of revenue, certain expenses and earned performance incentive components, discussed above. The electric rate plan requests an allowed rate of return on equity of 11.0%. The Company's two-year base rate freeze proposal reflects four underlying objectives: (i) to limit the balance of the RMC during the three-year period to no more than its 1992 peak balance of $652 million; (ii) to recover the RMC within no more than thirteen years of its 1989 inception; (iii) to minimize the final three rate increases that will follow the two-year rate freeze period; and (iv) to continue the Company's gradual return to financial health. The Company's electric rate plan is subject to approval by the PSC. The Company's current electric rate plan provides for lower annual electric rate increases than originally anticipated under the 1989 Settlement. However, as a result of changes in certain assumptions upon which the RMA was based, their impact on the RMC and the Company's plans to reduce DSM, operations and maintenance and capital expenditures, the Company has determined that the overall objectives of the RMA can be met under the multi-year plan described above. As a result of lower than originally anticipated inflation rates, interest costs, property taxes, fuel costs and return on common equity allowed by the PSC, the RMC, which originally had been anticipated to peak at $1.2 billion in 1994, has already peaked at $652 million in 1992. With the exception of an increase in 1995-1996, which is not now projected to cause the RMC to increase above its $652 million peak, the RMC is expected to decline until it is fully amortized. Under the electric rate plan, the recovery of the RMC would be extended, if necessary, for an additional period of not more than three years beyond the approximate ten-year period envisioned in the RMA. The actual length of the RMC extension will depend on the extent to which the assumptions underlying the rate plan materialize. The Company's current projections indicate that the RMC will be recovered in eleven years instead of ten years. GAS In December 1993, the PSC approved a three-year gas rate settlement between the Company and the Staff of the PSC. The gas rate settlement provides that the Company receive, for each of the rate years beginning December 1, 1993, 1994 and 1995, annual gas rate increases of 4.7%, 3.8% and 2.8%, respectively. In the determination of the revenue requirements for the first year of the gas rate settlement an allowed rate of return on equity of 10.1% was used. The gas rate decision also provides for earnings in excess of a 10.6% return on equity in any of the three rate years covered by the settlement be shared equally between the Company's firm gas customers and its shareowners. The allowed rate of return for the rate year that began December 1, 1992 was 11.0%. 68 73 NOTE 4. THE CLASS SETTLEMENT The Class Settlement, which became effective on June 28, 1989, resolved a civil lawsuit against the Company brought under the federal Racketeer Influenced and Corrupt Organizations Act (RICO Act). The lawsuit which the Class Settlement resolved, had alleged that the Company made inadequate disclosures before the PSC concerning the construction and completion of nuclear generating facilities. The Class Settlement provides the Company's ratepayers with reductions, aggregating $390 million, that are to be reflected as adjustments to their monthly electric bills over a ten-year period which began on June 1, 1990. The reductions in each of the remaining twelve-month periods are as follows: June 1994 $30 million June 1995 $40 million June 1996 $50 million June 1997 $60 million June 1998 $60 million June 1999 $60 million
Upon its effectiveness, the Company recorded its liability for the Class Settlement on a present value basis at $170 million and simultaneously recorded a charge to income (net of tax effects of $57 million) of approximately $113 million. Each month the Company records the changes in the present value of such liability that result from the passage of time and from monthly reductions. The Company expects the Class Settlement liability will be fully satisfied by May 31, 2000. As a result of the Class Settlement, the Company's electric rate increases on average will be approximately .2% to .3% per year lower than they would otherwise have been during the Class Settlement period. 69 74 NOTE 5. NINE MILE POINT NUCLEAR POWER STATION, UNIT 2 The Company has an 18% undivided interest in NMP2 which is operated by Niagara Mohawk Power Corporation (NMPC) near Oswego, New York. Ownership of NMP2 is shared by five cotenants: the Company (18%), NMPC (41%), New York State Electric & Gas Corporation (18%), Rochester Gas and Electric Corporation (14%) and Central Hudson Gas & Electric Corporation (9%). At December 31, 1993, the Company's net utility plant investment in NMP2 was $759 million, net of accumulated depreciation of $119 million, which is included in the Company's rate base. Output of NMP2 is shared in the same proportions as the cotenants' respective ownership interests. The operating expenses of NMP2 are also allocated to the cotenants in the same proportions as their respective ownership interests. The Company's share of these expenses is included in the appropriate operating expenses on the Statement of Income. The Company is required to provide its respective share of financing for any capital additions to NMP2. Nuclear fuel costs associated with NMP2 are being amortized on the basis of the quantity of heat produced for the generation of electricity. NMPC has contracted with the United States Department of Energy for the disposal of nuclear fuel. The Company reimburses NMPC for its 18% share of the cost under the contract at a rate of $1.00 per megawatt hour of net generation less a factor to account for transmission line losses. Based upon a study performed by NMPC which reflects a change in the NRC minimum decommissioning funding requirement effective 1993, the Company's share of the decommissioning costs for NMP2 is estimated to be $80 million (in 1993 dollars) assuming that decommissioning will commence in 2027 (which will be $234 million in 2027 dollars). The Company's share of estimated decommissioning costs are being provided for in electric rates and are being charged to operations as depreciation expense. The amount of accumulated decommissioning costs collected from the Company's ratepayers through December 31, 1993 was $7.1 million. Amounts collected by the Company for the decommissioning of the contaminated portion of the NMP2 plant, which approximate 92% of total decommissioning costs, are held in an independent decommissioning trust fund. This fund complies with regulations issued by the NRC governing the funding of nuclear plant decommissioning costs. The Company's funding plan for its share of decommissioning costs will provide reasonable assurance that, at the time of termination of operation, adequate funds for the decommissioning of the Company's share of the contaminated portion of NMP2 plant will be available. 70 75 NOTE 6. CAPITAL STOCK PREFERRED STOCK The Company has 7,000,000 authorized shares, cumulative preferred stock, par value $100 and 30,000,000 authorized shares, cumulative preferred stock, par value $25. Dividends on preferred stock are paid in preference to dividends on common stock or any other stock ranking junior to preferred stock. PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION The aggregate fair value of redeemable preferred stock with mandatory redemptions at December 31, 1993 and 1992 amounted to $658,795,000 and $581,984,000, respectively, compared to their carrying amounts of $653,950,000 and $566,100,000, respectively. At December 31, 1993, the Company had the option to redeem all outstanding preferred stock Series L, $100 par value, and Series R, $100 par value, at their optional redemption prices of $102.99 per share and $100.50 per share, respectively. No other preferred stock series subject to mandatory redemptions were redeemable at December 31, 1993. The Company is required to redeem the following series of preferred stock through the operation of various sinking fund provisions: (i) on each July 31, 10,500 shares of the Series L at a price of $100 per share; (ii) on each December 15, 37,500 shares of the Series R at a price of $100 per share; (iii) on each March 1, commencing March 1, 1999, 77,700 shares of the Series NN at a price of $25 per share; and (iv) on each October 15, commencing October 15, 1999, 112,000 shares of the Series UU at a price of $25 per share. In addition, the Company will have the noncumulative option to double the number of shares to be redeemed pursuant to the sinking fund in any year for the preferred stock series mentioned above. The aggregate par value of preferred stock required to be redeemed by use of sinking funds in each of the years 1994 through 1996 is $4.8 million and in 1997 and 1998 is $1.1 million. The Company is also required to redeem certain series of preferred stock which are not subject to sinking fund requirements. The scheduled mandatory redemption for these series are as follows: (i) Series CC on August 1, 2002; (ii) Series AA on June 1, 2000; (iii) Series GG on March 1, 1999; and (iv) Series QQ on May 1, 2001. During 1992, the Company issued $363 million Preferred Stock, 7.95% Series AA and $57 million Preferred Stock, 7.66% Series CC, the proceeds of which were used to redeem $320 million Preferred Stock, $2.65 Series Y and $55 million Preferred Stock, 9.80% Series S, respectively, at their optional redemption prices. 71 76 PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION The Company has the option to redeem certain series of its preferred stock. For the series subject to optional redemption at December 31, 1993, the call prices were as follows: 5.00% Series B $101.00 4.25% Series D 102.00 4.35% Series E 102.00 4.35% Series F 102.00 5 1/8% Series H 102.00 5 3/4% Series I - Convertible 100.00
PREFERENCE STOCK None of the authorized 7,500,000 shares of nonparticipating preference stock, par value $1 per share, which ranks junior to preferred stock, are outstanding. COMMON STOCK Of the 150,000,000 shares of authorized common stock at December 31, 1993, 1,789,842 shares were reserved for sale through the Company's Employee Stock Purchase Plan, 5,946,929 shares were committed to the Automatic Dividend Reinvestment Plan (ADRP) and 118,812 shares were reserved for conversion of the Series I Convertible Preferred Stock at a rate of $17.15 per share. In June 1992, the Company reinstated the ADRP which had been suspended since February 1984. Common and preferred stock dividend limitations in the mortgage securing the Company's First Mortgage Bonds are not material. There are no dividend limitations contained in the Company's other debt instruments. 72 77 NOTE 7. LONG-TERM DEBT Each of the Company's outstanding mortgages is a lien on substantially all of the Company's properties. FIRST MORTGAGE All of the bonds issued under the First Mortgage, including those issued after June 1, 1975 and pledged with the Trustee of the G&R Mortgage (G&R Trustee) as additional security for General & Refunding Bonds (G&R Bonds), are secured by the lien of the First Mortgage. First Mortgage Bonds pledged with the G&R Trustee do not represent outstanding indebtedness of the Company. Amounts of such pledged bonds outstanding were $1.03 billion at December 31, 1993 and 1992. The annual First Mortgage depreciation fund and sinking fund requirements for 1993, due not later than June 30, 1994, are estimated at $216 million and $18 million, respectively. The Company expects to meet these requirements with property additions and retired First Mortgage Bonds. G&R MORTGAGE The lien of the G&R Mortgage is subordinate to the lien of the First Mortgage. The annual G&R Mortgage sinking fund requirement for 1993, due not later than June 30, 1994, is estimated at $24 million. The Company expects to satisfy this requirement with retired G&R Bonds. 1989 REVOLVING CREDIT AGREEMENT The Company has an estimated $276 million available to it through October 1, 1994, under its $300 million 1989 Revolving Credit Agreement (1989 RCA). This line of credit is secured by a first lien upon the Company's accounts receivable and fuel oil inventories. The Company is currently, with the approval of the NRC, dedicating $24 million of the 1989 RCA to cover estimated, not yet incurred, costs attributable to the decommissioning of Shoreham, discussed in Note 2. The amount of credit available to the Company under the 1989 RCA will increase as decommissioning costs are funded by the Company. At December 31, 1993, no amounts were outstanding under the 1989 RCA. The Company has the option, when amounts are outstanding, to commit to one of three interest rates including: (i) the Adjusted Certificate of Deposit Rate which is a rate based on the certificate of deposit rates of certain of the lending banks, (ii) the Base Rate which is generally a rate based on Citibank, N.A.'s prime rate and (iii) the Eurodollar Rate which is a rate based on the London Interbank Offering Rate (LIBOR). The Company has agreed to pay a fee of one quarter of one percent per annum on the unused portion. The termination date of the 1989 RCA may be extended for one-year periods upon the acceptance by the lending banks of the Company's request delivered to the lending banks prior to April 1 in each year. 73 78 AUTHORITY FINANCING NOTES Authority Financing Notes are issued by the Company to the New York State Energy Research and Development Authority (NYSERDA) to secure certain tax-exempt Pollution Control Revenue Bonds (PCRBs), Electric Facilities Revenue Bonds (EFRBs) and Industrial Development Revenue Bonds issued by NYSERDA. Certain of these bonds are subject to periodic tender at which time their interest rates are subject to redetermination. The 1993 EFRBs and the 1985 PCRBs are supported by letters of credit pursuant to which the letter of credit banks have agreed to pay the principal, interest and premium if applicable, in the aggregate, up to approximately $272 million in the event of default. The obligation of the Company to reimburse the letter of credit banks is unsecured. These letters of credit expire November 17, 1996 for the 1993 EFRBs and on March 16, 1996 for the 1985 PCRBs, at which time the Company is required to obtain either an extension of the letters of credit or substitute credit backup. If neither can be obtained, the 1993 EFRBs and the 1985 PCRBs must be redeemed unless the Company purchases them in lieu of redemption and subsequently remarkets them. Tender requirements of Authority Financing Notes at December 31, 1993 are as follows:
Interest (In thousands of dollars) Rate Series Principal ------------------------------------------------------------------ PCRBs 8 1/4 % 1982 $ 17,200 Tendered every three years, next tender October 1994. 2.5 % 1985 A,B $150,000 Tendered annually on March 1. EFRBs 2.95 % 1993 A $ 50,000 Tendered weekly. 2.85 % 1993 B $ 50,000 Tendered annually on November 1.
FAIR VALUES OF LONG-TERM DEBT The carrying amounts and fair values of the Company's long-term debt consisted of the following at December 31:
(In thousands of dollars) 1993 --------------------------- Fair Value Carrying Amount ----------- --------------- First Mortgage Bonds $ 124,719 $ 125,000 General and Refunding Bonds 1,806,728 1,666,000 Debentures 2,944,499 2,880,058 Authority Financing Notes 851,800 816,675 ---------- ---------- Total Long-Term Debt $5,727,746 $5,487,733 ========== ==========
74 79
1992 --------------------------- Fair Value Carrying Amount ---------- --------------- First Mortgage Bonds $ 397,971 $ 400,000 General and Refunding Bonds 1,891,842 1,801,000 Debentures 2,523,721 2,428,058 Authority Financing Notes 729,610 716,675 ---------- ---------- Total Long-Term Debt $5,543,144 $5,345,733 ========== ==========
MATURITY SCHEDULE Total long-term debt maturing in the next five years is $600 million (1994), $25 million (1995), $455 million (1996), $286 million (1997) and $1 million (1998). 75 80 NOTE 8. RETIREMENT BENEFIT PLANS PENSION PLANS The Company maintains a primary defined benefit pension plan (Primary Plan) which covers substantially all employees, a supplemental plan (Supplemental Plan) which covers officers and certain key executives and a retirement plan which covers the Board of Directors (Directors' Plan). Primary Plan The Company's funding policy is to contribute annually to the Primary Plan a minimum amount consistent with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) plus such additional amounts, if any, as the Company may determine to be appropriate from time to time. Effective January 1, 1992, the Plan was amended to update the benefit calculation, whereby for service before January 1, 1992, pension benefits are determined based on the greater of the accrued benefit as of December 31, 1991, or by applying a moving five-year average of Plan compensation, not to exceed the January 1, 1992 salary, to a certain percentage, determined by years of service at December 31, 1991. For service after January 1, 1992, pension benefits are equal to 2% of Plan compensation through age 49 and 2 1/2% thereafter. Employees are vested in the pension plan after five years of service with the Company. The Primary Plan's funded status reflects changes in assumptions used in accounting due to changes in market conditions. The 1993 projected benefit obligation increased by approximately $31 million due to changes in the discount rate used, partially offset by a lower rate of future compensation increases. The Primary Plan's funded status and amounts recognized on the Balance Sheet at December 31, 1993 and 1992 were as follows:
(In thousands of dollars) 1993 1992 ----------------------- Actuarial present value of benefit obligation Vested benefits $512,692 $ 453,201 Nonvested benefits 5,920 4,326 -------- --------- Accumulated benefit obligation $518,612 $ 457,527 Plan assets at fair value $598,600 $ 556,399 Actuarial present value of projected benefit obligation $597,128 536,818 -------- --------- Projected benefit obligation less than plan assets 1,472 19,581 Unrecognized January 1, net obligations 91,397 98,147 Unrecognized net gain (97,029) (128,218) -------- --------- Net accrued pension cost $ (4,160) $ (10,490) ======== =========
76 81 Periodic pension cost for 1993, 1992 and 1991 for the Primary Plan included the following components:
(In thousands of dollars) 1993 1992 1991 ----------------------------- Service cost - benefits earned during the period $14,481 $ 13,661 $ 14,323 Interest cost on projected benefit obligation and service cost 41,865 39,574 33,698 Actual return on plan assets (54,010) (47,156) (63,875) Net amortization and deferral 10,025 12,849 33,569 ------- -------- -------- Net periodic pension cost $12,361 $ 18,928 $ 17,715 ======= ======== ========
Assumptions used in accounting for the Primary Plan were:
1993 1992 1991 ------------------------------ Discount rate 7.25% 7.75% 7.75% Rate of future compensation increases 5.0% 5.5% 5.5% Long-term rate of return on assets 7.5% 7.5% 7.0%
The Primary Plan assets at fair value primarily include cash, cash equivalents, group annuity contracts, bonds and listed equity securities. In 1993, the PSC issued an order which addressed the accounting and ratemaking treatment of pension costs in accordance with SFAS No. 87, Employers' Accounting For Pensions. Under the PSC order, the Company is required to recognize any deferred net gains or losses over a ten- year period rather than using the corridor approach method. The Company believes that by adopting this method of accounting for financial reporting purposes, a better matching of revenues and the Company's pension cost will result from the implementation of the PSC order. For the year ended December 31, 1993, this change in the annual pension cost calculation reduced pension expense by approximately $4.6 million. The Company deferred a like amount of revenues to reflect the difference between pension expense in rates and pension expense under the PSC's order. In addition, the PSC authorized the Company to defer the difference between the pension rate allowance and annual pension contributions deposited into the pension fund. The Company is required to accrue, to the benefit of the ratepayer, a carrying charge on any such deferred balance. Supplemental Plan The Supplemental Plan, the cost of which is borne by the Company's shareowners, provides supplemental death and retirement benefits for officers and other key executives without contribution from such employees. The Supplemental Plan is a non-qualified plan under the Internal Revenue Code. Death benefits are currently provided by insurance. The provision for retirement benefits, which is unfunded, totaled approximately $2,800,000, $685,000 and $675,000 which was recognized as an expense in 1993, 1992 and 1991, respectively. Directors' Plan The Directors' Plan, adopted in February 1990, provides benefits to directors who are not officers of the Company. Directors who have 77 82 served in that capacity for more than five years qualify as participants under the plan. The Directors' Plan is a non-qualified plan under the Internal Revenue Code. The provision for retirement benefits, which is unfunded, totaled approximately $150,000, $133,000 and $101,000 which was recognized as expense in 1993, 1992 and 1991, respectively. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to providing pension benefits, the Company provides certain medical and life insurance benefits for retired employees. Substantially all of the Company's employees may become eligible for these benefits if they reach retirement age after working for the Company for a minimum of five years. These and similar benefits for active employees are provided by the Company or by insurance companies whose premiums are based on the benefits paid during the year. Effective January 1, 1993, the Company adopted the provisions of SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, which requires the Company to recognize the expected cost of providing postretirement benefits when employee services are rendered rather than on a pay-as-you-go method. Effective January 1, 1993, the Company recorded an accumulated postretirement benefit obligation and a corresponding regulatory asset of approximately $376 million. Additionally, as a result of adopting SFAS No. 106, the Company's annual postretirement benefit cost for 1993 increased by approximately $28 million above the amount that would have been recorded under the pay-as-you-go method. In 1993, the PSC issued a final order which required that the effects of implementing SFAS No. 106 be phased into rates. The order required the Company to defer as a regulatory asset the difference between postretirement benefit expense recorded for accounting purposes in accordance with SFAS No. 106 and the postretirement benefit expense reflected in rates. The ongoing annual postretirement benefit expense will be phased into and fully reflected in rates within a five-year period with the accumulated postretirement obligation being recovered in rates over a twenty-year period. Accumulated postretirement benefits obligation other than pensions at December 31 were as follows:
(In thousands of dollars) 1993 1992 ---------------------------- Retirees $ 152,800 $ 140,900 Fully eligible plan participants 63,800 78,500 Other active plan participants 137,200 156,200 --------- --------- Accumulated postretirement benefits obligation 353,800 375,600 Unrecognized net gain 49,237 - Unrecognized transition obligation - (375,600) --------- --------- Accrued postretirement benefit cost $ 403,037 $ - ========= =========
78 83 Periodic postretirement benefit cost other than pensions for the years 1993 and 1992 were as follows:
1993 1992 -------------------------- Service cost - benefits earned during the period $ 12,980 $ - Interest cost on projected benefits obligation and service cost 29,531 - --------- --------- Periodic postretirement cost $ 42,511 $ 13,400 ========= =========
Assumptions used in accounting for postretirement benefits other than pensions were as follows:
1993 1992 ----------------------- Discount rate 7.25% 7.75% Rate of future compensation 5.0% 5.5% increases
The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation at December 31, 1993 and 1992 were 9.5% and 15.0%, respectively, gradually declining to 6.0% in 2001 and thereafter. A one-percentage point increase in the health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1993 and 1992 by approximately $46 million and $58 million, respectively, and the sum of the service and interest costs in 1993 by $8 million. POSTEMPLOYMENT BENEFITS In November 1992, the FASB issued SFAS No. 112, Employers' Accounting for Postemployment Benefits, which establishes accounting standards for employers who provide benefits to former or inactive employees after employment but before retirement. The Company will be required to comply with the new rules beginning in 1994. The effect of adopting the new rules will not be material to the Company's financial position or results of operations. The Company believes it will be permitted to recover these costs through rates. 79 84 NOTE 9. COMMITMENTS AND CONTINGENCIES COMMITMENTS The Company has entered into substantial commitments for fossil fuel, gas supply, purchased power and transmission facilities. The costs associated with these commitments are normally recovered from ratepayers through provisions in the Company's rate schedules. The Company expects that it will have to expend $4.3 million in 1994 to meet continuous emission monitoring requirements and $3.5 million in 1994 and $2.0 million in 1995 to meet Phase I nitrogen oxide (NOx) reduction requirements. In addition, subject to details that are expected to appear in regulations that have not yet been issued, the Company estimates that it may be required to expend as much as $125 million by May 1999 to meet Phase II NOx reduction requirements and approximately $50 million by 2000 to meet requirements for the control of hazardous air pollutants from power plants. The Company believes that such cost would be recoverable in rates. CONTINGENCIES Litigation On February 11, 1988, the Company began a lawsuit in Suffolk County Supreme Court against Suffolk County, seeking the recovery of approximately $54 million in damages for Suffolk County's breach of a contract to prepare an off site emergency response plan for Shoreham (Long Island Lighting Company v. County of Suffolk). In addition, the complaint alleges that, because of the delays that have resulted, the Company has been damaged in an additional amount of $706 million. On October 30, 1992, the court granted in part and denied in part Suffolk County's motion to amend its answer to assert additional defenses and counterclaims. Two proposed counterclaims were allowed seeking approximately $16 million in damages as well as $700 million in alleged punitive damages. The outcome of these counterclaims, if adverse, could have a material effect on the financial condition of the Company. The Company has argued that there is no basis for punitive damages and intends to vigorously prosecute its claim against Suffolk County and to defend against these counterclaims. Environmental The Company is subject to environmental laws and regulations of the United States Environmental Protection Agency (EPA) and other regulatory agencies. The Company is monitoring its activities and to date, has not identified any material environmental contingencies. The Company believes that costs related to such contingencies, if any, would be recoverable in rates. 80 85 NUCLEAR PLANT INSURANCE The Company has property damage insurance and third-party bodily injury and property liability insurance for its 18% share in NMP2 and for Shoreham. The premiums for this coverage are not material. The policies for this coverage provide for retroactive premium assessments under certain circumstances. Maximum retroactive premium assessments could be as much as approximately $4.7 million. For property damage at each nuclear generating site, the NRC requires a minimum of $1.06 billion of coverage. The NRC has provided the Company with a partial exemption from these requirements for Shoreham. Under certain circumstances, the Company may be assessed additional amounts in the event of a nuclear incident. Under agreements established pursuant to the Price Anderson Act, the Company could be assessed up to approximately $79.3 million per nuclear incident in any one year at any nuclear unit, but not in excess of approximately $10 million in payments per year for each incident. The Price Anderson Act also limits liability for third-party bodily injury and third-party property damage arising out of a nuclear occurrence at each unit to $9.4 billion. 81 86 NOTE 10. FEDERAL INCOME TAXES As of December 31, 1993, the significant components of the Company's deferred tax assets and liabilities calculated under the provisions of SFAS No. 109 were as follows:
Deferred Tax Assets (In thousands of dollars) - ------------------- ------------------------- Net operating loss carryforwards $ 707,400 Litigation settlements 87,050 Shoreham property 38,535 Accelerated depreciation 20,612 Excess credits 35,362 Unutilized investment tax credits 67,215 Tax credit carryforwards 138,035 Other 62,800 ----------- Total Deferred Tax Assets $1,157,009 -----------
Deferred Tax Liabilities - ------------------------ 1989 Settlement $2,180,413 Accelerated depreciation 597,827 Call premiums 63,735 Rate case deferrals 43,957 Other 46,097 ---------- Total Deferred Tax Liabilities 2,932,029 ---------- Net Deferred Tax Liability $1,775,020 ==========
The Company's net operating loss (NOL) carryforward for federal income tax purposes is estimated to be approximately $2 billion at December 31, 1993. The NOL will expire in the years 2003 through 2007. The amount of investment tax credit (ITC) carryforward is approximately $219 million. The ITC credits expire by the year 2002. In accordance with the Tax Reform Act of 1986 (TRA 86), ITC allowable as credits to tax returns for years after 1987 must be reduced by 35%. The amount of the reduction will not be allowed as a credit for any other taxable year. For financial reporting purposes, a valuation allowance was not required to offset the deferred tax assets related to these carryforwards. On January 8, 1990 and October 10, 1992, the Company received Revenue Agents' Reports disallowing certain deductions claimed by the Company on its tax returns for the audit cycle years 1984-1987 and 1988-1989, respectively. The Revenue Agents' Reports reflects proposed adjustments to the Company's federal income tax returns for 1984 through 1989 which, if sustained, would give rise to tax deficiencies totaling approximately $220 million. The Revenue Agents have proposed ITC adjustments which, if sustained, would reduce the Company's carryforward by approximately $96 million. The Company is protesting some of the adjustments and seeks an administrative and, if necessary, a judicial review of the conclusions reached in the Revenue Agents' Reports. The Company cannot predict either 82 87 the timing or the manner in which these matters will be resolved. If however, the ultimate disposition of any or all matters raised in the Revenue Agents' Reports are adverse to the Company, the Company expects that any deficiencies that may arise will be substantially offset by the net operating loss carrybacks associated with the 1989 Shoreham abandonment loss deduction of $1.8 billion and thus any impact would not have a material effect on the Company's financial condition or cash flows. 83 88 The federal income tax amounts included in the Statement of Income differ from the amounts which result from applying the statutory federal income tax rate to net income before income taxes. The table below sets forth the reasons for such differences.
(In thousands of dollars) - -------------------------------------------------------------------------------------------- 1993 1992 1991 - -------------------------------------------------------------------------------------------- % of % of % of Pre-Tax Pre-Tax Pre-Tax Amount Income Amount Income Amount Income - -------------------------------------------------------------------------------------------- FEDERAL INCOME TAX, PER STATEMENT OF INCOME Current $ 6,324 $ 530 $ 515 Deferred and other (see Note 1) 1989 Settlement Shoreham property 4,753 3,806 10,677 Bokum Resources Corporation - - 20,400 Rate moderation component (30,511) 10,351 77,715 Other 1989 Settlement items 11,396 8,622 872 Net Operating Loss Carryforward 78,708 (14,121) (14,510) Shoreham post settlement costs 62,993 60,125 50,375 Contractor litigation settlement (503) - (18,758) Accelerated tax depreciation 32,101 35,951 30,447 Call premiums (5,460) 35,441 18,496 Ratemaking and performance plan 14,369 17,680 (371) Other items (1,894) 2,577 5,795 - -------------------------------------------------------------------------------------------- Total Deferred and Other 165,952 160,432 181,138 - -------------------------------------------------------------------------------------------- TOTAL FEDERAL INCOME TAX EXPENSE 172,276 160,962 181,653 Net Income 296,563 301,974 305,538 - -------------------------------------------------------------------------------------------- Income before federal income taxes $ 468,839 $ 462,936 $ 487,191 ============================================================================================ STATUTORY FEDERAL INCOME TAX $ 164,094 35.0% $ 157,398 34.0% $ 165,645 34.0% Additions (reductions) in federal income tax 1989 Settlement Shoreham property 4,256 0.9 4,003 0.9 4,003 0.8 Allowance for funds used during construction (2,304) (0.5) (4,118) (0.9) (1,310) (0.3) Tax credits (6,871) (1.5) (6,586) (1.4) (2,980) (0.6) Excess of book depreciation over tax depreciation 12,437 2.7 12,193 2.6 13,108 2.7 Interest capitalized 3,443 0.7 2,947 0.6 4,232 0.9 Other items (2,779) (0.6) (4,875) (1.0) (1,045) (0.2) - -------------------------------------------------------------------------------------------- TOTAL FEDERAL INCOME TAX EXPENSE $ 172,276 36.7% $ 160,962 34.8% $ 181,653 37.3% ============================================================================================
84 89 NOTE 11. SEGMENTS OF BUSINESS The Company is a public utility engaged in the generation, distribution and sale of electric energy and the purchase, distribution and sale of natural gas to residential, commercial and industrial customers in Nassau and Suffolk Counties and the Rockaway Peninsula in Queens County, all on Long Island, New York. Identifiable assets by segment include net utility plant, regulatory assets, materials and supplies (excluding common), accrued unbilled revenues, gas in storage, fuel and deferred charges (excluding common). Assets utilized for overall Company operations consist of other property and investments, cash and cash equivalents, special deposits, accounts receivable, prepayments and other current assets, unamortized debt expense and other deferred charges.
(In thousands of dollars) - ------------------------------------------------------------------------------------------------------------------ For year ended December 31 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------ OPERATING REVENUES Electric $2,352,109 $2,194,632 $ 2,196,568 Gas 528,886 427,207 351,161 - ------------------------------------------------------------------------------------------------------------------ Total $2,880,995 $2,621,839 $ 2,547,729 ================================================================================================================== OPERATING EXPENSES (EXCLUDES FEDERAL INCOME TAX) Electric $1,513,452 $1,354,959 $ 1,254,702 Gas 427,138 352,777 338,295 - ------------------------------------------------------------------------------------------------------------------ Total $1,940,590 $1,707,736 $ 1,592,997 ================================================================================================================== OPERATING INCOME (BEFORE FEDERAL INCOME TAX) Electric $ 838,657 $ 839,673 $ 941,866 Gas 101,748 74,430 12,866 - ------------------------------------------------------------------------------------------------------------------ Total 940,405 914,103 954,732 AFC (6,683) (12,111) (5,794) Other income and deductions (55,823) (49,569) (50,481) Interest charges 534,072 512,847 523,816 Federal income tax-operating 184,854 172,998 169,452 Federal income tax-non-operating (12,578) (12,036) 12,201 - ------------------------------------------------------------------------------------------------------------------ Net income $ 296,563 $ 301,974 $ 305,538 ================================================================================================================== DEPRECIATION AND AMORTIZATION Electric $ 106,149 $ 104,034 $ 104,172 Gas 16,322 15,103 14,783 - ------------------------------------------------------------------------------------------------------------------ Total $ 122,471 $ 119,137 $ 118,955 ================================================================================================================== CONSTRUCTION AND NUCLEAR FUEL EXPENDITURES* Electric $ 170,941 $ 163,609 $ 144,356 Gas 133,752 109,295 93,195 - ------------------------------------------------------------------------------------------------------------------ Total $ 304,693 $ 272,904 $ 237,551 ================================================================================================================== *Includes non-cash allowance for other funds used during construction and excludes Shoreham post settlement costs.
At December 31 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------ IDENTIFIABLE ASSETS Electric $11,253,674 $ 8,867,205 $ 8,582,081 Gas 1,080,906 767,444 621,570 - ------------------------------------------------------------------------------------------------------------------ Total 12,334,580 9,634,649 9,203,651 Assets utilized for overall Company operations 1,121,457 1,129,810 934,844 - ------------------------------------------------------------------------------------------------------------------ Total Assets $13,456,037 $10,764,459 $10,138,495 ==================================================================================================================
85 90 NOTE 12. QUARTERLY FINANCIAL INFORMATION (Unaudited)
(In thousands of dollars except earnings per common share) - --------------------------------------------------------------------------------------------------------------------------- 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES For the quarter ended March 31 $760,451 $697,761 June 30 604,871 580,498 September 30 849,700 747,729 December 31 665,973 595,851 - --------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME For the quarter ended March 31 $192,391 $179,741 June 30 167,599 166,954 September 30 263,984 256,800 December 31 131,577 137,610 - --------------------------------------------------------------------------------------------------------------------------- NET INCOME For the quarter ended March 31 $ 67,861 $ 66,706 June 30 56,806 59,285 September 30 144,549 141,388 December 31 27,347 34,595 - --------------------------------------------------------------------------------------------------------------------------- EARNINGS FOR COMMON STOCK For the quarter ended March 31 $ 53,286 $ 50,553 June 30 42,451 41,040 September 30 131,022 126,295 December 31 13,696 20,132 - --------------------------------------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE For the quarter ended March 31 $ .48 $ .45 June 30 .38 .37 September 30 1.17 1.14 December 31 .12 .18 - ---------------------------------------------------------------------------------------------------------------------------
In the fourth quarter of 1993, the Company recorded income of approximately $6.5 million, net of tax effects, or $.06 per common share related to the settlement of certain litigation. In addition, during the fourth quarter of 1993, the Company recorded a charge to earnings of approximately $7.3 million, net of tax effects or $.07 per common share principally related to previously deferred storm costs and the reconciliation of certain ratemaking mechanisms recorded in connection with the conclusion of the Company's rate year. 86 91 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS To the Shareowners and Board of Directors of Long Island Lighting Company We have audited the accompanying balance sheet of Long Island Lighting Company and the related statement of capitalization, as of December 31, 1993 and 1992, and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14 (a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing all accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Long Island Lighting Company at December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 8 and 10 to the financial statements, effective January 1, 1993, the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes. /s/ ERNST & YOUNG Melville, New York February 4, 1994 87 92 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Information required by Item 10 as to the Company's Executive Officers is set forth in Item 1, "Business" under the heading "Executive Officers of the Company" above. Information required by Item 10 as to the Company's Directors may be found in the Company's proxy statement for its Annual Meeting to be held on April 12, 1994. Such proxy statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by Item 11 may be found in the Company's proxy statement for its Annual Meeting to be held on April 12, 1994. Such proxy statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by Item 12 may be found in the Company's proxy statement for its Annual Meeting to be held on April 12, 1994. Such proxy statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by Item 13 may be found in the Company's proxy statement for its Annual Meeting to be held on April 12, 1994. Such proxy statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) List of Financial Statements Balance Sheet at December 31, 1993 and 1992. Statement of Income for each of the three years in the period ended December 31, 1993. Statement of Capitalization at December 31, 1993 and 1992. Statement of Cash Flows for each of the three years in the period ended December 31, 1993. Statement of Retained Earnings for each of the three years in the period ended December 31, 1993. Notes to Financial Statements. 88 93 (2) List of Financial Statement Schedules Property, Plant and Equipment (Schedule V) Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment (Schedule VI) Valuation and Qualifying Accounts (Schedule VIII) Supplementary Income Statement Information (Schedule X) (3) List of Exhibits *3(a) Restated Certificate of Incorporation of the Company dated November 11, 1993. (b) By-laws of the Company as amended on May 28, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). 4(a) General and Refunding Indenture dated as of June 1, 1975 and 21 supplements thereto (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as follows: G&R Indenture dated as of June 1, 1975. First Supplemental Indenture to G&R Indenture dated as of June 1, 1975. Second Supplemental Indenture to G&R Indenture dated as of September 1, 1975. Third Supplemental Indenture to G&R Indenture dated as of June 1, 1976. Fourth Supplemental Indenture to G&R Indenture dated as of December 1, 1976. Fifth Supplemental Indenture to G&R Indenture dated as of May 1, 1977. Sixth Supplemental Indenture to G&R Indenture dated as of April 1, 1978. - ------------------------ * Filed herewith. 89 94 Seventh Supplemental Indenture to G&R Indenture dated as of March 1, 1979. Eighth Supplemental Indenture to G&R Indenture dated as of February 1, 1980. Ninth Supplemental Indenture to G&R Indenture dated as of March 1, 1981. Tenth Supplemental Indenture to G&R Indenture dated as of July 1, 1981. Eleventh Supplemental Indenture to G&R Indenture dated as of July 1, 1981. Twelfth Supplemental Indenture to G&R Indenture dated as of December 1, 1981. Thirteenth Supplemental Indenture to G&R Indenture dated as of December 1, 1981. Fourteenth Supplemental Indenture to G&R Indenture dated as of June 1, 1982. Fifteenth Supplemental Indenture to G&R Indenture dated as of October 1, 1982. Sixteenth Supplemental Indenture to G&R Indenture dated as of April 1, 1983. Seventeenth Supplemental Indenture to G&R Indenture dated as of May 1, 1983. Eighteenth Supplemental Indenture to G&R Indenture dated as of September 1, 1984. Nineteenth Supplemental Indenture to G&R Indenture dated as of October 1, 1984. Twentieth Supplemental Indenture to G&R Indenture dated as of June 1, 1985. Twenty-first Supplemental Indenture to G&R Indenture dated as of April 1, 1986. Twenty-second Supplemental Indenture to G&R Indenture dated as of February 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). 90 95 Twenty-third Supplemental Indenture to G&R Indenture dated as of May 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Twenty-fourth Supplemental Indenture to G&R Indenture dated as of July 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Twenty-fifth Supplemental Indenture to G&R Indenture dated as of May 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Twenty-sixth Supplemental Indenture to G&R Indenture dated as of July 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 4(b) Indenture of Mortgage and Deed of Trust dated as of September 1, 1951 and 44 supplements thereto (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as follows: Indenture of Mortgage dated as of September 1, 1951. First Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1951. Second Supplemental Indenture to the Indenture of Mortgage dated as of October 1, 1952. Third Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1953. Fourth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1954. Fifth Supplemental Indenture to the Indenture of Mortgage dated as of November 1, 1955. Sixth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1956. Seventh Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1958. 91 96 Eighth Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1959. Ninth Supplemental Indenture to the Indenture of Mortgage dated as of August 1, 1961. Tenth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1963. Eleventh Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1964. Twelfth Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1965. Thirteenth Supplemental Indenture to the Indenture of Mortgage dated as of March 1, 1966. Fourteenth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1967. Fifteenth Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1969. Sixteenth Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1970. Seventeenth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1971. Eighteenth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1971. Nineteenth Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1972. Twentieth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1973. Twenty-first Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1974. Twenty-second Supplemental Indenture to the Indenture of Mortgage dated as of November 1, 1974. Twenty-third Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1975. 92 97 Twenty-fourth Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1975. Twenty-fifth Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1976. Twenty-sixth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1976. Twenty-seventh Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1977. Twenty-eighth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1978. Twenty-ninth Supplemental Indenture to the Indenture of Mortgage dated as of March 1, 1979. Thirtieth Supplemental Indenture to the Indenture of Mortgage dated as of February 1, 1980. Thirty-first Supplemental Indenture to the Indenture of Mortgage dated as of March 1, 1981. Thirty-second Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1981. Thirty-third Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1981. Thirty-fourth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1981. Thirty-fifth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1981. Thirty-sixth Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1982. Thirty-seventh Supplemental Indenture to the Indenture of Mortgage dated as of October 1, 1982. Thirty-eighth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1983. Thirty-ninth Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1983. 93 98 Fortieth Supplemental Indenture to the Indenture of Mortgage dated as of February 29, 1984. Forty-first Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1984. Forty-second Supplemental Indenture to the Indenture of Mortgage dated as of October 1, 1984. Forty-third Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1985. Forty-fourth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1986. Forty-fifth Supplemental Indenture to the Indenture of Mortgage dated as of February 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). Forty-sixth Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Forty-seventh Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Forty-eighth Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Forty-ninth Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 94 99 *4(c) Debenture Indenture dated as of November 1, 1986 from the Company to The Connecticut Bank and Trust Company, National Association, as Trustee (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference). First Supplemental Indenture dated as of November 1, 1986 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference). Second Supplemental Indenture dated as of April 1, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). Third Supplemental Indenture dated as of July 1, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). Fourth Supplemental Indenture dated as of July 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Fifth Supplemental Indenture dated as of November 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). *Sixth Supplemental Indenture dated as of June 1, 1993. *Seventh Supplemental Indenture dated as of July 1, 1993. 4(d) Debenture Indenture dated as of November 1, 1992 from the Company to Chemical Bank, as Trustee (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). First Supplemental Indenture dated as of January 1, 1993 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). - ------------------------ * Filed herewith. 95 100 Second Supplemental Indenture dated as of March 1, 1993 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Third Supplemental Indenture dated as of March 1, 1993 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Fourth Supplemental Indenture dated as of March 1, 1993 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 10(a) Sound Cable Project Facilities and Marketing Agreement dated as of August 26, 1987 between the Company and the Power Authority of the State of New York (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). 10(b) Transmission Agreement by and between the Company and Consolidated Edison Company of New York, Inc. dated as of March 31, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(c) Contract for the sale of Firm Power and Energy by and between the Company and the State of New York dated as of April 26, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(d) Capacity Supply Agreement dated as of December 13, 1991 between the Company and the Power Authority of the State of New York (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). *10(e) Nine Mile Point Nuclear Station Unit 2 Operating Agreement dated as of January 1, 1993 by and between the Company, New York State Electric & Gas Corporation, Rochester Gas and Electric Corporation and Central Hudson Gas and Electric Corporation. 10(f) Settlement Agreement on Issues Related to Nine Mile Two Nuclear Plant dated as of June 6, 1990 by and between the Company, the Staff of the Department of Public Service and others (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). - ------------------------ * Filed herewith. 96 101 10(g) Settlement Agreement -- LILCO Issues dated as of February 28, 1989 by and between the Company and the State of New York (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). 10(h) Amended and Restated Asset Transfer Agreement by and between the Company and the Long Island Power Authority dated as of June 16, 1988 as amended and restated on April 14, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(i) Memorandum of Understanding concerning proposed agreements on power supply for Long Island dated as of June 16, 1988 by and between the Company and New York Power Authority as amended May 24, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(j) Rate Moderation Agreement submitted by the staff of the New York State Public Service Commission on March 16, 1989 and supported by the Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(k) Site Cooperation and Reimbursement Agreement dated as of January 24, 1990 by and between the Company and Long Island Power Authority (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(l) Stipulation of settlement of federal Racketeer Influenced and Corrupt Organizations Act ("RICO") Class Action and False Claims Action dated as of February 27, 1989 among the attorneys for the Company, the ratepayer class, the United States of America and the individual defendants named therein (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). 10(m) Revolving Credit Agreement dated as of June 27, 1989, between Long Island Lighting Company and the banks and co-agents listed therein, with the Exhibits thereto (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) and as amended by the First Amendment dated as of October 13, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference) and as amended by the Second Amendment dated as of March 5, 1992 and as modified by a Waiver dated November 5, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 10(n) Indenture of Trust dated as of December 1, 1989 by and between New York State Energy Research and Development Authority and The Connecticut National Bank, as Trustee, relating to the 1989 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 97 102 Participation Agreement dated as of December 1, 1989 by and between the New York State Energy Research and Development Authority and the Company relating to the 1989 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(o) Indenture of Trust dated as of May 1, 1990 by and between New York State Energy Research and Development Authority and The Connecticut National Bank, as Trustee, relating to the 1990 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). Participation Agreement dated as of May 1, 1990 by and between the New York State Energy Research and Development Authority and the Company relating to the 1990 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). 10(p) Indenture of Trust dated as of January 1, 1991 by and between New York State Energy Research and Development Authority and The Connecticut National Bank, as Trustee, relating to the 1991 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). Participation Agreement dated as of January 1, 1991 by and between the New York State Energy Research and Development Authority and the Company relating to the 1991 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). 10(q) Indenture of Trust dated as of February 1, 1992 by and between New York State Energy Research and Development Authority and IBJ Schroder Bank and Trust Company, as Trustee, relating to the 1992 Electric Facilities Revenue Bonds, Series A (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Participation Agreement dated as of February 1, 1992 by and between the New York State Energy Research and Development Authority and the Company relating to the 1992 Electric Facilities Revenue Bonds, Series A (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). 10(r) Indenture of Trust dated as of February 1, 1992 by and between New York State Energy Research and Development Authority and IBJ Schroder Bank and Trust Company, as Trustee, relating to the 1992 Electric Facilities Revenue Bonds, Series B (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). 98 103 Participation Agreement dated as of February 1, 1992 by and between the New York State Energy Research and Development Authority and the Company relating to the 1992 Electric Facilities Revenue Bonds, Series B (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). 10(s) Indenture of Trust dated as of August 1, 1992 by and between New York State Energy Research and Development Authority and IBJ Schroder Bank and Trust Company, as Trustee, relating to the 1992 Electric Facilities Revenue Bonds, Series C (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Participation Agreement dated as of August 1, 1992 by and between the New York State Energy Research and Development Authority and the Company relating to the 1992 Electric Facilities Revenue Bonds, Series C (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 10(t) Indenture of Trust dated as of August 1, 1992 by and between New York State Energy Research and Development Authority and IBJ Schroder Bank and Trust Company, as Trustee, relating to the 1992 Electric Facilities Revenue Bonds, Series D (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Participation Agreement dated as of August 1, 1992 by and between the New York State Energy Research and Development Authority and the Company relating to the 1992 Electric Facilities Revenue Bonds, Series D (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). *10(u) Indenture of Trust dated as of November 1, 1993 by and between New York State Energy Research and Development Authority and Chemical Bank, as Trustee, relating to the 1993 Electric Facilities Revenue Bonds, Series A. Participation Agreement dated as of November 1, 1993 by and between the New York State Energy Research and Development Authority and the Company relating to the 1993 Electric Facilities Revenue Bonds, Series A. *10(v) Indenture of Trust dated as of November 1, 1993 by and between New York State Energy Research and Development Authority and Chemical Bank, as Trustee, relating to the 1993 Electric Facilities Revenue Bonds, Series B. Participation Agreement dated as of November 1, 1993 by and between the New York State Energy Research and Development Authority and the Company relating to the 1993 Electric Facilities Revenue Bonds, Series B. - ------------------------ * Filed herewith. 99 104 *10(w) Supplemental Death and Retirement Benefits Plan as amended and restated effective January 1, 1993 and related Trust Agreement, which Trust Agreement was filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference. *10(x) Executive Agreements and Management Contracts *(1) Executive Employment Agreement dated as of January 30, 1984 by and between William J. Catacosinos and Long Island Lighting Company, as amended by amendments dated March 20, 1987 (filed as Exhibit 10(e) to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference), December 22, 1989 (filed as Exhibit 10(o) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) and December 2, 1991 (filed as Exhibit 10(u) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference); an Employment Agreement dated as of March 20, 1987 (filed as Exhibit 10(e) to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as amended by amendments dated November 30, 1989 (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference), an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference), an amendment dated December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference), and as amended by an amendment dated December 31, 1993. *(2) Employment Agreement dated as of February 23, 1994 by and between Theodore A. Babcock and Long Island Lighting Company and related Trust Agreement, which Trust Agreement was filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference. (3) Employment Agreement dated as of May 14, 1990 by and between William N. Dimoulas and Long Island Lighting Company and related Trust Agreement (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). - ------------------------ * Filed herewith. 100 105 (4) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between James T. Flynn and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (5) Employment Agreement dated as of September 11, 1992 by and between Robert J. Grey and Long Island Lighting Company and related Trust Agreement as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (6) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Robert X. Kelleher and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (7) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between John D. Leonard, Jr. and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). 101 106 (8) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Adam M. Madsen and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (9) Employment Agreement dated as of May 30, 1990 by and between Kathleen A. Marion and Long Island Lighting Company and related Trust Agreement as amended by an amendment dated December 2, 1991 as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (10) Employment Agreement dated as of January 21, 1991 by and between Arthur C. Marquardt and Long Island Lighting Company and related Trust Agreement (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (11) Employment Agreement dated as of April 16, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Brian R. McCaffrey and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 incorporated herein by reference) and as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). 102 107 (12) Employment Agreement dated as of March 18, 1988 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Joseph W. McDonnell and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (13) Employment Agreement dated as of July 29, 1992 by and between Anthony Nozzolillo and Long Island Lighting Company and related Trust Agreement and as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (14) Employment Agreement dated as of July 29, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between William G. Schiffmacher and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (15) Employment Agreement dated as of February 20, 1990 by and between Robert B. Steger and Long Island Lighting Company and related Trust Agreement (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). 103 108 (16) Employment Agreement dated as of March 9, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between William E. Steiger, Jr. and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (17) Employment Agreement dated as of April 17, 1991 by and between Thomas J. Vallely, III and Long Island Lighting Company and related Trust Agreement as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (18) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Walter F. Wilm, Jr. and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (19) Employment Agreement dated as of November 4, 1988 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Edward J. Youngling and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). 104 109 (20) Retirement Agreement dated as of January 7, 1987 by and between George J. Sideris and Long Island Lighting Company, as amended March 20, 1987, and related Trust Agreement (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference). *(21) Indemnification Agreement dated as of February 23, 1994 by and between Theodore A. Babcock and Long Island Lighting Company. (22) Indemnification Agreement dated as of January 31, 1992 by and between A. James Barnes and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). (23) Indemnification Agreement dated as of May 30, 1990 by and between George Bugliarello and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (24) Indemnification Agreement dated as of April 17, 1992 by and between Renso L. Caporali and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). (25) Indemnification Agreement dated as of November 19, 1987 by and between William J. Catacosinos and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (26) Indemnification Agreement dated as of April 23, 1992 by and between Peter O. Crisp and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). (27) Indemnification Agreement dated as of May 14, 1990 by and between William N. Dimoulas and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (28) Indemnification Agreement dated as of November 25, 1987 by and between James T. Flynn and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (29) Indemnification Agreement dated as of November 19, 1987 by and between Winfield E. Fromm and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). - ----------------------- * Filed herewith. 105 110 *(30) Indemnification Agreement dated as of January 3, 1994 by and between Vicki L. Fuller and Long Island Lighting Company. (31) Indemnification Agreement dated as of September 11, 1992 by and between Robert J. Grey and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). (32) Indemnification Agreement dated as of November 25, 1987 by and between Robert X. Kelleher and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (33) Indemnification Agreement dated as of November 25, 1987 by and between John D. Leonard, Jr. and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (34) Indemnification Agreement dated as of November 25, 1987 by and between Adam M. Madsen and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (35) Indemnification Agreement dated as of May 30, 1990 by and between Kathleen A. Marion and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (36) Indemnification Agreement dated as of January 21, 1991 by and between Arthur C. Marquardt and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (37) Indemnification Agreement dated as of November 25, 1987 by and between Brian R. McCaffrey and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (38) Indemnification Agreement dated as of March 18, 1988 by and between Joseph W. McDonnell and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). (39) Indemnification Agreement dated as of July 29, 1992 by and between Anthony Nozzolillo and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). - --------------------- * Filed herewith. 106 111 *(40) Indemnification Agreement dated as of April 20, 1993 by and between Katherine D. Ortega and Long Island Lighting Company. (41) Indemnification Agreement dated as of November 19, 1987 by and between Basil A. Paterson and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (42) Indemnification Agreement dated as of November 25, 1987 by and between William Schiffmacher and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (43) Indemnification Agreement dated as of February 8, 1992 by and between Richard L. Schmalensee and Long Island Lighting Company (filed as an Exhibit to the Company Form 10- K for the Year Ended December 31, 1991 and incorporated herein by reference). (44) Indemnification Agreement dated as of November 30, 1987 by and between George J. Sideris and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (45) Indemnification Agreement dated as of February 20, 1990 by and between Robert B. Steger and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). (46) Indemnification Agreement dated as of March 1, 1989 by and between William E. Steiger, Jr. and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (47) Indemnification Agreement dated as of November 19, 1987 by and between John H. Talmage and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (48) Indemnification Agreement dated as of April 17, 1991 by and between Thomas J. Vallely, III and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). (49) Indemnification Agreement dated as of November 19, 1987 by and between Phyllis A. Vineyard and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). - --------------------- * Filed herewith. 107 112 (50) Indemnification Agreement dated as of November 25, 1987 by and between Walter F. Wilm, Jr. and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (51) Indemnification Agreement dated as of November 4, 1988 by and between Edward J. Youngling and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). (52) Long Island Lighting Company Officers' and Directors' Protective Trust dated as of April 18, 1988 by and between the Company and Clarence Goldberg, as Trustee (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). (53) Long Island Lighting Company's Retirement Plan for Directors dated as of February 2, 1990 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). *(54) Agreement dated as of April 20, 1993 by and between the Company and Lionel M. Goldberg. *(55) Agreement dated as of April 20, 1993 by and between the Company and Eben W. Pyne. *23 Consent of Ernst & Young, Independent Auditors. *24(a) Powers of Attorney executed by the Directors and Officers of the Company. *24(b) Certificate as to Corporate Power of Attorney. *24(c) Certified copy of Resolution of Board of Directors authorizing signature pursuant to Power of Attorney. Financial Statements of subsidiary companies accounted for by the equity method have been omitted because such subsidiaries do not constitute significant subsidiaries. - ---------------------- * Filed herewith. 108 113 (b) Reports on Form 8-K In its Report on Form 8-K dated October 8, 1993, the Company stated that: 1. On September 22, 1993, the United States Court of Appeals for the Second Circuit issued its opinion affirming the United States District Court for the Southern District of New York's jury award of $18.4 million, in favor of the Company, for a breach of warranty cause of action against Transamerica Delaval, Inc., now IMO Industries, Inc. and the District Court's dismissal of the Company's claims as to all categories of damages other than the amount attributable to the breach of warranty action. 2. If the Company concludes that the overall objectives of the RMA can be met, it may submit to the PSC, for the rate period commencing December 1, 1994, a multi-year electric rate plan providing for annual percentage increases that are significantly lower than the targeted levels contemplated by the RMA. 3. Subsequent to the issuance of the ALJ's Recommended Decision on the Company's gas rate application, the Company negotiated a multi-year rate settlement with Staff of the PSC which is subject to review by the ALJ and approval by the PSC. In its Report on Form 8-K dated December 3, 1993, the Company stated that: 1. On November 15, 1993, the PSC authorized the Company to increase its base electric rates by 4% effective December 1, 1993. This increase is the sixth in a series of 11 rate increases contemplated in the PSC-approved 1989 RMA. 2. The Company is in the process of preparing a three-year electric rate plan for the period beginning December 1, 1994 that provides for zero percentage base rate increases in years one and two of the plan and a base rate increase of approximately 4% in the third year, while retaining consistency with the RMA's objective of continuing the restoration of the Company's financial health. No other Reports on Form 8-K were filed in the fourth quarter of 1993. In its Report on Form 8-K dated January 21, 1994, the Company stated that: 1. The Company has announced the resignation of its President and Chief Operating Officer, Anthony F. Earley, Jr., effective March 1, 1994. 2. On December 31, 1993, the Company filed a three-year electric rate plan with the PSC for the period beginning December 1, 1994 that proposes no base electric rate increases in years one and two of the plan and an overall increase of 4.3% in the third year. 3. On January 12, 1994, the Company filed comments in response to the November 2, 1993 Petition filed by the CPB and LIPA with the PSC asking the PSC to hold a proceeding on freezing or possibly reducing the Company's electric rates for the period December 1994 to November 1997. 109 114 4. In December 1993, the PSC approved, with an effective date of December 31, 1993, the Company's negotiated three-year gas rate settlement with the Staff of the PSC which provided for a first year increase of $26.6 million and two subsequent increases of $23 million and $20 million to be effective on December 1, 1995 and 1996, respectively. 5. On December 30, 1993, the Appellate Division, Third Judicial Department, affirmed the Supreme Court of the State of New York Special Term's decision in LILCO v. PSC/Mayflower, which held that the PSC had violated PURPA and the New York Public Service Law and had acted arbitrarily when it ordered the Company to sign a power purchase contract with Mayflower Energy Partners, L.P. incorporating the PSC's 1989 Long Run Avoided Cost estimates. 6. On December 13, 1993, the United States District Court for the Eastern District of New York issued an opinion in LILCO v. Stone & Webster Engineering Corp. granting a motion by SWEC to dismiss the Company's complaint in this action which had sought to recover damages against SWEC for breach of contract, negligence, professional malpractice and gross negligence in connection with SWEC's work as architect-engineer and construction manager for Shoreham. 7. Pursuant to the LIPA Act, LIPA is required to make PILOTS to the municipalities that impose real property taxes on Shoreham. On January 10, 1994, the Appellate Division, Second Department, affirmed Nassau County Supreme Court's March 29, 1993 decision in LIPA, et al. v. Shoreham-Wading River Central School District, et al. holding, in major part, that the Company is not obligated for any real property taxes that accrued after February 28, 1992, attributable to property that it conveyed to LIPA, that PILOTS commence on March 1, 1992, that PILOTS are subject to refunds and that the LIPA Act does not provide for the termination of PILOTS. In its Report on Form 8-K dated February 7, 1994, the Company reported earnings of $2.15 per common share on revenues of $2,880,995,000 for the year ended December 31, 1993. 110 115 LONG ISLAND LIGHTING COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT For The Year Ended December 31, 1993 (Thousands of Dollars)
Other Changes Balance Additions Add Balance Classifications 12-31-92 at Cost Retirements (Deduct) (A) 12-31-93 --------------- ---------- ---------- ----------- ------------ -------- Utility Plant Plant and Equipment at Original Cost Electric - Production $1,770,221 $46,659 $18,116 32,570 1,831,334 Transmission 492,270 $20,667 1,889 (39,282) 471,766 Distribution 1,125,172 $77,129 7,144 6,015 1,201,172 General 34,563 $494 3,034 697 32,720 Constr. Work in Progress 94,977 (13,150) 0 0 81,827 Plant Held for Future Use 7,577 0 0 0 7,577 --------- -------- --------- --------- --------- 3,524,780 131,799 30,183 0 3,626,396 Nuclear Fuel in Process and in Reactor 19,216 (2,683) 0 0 16,533 Gas- Production 11,269 $131 713 (366) 10,321 Other Storage 22,278 $166 6 (962) 21,476 Transmission 98,266 $11,574 246 (3,692) 105,902 Distribution 612,757 $92,490 4,510 5,652 706,389 General 15,311 $2,763 1,386 (631) 16,057 Constr. Work in Progress 49,167 17,736 0 (1) 66,902 --------- -------- --------- --------- --------- 809,048 124,860 6,861 0 927,047 Gas Stored Underground 754 0 0 0 754 Common- General 171,991 31,995 3,280 0 200,706 Constr. Work in Progress 17,519 10,256 0 0 27,775 Plant Held for Future Use 712 0 0 0 712 --------- -------- --------- --------- --------- 190,222 42,251 3,280 0 229,193 --------- -------- --------- --------- --------- Total $4,544,020 $296,227 $40,324 $0 $4,799,923 ========= ======== ========= ========= =========
(A) Adjustments between Plant Accounts. 111 116 LONG ISLAND LIGHTING COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT For The Year Ended December 31, 1992 (Thousands of Dollars)
Other Changes Balance Additions Add Balance Classifications 12-31-91 at Cost Retirements (Deduct) (A) 12-31-92 --------------- -------- --------- ----------- ------------ -------- Utility Plant Plant and Equipment at Original Cost Electric - Production $1,740,453 $50,866 $21,098 $ - $1,770,221 Transmission 488,335 6,759 2,824 - 492,270 Distribution 1,051,386 88,165 14,379 - 1,125,172 General 35,217 1,770 2,394 (30) 34,563 Constr. Work in Progress 103,220 (8,243) - - 94,977 Plant Held for Future Use 7,617 - - (40) 7,577 ---------- ---------- ---------- ---------- ---------- 3,426,228 139,317 40,695 (70) 3,524,780 Nuclear Fuel in Process and in Reactor 29,818 (10,602) - - 19,216 Gas- Production 11,702 (163) 270 - 11,269 Other Storage 22,997 (647) 72 - 22,278 Transmission 81,509 17,523 766 - 98,266 Distribution 533,924 80,936 2,243 140 612,757 General 16,018 536 1,243 - 15,311 Constr. Work in Progress 43,323 5,844 - - 49,167 ---------- ---------- ---------- ---------- ---------- 709,473 104,029 4,594 140 809,048 Gas Stored Underground 754 - - - 754 Common- General 156,783 20,574 5,256 (110) 171,991 Constr. Work in Progress 10,968 6,551 - - 17,519 Plant Held for Future Use 712 - - - 712 ---------- ---------- ---------- ---------- ---------- 168,463 27,125 5,256 (110) 190,222 ---------- ---------- ---------- ---------- ---------- Total $4,334,736 $259,869 $50,545 ($40) $4,544,020 ========== ========== ========== ========== ==========
(A) Adjustments between Plant Accounts. 112 117 LONG ISLAND LIGHTING COMPANY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT For The Year Ended December 31, 1991 (Thousands of Dollars)
Other Changes Balance Additions Add Balance Classifications 12-31-90 at Cost Retirements (Deduct) (A) 12-31-91 --------------- -------- --------- ----------- ------------ -------- Utility Plant Plant and Equipment at Original Cost Electric - Production $1,731,388 $19,014 $9,917 ($32) $1,740,453 Transmission 440,379 48,675 745 26 488,335 Distribution 996,610 68,832 14,054 (2) 1,051,386 General 37,001 362 2,146 - 35,217 Constr. Work in Progress 114,032 (10,812) - - 103,220 Plant Held for Future Use 7,654 - - (37) 7,617 --------- --------- --------- --------- --------- 3,327,064 126,071 26,862 (45) 3,426,228 Nuclear Fuel in Process and in Reactor 47,481 (17,663) - - 29,818 Gas- Production 11,739 (37) 0 - 11,702 Other Storage 19,673 3,375 51 - 22,997 Transmission 68,309 13,203 3 - 81,509 Distribution 448,094 87,290 1,460 - 533,924 General 16,703 (50) 635 - 16,018 Constr. Work in Progress 57,155 (13,832) - - 43,323 --------- --------- --------- --------- --------- 621,673 89,949 2,149 - 709,473 Gas Stored Underground 754 - - - 754 Common- General 140,988 19,140 3,345 - 156,783 Constr. Work in Progress 12,150 (1,182) - - 10,968 Plant Held for Future Use 712 - - - 712 --------- --------- --------- --------- --------- 153,850 17,958 3,345 - 168,463 --------- --------- --------- --------- --------- Total $4,150,822 $216,315 $32,356 ($45) $4,334,736 ========= ========= ========= ========= =========
(A) Adjustments between Plant Accounts. 113 118 LONG ISLAND LIGHTING COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For The Year Ended December 31, 1993 (Thousands of Dollars)
Additions Other Charged Changes Balance to Cost Add Balance Description 12-31-92 & Expenses Retirements (Deduct)(A) 12-31-93 ----------- -------- ---------- ----------- ---------- -------- Accumulated Depreciation, Depletion and Amortization of Plant and Equipment Electric- Steam Production $380,695 $19,555 $1,317 ($16) $398,917 Nuclear Production 104,664 24,787 16,649 387 113,189 Other Production 96,054 9,279 150 236 105,419 Transmission Plant 180,107 11,392 1,888 452 190,063 Distribution Plant 350,946 33,982 7,144 (665) 377,119 General Plant 26,426 5,213 3,034 (8,576) 20,029 Plant Held for Future Use 447 28 0 0 475 Nuclear Fuel Burn-Up and Disposal 3,430 (2,657) 0 0 773 --------- --------- --------- --------- --------- 1,142,769 101,579 30,182 (8,182) 1,205,984 Gas- Production 6,924 137 713 (329) 6,019 Other Gas Storage 10,677 658 6 138 11,467 Transmission Plant 28,363 1,426 246 610 30,153 Distribution Plant 119,049 7,989 4,510 1,782 124,310 General Plant 13,419 3,202 1,386 (4,047) 11,188 --------- --------- --------- --------- --------- 178,432 13,412 6,861 (1,846) 183,137 Common- General 61,671 4,806 3,280 48 63,245 --------- --------- --------- --------- --------- Total $1,382,872 $119,797 $40,323 ($9,980) $1,452,366 ========= ========= ========= ========= =========
Note: (A) Includes transfers between reserves, costs of removal and salvage. 114 119 LONG ISLAND LIGHTING COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For The Year Ended December 31, 1992 (Thousands of Dollars)
Additions Other Charged Changes Balance to Cost Add Balance Description 12-31-91 & Expenses Retirements (Deduct)(A) 12-31-92 ----------- -------- ---------- ----------- ----------- -------- Accumulated Depreciation, Depletion and Amortization of Plant and Equipment Electric- Steam Production $377,327 $18,173 $17,689 $2,884 $380,695 Nuclear Production 85,203 24,936 5,588 113 104,664 Other Production 91,506 8,890 3,002 (1,340) 96,054 Transmission Plant 171,969 10,837 2,824 125 180,107 Distribution Plant 331,487 32,823 14,379 1,015 350,946 General Plant 28,211 9,409 2,395 (8,799) 26,426 Plant Held for Future Use 870 29 - (452) 447 Nuclear Fuel Burn-Up and Disposal 11,984 (8,554) - - 3,430 --------- --------- --------- --------- --------- 1,098,557 96,543 45,877 (6,454) 1,142,769 Gas- Production 6,663 450 269 80 6,924 Other Gas Storage 10,107 748 72 (106) 10,677 Transmission Plant 27,804 1,186 766 139 28,363 Distribution Plant 110,510 8,570 2,243 2,212 119,049 General Plant 14,241 4,013 1,243 (3,592) 13,419 --------- --------- --------- --------- --------- 169,325 14,967 4,593 (1,267) 178,432 Common- General 64,121 2,954 5,256 (148) 61,671 --------- --------- --------- --------- --------- Total $1,332,003 $114,464 $55,726 ($7,869) $1,382,872 ========= ========= ========= ========= =========
Note: (A) Includes transfers between reserves, costs of removal and salvage. 115 120 LONG ISLAND LIGHTING COMPANY SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For The Year Ended December 31, 1991 (Thousands of Dollars)
Additions Other Charged Changes Balance to Cost Add Balance Description 12-31-90 & Expenses Retirements (Deduct)(A) 12-31-91 ----------- -------- ---------- ----------- ----------- -------- Accumulated Depreciation, Depletion and Amortization of Plant and Equipment Electric- Steam Production $365,243 $17,934 $6,834 $984 $377,327 Nuclear Production 63,512 24,524 2,969 136 85,203 Other Production 83,000 8,640 35 (99) 91,506 Transmission Plant 162,172 9,791 745 751 171,969 Distribution Plant 317,395 26,502 14,054 1,644 331,487 General Plant 24,768 11,368 1,863 (6,062) 28,211 Plant Held for Future Use 854 29 - (13) 870 Nuclear Fuel Burn-Up and Disposal 27,259 (15,275) - - 11,984 --------- --------- --------- --------- --------- 1,044,203 83,513 26,500 (2,659) 1,098,557 Gas- Production 6,208 410 80 125 6,663 Other Gas Storage 9,424 714 51 20 10,107 Transmission Plant 26,623 1,144 3 40 27,804 Distribution Plant 103,108 6,672 1,471 2,201 110,510 General Plant 12,648 4,881 629 (2,659) 14,241 --------- --------- --------- --------- --------- 158,011 13,821 2,234 (273) 169,325 Common- General 60,529 6,996 3,629 225 64,121 --------- --------- --------- --------- --------- Total $1,262,743 $104,330 $32,363 ($2,707) $1,332,003 ========= ========= ========= ========= =========
Note: (A) Includes transfers between reserves, costs of removal and salvage. 116 121 LONG ISLAND LIGHTING COMPANY SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS (Thousands of Dollars)
- ---------------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - ---------------------------------------------------------------------------------------------------------------------------------- Additions ----------------------------- Charged Balance at Charged to to other Balance at DESCRIPTION beginning costs and accounts- Deductions- end of of period expenses describe describe period - ---------------------------------------------------------------------------------------------------------------------------------- Year ended December 31,1993 Deducted from asset accounts: Allowance for doubtful accounts $24,375 $18,555 $19,041 (1) $23,889 Year ended December 31,1992 Deducted from asset accounts: Allowance for doubtful accounts $26,935 $16,329 $18,889 (1) $24,375 Year ended December 31,1991 Deducted from asset accounts: Allowance for doubtful accounts $18,684 $35,431 $27,180 (1) $26,935
(1) Uncollectible accounts written off, net of recoveries. 117 122 LONG ISLAND LIGHTING COMPANY SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the year ended December 31, 1993 1992 1991 ----------------------------------------------------- (Thousands of Dollars) 1. Maintenance and repairs $133,852 $125,736 $147,492 ========== ========== ========== 2. Depreciation, depletion and amortization of property and equipment: Total Accrual $124,643 $121,411 $123,693 Less - charge to other income and clearing accounts 2,172 2,274 4,738 ---------- ---------- ---------- Depreciation Expense $122,471 $119,137 $118,955 ========== ========== ========== 3. Taxes, other than Federal income taxes: Property taxes $221,067 $214,866 $219,894 State and local gross income taxes 90,785 94,713 85,687 State gross earnings taxes 17,857 15,630 18,279 State dividends tax 6,137 5,344 6,684 Petroleum Business tax 28 15,307 Metropolitan Business tax 20,359 17,500 14,331 Corporate tax surcharge 15,046 24,784 12,300 Payroll taxes 14,507 15,647 14,347 Other 88 476 1,551 ---------- ---------- ---------- Total Operating Taxes $385,846 $388,988 $388,380 ========== ========== ==========
Advertising expenses for the years 1993 - 1991 were not presented as such amounts represent less than 1% of total revenues. 118 123 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date Signature and Title ---- --------------------------- WILLIAM J. CATACOSINOS* --------------------------- William J. Catacosinos, Principal Executive Officer, President and Chairman of the Board of Directors THOMAS J. VALLELY, III --------------------------- Thomas J. Vallely, III, Controller, Principal Accounting Officer A. JAMES BARNES* --------------------------- A. James Barnes, Director GEORGE BUGLIARELLO* --------------------------- George Bugliarello, Director March 15, 1994 RENSO L. CAPORALI* --------------------------- Renso L. Caporali, Director PETER O. CRISP* --------------------------- Peter O. Crisp, Director WINFIELD E. FROMM* --------------------------- Winfield E. Fromm VICKI L. FULLER* --------------------------- Vicki L. Fuller, Director KATHERINE D. ORTEGA* --------------------------- Katherine D. Orgega, Director BASIL A. PATERSON* --------------------------- Basil A. Paterson, Director RICHARD J. SCHMALENSEE* --------------------------- Richard L. Schmalensee, Director GEORGE J. SIDERIS --------------------------- George J. Sideris, Director JOHN H. TALMAGE --------------------------- John H. Talmage, Director PHYLLIS S. VINEYARD --------------------------- Phyllis S. Vineyard, Director *ANTHONY NOZZOLILLO --------------------------- Anthony Nozzolillo (Individually, as Senior Vice President and Chief Financial Officer and as attorney-in-fact for each of the persons indicated) March 15, 1994
119 124 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LONG ISLAND LIGHTING COMPANY Date: March 15, 1994 By: ANTHONY NOZZOLILLO ------------------------ Anthony Nozzolillo Chief Financial Officer Original powers of attorney, authorizing Kathleen A. Marion, Anthony Nozzolillo and Robert J. Grey, and each of them, to sign this report and any amendments thereto, as attorney-in-fact for each of the Directors and Officers of the Company, and a certified copy of the resolution of the Board of Directors of the company authorizing said persons and each of them to sign this report and amendments thereto as attorney-in-fact for any Officers signing on behalf of the Company, have been, are being filed or will be filed with the Securities and Exchange Commission. 120 125 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the Post-Effective Amendment No. 3 to Registration Statement (No 33-16238) on Form S-8 relating to Long Island Lighting Company's Employee Stock Purchase Plan, Post-Effective Amendment No. 1 to Registration Statement (No. 2-87427) on Form S-3 relating to Long Island Lighting Company's Automatic Dividend Reinvestment Plan and in the related Prospectus, Registration Statement (No. 2-88578) on Form S-3 relating to the issuance of Common Stock and in the related Prospectus and Registration Statement (No. 33-45834) on Form S-3 relating to the issuance of General and Refunding Bonds and in the related Prospectus and Registration Statement (No. 33-60744) on Form S-3 relating to the issuance of General and Refunding Bonds, Debentures, Preferred Stock or Common Stock and in the related Prospectus, of our report dated February 4, 1994, with respect to the financial statements and schedules of Long Island Lighting Company included in this Annual Report on Form 10-K for the year ended December 31, 1993. ERNST & YOUNG Melville, New York March 11, 1994 126 EXHIBIT INDEX Exhibit No. Description - ------- ----------- *3(a) Restated Certificate of Incorporation of the Company dated November 11, 1993. (b) By-laws of the Company as amended on May 28, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). 4(a) General and Refunding Indenture dated as of June 1, 1975 and 21 supplements thereto (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as follows: G&R Indenture dated as of June 1, 1975. First Supplemental Indenture to G&R Indenture dated as of June 1, 1975. Second Supplemental Indenture to G&R Indenture dated as of September 1, 1975. Third Supplemental Indenture to G&R Indenture dated as of June 1, 1976. Fourth Supplemental Indenture to G&R Indenture dated as of December 1, 1976. Fifth Supplemental Indenture to G&R Indenture dated as of May 1, 1977. Sixth Supplemental Indenture to G&R Indenture dated as of April 1, 1978. - ------------------------ * Filed herewith. 127 Exhibit No. Description - ------- ----------- Seventh Supplemental Indenture to G&R Indenture dated as of March 1, 1979. Eighth Supplemental Indenture to G&R Indenture dated as of February 1, 1980. Ninth Supplemental Indenture to G&R Indenture dated as of March 1, 1981. Tenth Supplemental Indenture to G&R Indenture dated as of July 1, 1981. Eleventh Supplemental Indenture to G&R Indenture dated as of July 1, 1981. Twelfth Supplemental Indenture to G&R Indenture dated as of December 1, 1981. Thirteenth Supplemental Indenture to G&R Indenture dated as of December 1, 1981. Fourteenth Supplemental Indenture to G&R Indenture dated as of June 1, 1982. Fifteenth Supplemental Indenture to G&R Indenture dated as of October 1, 1982. Sixteenth Supplemental Indenture to G&R Indenture dated as of April 1, 1983. Seventeenth Supplemental Indenture to G&R Indenture dated as of May 1, 1983. Eighteenth Supplemental Indenture to G&R Indenture dated as of September 1, 1984. Nineteenth Supplemental Indenture to G&R Indenture dated as of October 1, 1984. Twentieth Supplemental Indenture to G&R Indenture dated as of June 1, 1985. Twenty-first Supplemental Indenture to G&R Indenture dated as of April 1, 1986. Twenty-second Supplemental Indenture to G&R Indenture dated as of February 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). 128 Exhibit No. Description - ------- ----------- Twenty-third Supplemental Indenture to G&R Indenture dated as of May 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Twenty-fourth Supplemental Indenture to G&R Indenture dated as of July 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Twenty-fifth Supplemental Indenture to G&R Indenture dated as of May 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Twenty-sixth Supplemental Indenture to G&R Indenture dated as of July 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 4(b) Indenture of Mortgage and Deed of Trust dated as of September 1, 1951 and 44 supplements thereto (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as follows: Indenture of Mortgage dated as of September 1, 1951. First Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1951. Second Supplemental Indenture to the Indenture of Mortgage dated as of October 1, 1952. Third Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1953. Fourth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1954. Fifth Supplemental Indenture to the Indenture of Mortgage dated as of November 1, 1955. Sixth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1956. Seventh Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1958. 129 Exhibit No. Description - ------- ----------- Eighth Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1959. Ninth Supplemental Indenture to the Indenture of Mortgage dated as of August 1, 1961. Tenth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1963. Eleventh Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1964. Twelfth Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1965. Thirteenth Supplemental Indenture to the Indenture of Mortgage dated as of March 1, 1966. Fourteenth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1967. Fifteenth Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1969. Sixteenth Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1970. Seventeenth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1971. Eighteenth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1971. Nineteenth Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1972. Twentieth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1973. Twenty-first Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1974. Twenty-second Supplemental Indenture to the Indenture of Mortgage dated as of November 1, 1974. Twenty-third Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1975. 130 Exhibit No. Description - ------- ----------- Twenty-fourth Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1975. Twenty-fifth Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1976. Twenty-sixth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1976. Twenty-seventh Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1977. Twenty-eighth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1978. Twenty-ninth Supplemental Indenture to the Indenture of Mortgage dated as of March 1, 1979. Thirtieth Supplemental Indenture to the Indenture of Mortgage dated as of February 1, 1980. Thirty-first Supplemental Indenture to the Indenture of Mortgage dated as of March 1, 1981. Thirty-second Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1981. Thirty-third Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1981. Thirty-fourth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1981. Thirty-fifth Supplemental Indenture to the Indenture of Mortgage dated as of December 1, 1981. Thirty-sixth Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1982. Thirty-seventh Supplemental Indenture to the Indenture of Mortgage dated as of October 1, 1982. Thirty-eighth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1983. Thirty-ninth Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1983. 131 Exhibit No. Description - ------- ----------- Fortieth Supplemental Indenture to the Indenture of Mortgage dated as of February 29, 1984. Forty-first Supplemental Indenture to the Indenture of Mortgage dated as of September 1, 1984. Forty-second Supplemental Indenture to the Indenture of Mortgage dated as of October 1, 1984. Forty-third Supplemental Indenture to the Indenture of Mortgage dated as of June 1, 1985. Forty-fourth Supplemental Indenture to the Indenture of Mortgage dated as of April 1, 1986. Forty-fifth Supplemental Indenture to the Indenture of Mortgage dated as of February 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). Forty-sixth Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Forty-seventh Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1991 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Forty-eighth Supplemental Indenture to the Indenture of Mortgage dated as of May 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Forty-ninth Supplemental Indenture to the Indenture of Mortgage dated as of July 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 132 Exhibit No. Description - ------- ----------- *4(c) Debenture Indenture dated as of November 1, 1986 from the Company to The Connecticut Bank and Trust Company, National Association, as Trustee (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference). First Supplemental Indenture dated as of November 1, 1986 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference). Second Supplemental Indenture dated as of April 1, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). Third Supplemental Indenture dated as of July 1, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). Fourth Supplemental Indenture dated as of July 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Fifth Supplemental Indenture dated as of November 1, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). *Sixth Supplemental Indenture dated as of June 1, 1993. *Seventh Supplemental Indenture dated as of July 1, 1993. 4(d) Debenture Indenture dated as of November 1, 1992 from the Company to Chemical Bank, as Trustee (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). First Supplemental Indenture dated as of January 1, 1993 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). - ------------------------ * Filed herewith. 133 Exhibit No. Description - ------- ----------- Second Supplemental Indenture dated as of March 1, 1993 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Third Supplemental Indenture dated as of March 1, 1993 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Fourth Supplemental Indenture dated as of March 1, 1993 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 10(a) Sound Cable Project Facilities and Marketing Agreement dated as of August 26, 1987 between the Company and the Power Authority of the State of New York (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). 10(b) Transmission Agreement by and between the Company and Consolidated Edison Company of New York, Inc. dated as of March 31, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(c) Contract for the sale of Firm Power and Energy by and between the Company and the State of New York dated as of April 26, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(d) Capacity Supply Agreement dated as of December 13, 1991 between the Company and the Power Authority of the State of New York (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). *10(e) Nine Mile Point Nuclear Station Unit 2 Operating Agreement dated as of January 1, 1993 by and between the Company, New York State Electric & Gas Corporation, Rochester Gas and Electric Corporation and Central Hudson Gas and Electric Corporation. 10(f) Settlement Agreement on Issues Related to Nine Mile Two Nuclear Plant dated as of June 6, 1990 by and between the Company, the Staff of the Department of Public Service and others (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). - ------------------------ * Filed herewith. 134 Exhibit No. Description - ------- ----------- 10(g) Settlement Agreement -- LILCO Issues dated as of February 28, 1989 by and between the Company and the State of New York (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). 10(h) Amended and Restated Asset Transfer Agreement by and between the Company and the Long Island Power Authority dated as of June 16, 1988 as amended and restated on April 14, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(i) Memorandum of Understanding concerning proposed agreements on power supply for Long Island dated as of June 16, 1988 by and between the Company and New York Power Authority as amended May 24, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(j) Rate Moderation Agreement submitted by the staff of the New York State Public Service Commission on March 16, 1989 and supported by the Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(k) Site Cooperation and Reimbursement Agreement dated as of January 24, 1990 by and between the Company and Long Island Power Authority (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(l) Stipulation of settlement of federal Racketeer Influenced and Corrupt Organizations Act ("RICO") Class Action and False Claims Action dated as of February 27, 1989 among the attorneys for the Company, the ratepayer class, the United States of America and the individual defendants named therein (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). 10(m) Revolving Credit Agreement dated as of June 27, 1989, between Long Island Lighting Company and the banks and co-agents listed therein, with the Exhibits thereto (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) and as amended by the First Amendment dated as of October 13, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference) and as amended by the Second Amendment dated as of March 5, 1992 and as modified by a Waiver dated November 5, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 10(n) Indenture of Trust dated as of December 1, 1989 by and between New York State Energy Research and Development Authority and The Connecticut National Bank, as Trustee, relating to the 1989 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 135 Exhibit No. Description - ------- ----------- Participation Agreement dated as of December 1, 1989 by and between the New York State Energy Research and Development Authority and the Company relating to the 1989 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). 10(o) Indenture of Trust dated as of May 1, 1990 by and between New York State Energy Research and Development Authority and The Connecticut National Bank, as Trustee, relating to the 1990 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). Participation Agreement dated as of May 1, 1990 by and between the New York State Energy Research and Development Authority and the Company relating to the 1990 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). 10(p) Indenture of Trust dated as of January 1, 1991 by and between New York State Energy Research and Development Authority and The Connecticut National Bank, as Trustee, relating to the 1991 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). Participation Agreement dated as of January 1, 1991 by and between the New York State Energy Research and Development Authority and the Company relating to the 1991 Electric Facilities Revenue Bonds (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). 10(q) Indenture of Trust dated as of February 1, 1992 by and between New York State Energy Research and Development Authority and IBJ Schroder Bank and Trust Company, as Trustee, relating to the 1992 Electric Facilities Revenue Bonds, Series A (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). Participation Agreement dated as of February 1, 1992 by and between the New York State Energy Research and Development Authority and the Company relating to the 1992 Electric Facilities Revenue Bonds, Series A (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). 10(r) Indenture of Trust dated as of February 1, 1992 by and between New York State Energy Research and Development Authority and IBJ Schroder Bank and Trust Company, as Trustee, relating to the 1992 Electric Facilities Revenue Bonds, Series B (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). 136 Exhibit No. Description - ------- ----------- Participation Agreement dated as of February 1, 1992 by and between the New York State Energy Research and Development Authority and the Company relating to the 1992 Electric Facilities Revenue Bonds, Series B (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). 10(s) Indenture of Trust dated as of August 1, 1992 by and between New York State Energy Research and Development Authority and IBJ Schroder Bank and Trust Company, as Trustee, relating to the 1992 Electric Facilities Revenue Bonds, Series C (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Participation Agreement dated as of August 1, 1992 by and between the New York State Energy Research and Development Authority and the Company relating to the 1992 Electric Facilities Revenue Bonds, Series C (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). 10(t) Indenture of Trust dated as of August 1, 1992 by and between New York State Energy Research and Development Authority and IBJ Schroder Bank and Trust Company, as Trustee, relating to the 1992 Electric Facilities Revenue Bonds, Series D (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). Participation Agreement dated as of August 1, 1992 by and between the New York State Energy Research and Development Authority and the Company relating to the 1992 Electric Facilities Revenue Bonds, Series D (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). *10(u) Indenture of Trust dated as of November 1, 1993 by and between New York State Energy Research and Development Authority and Chemical Bank, as Trustee, relating to the 1993 Electric Facilities Revenue Bonds, Series A. Participation Agreement dated as of November 1, 1993 by and between the New York State Energy Research and Development Authority and the Company relating to the 1993 Electric Facilities Revenue Bonds, Series A. *10(v) Indenture of Trust dated as of November 1, 1993 by and between New York State Energy Research and Development Authority and Chemical Bank, as Trustee, relating to the 1993 Electric Facilities Revenue Bonds, Series B. Participation Agreement dated as of November 1, 1993 by and between the New York State Energy Research and Development Authority and the Company relating to the 1993 Electric Facilities Revenue Bonds, Series B. - ------------------------ * Filed herewith. 137 Exhibit No. Description - ------- ----------- *10(w) Supplemental Death and Retirement Benefits Plan as amended and restated effective January 1, 1993 and related Trust Agreement, which Trust Agreement was filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference. *10(x) Executive Agreements and Management Contracts *(1) Executive Employment Agreement dated as of January 30, 1984 by and between William J. Catacosinos and Long Island Lighting Company, as amended by amendments dated March 20, 1987 (filed as Exhibit 10(e) to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference), December 22, 1989 (filed as Exhibit 10(o) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) and December 2, 1991 (filed as Exhibit 10(u) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference); an Employment Agreement dated as of March 20, 1987 (filed as Exhibit 10(e) to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as amended by amendments dated November 30, 1989 (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference), an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference), an amendment dated December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference), and as amended by an amendment dated December 31, 1993. *(2) Employment Agreement dated as of February 23, 1994 by and between Theodore A. Babcock and Long Island Lighting Company and related Trust Agreement, which Trust Agreement was filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference. (3) Employment Agreement dated as of May 14, 1990 by and between William N. Dimoulas and Long Island Lighting Company and related Trust Agreement (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). - ------------------------ * Filed herewith. 138 Exhibit No. Description - ------- ----------- (4) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between James T. Flynn and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (5) Employment Agreement dated as of September 11, 1992 by and between Robert J. Grey and Long Island Lighting Company and related Trust Agreement as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (6) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Robert X. Kelleher and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (7) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between John D. Leonard, Jr. and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). 139 Exhibit No. Description - ------- ----------- (8) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Adam M. Madsen and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (9) Employment Agreement dated as of May 30, 1990 by and between Kathleen A. Marion and Long Island Lighting Company and related Trust Agreement as amended by an amendment dated December 2, 1991 as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (10) Employment Agreement dated as of January 21, 1991 by and between Arthur C. Marquardt and Long Island Lighting Company and related Trust Agreement (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (11) Employment Agreement dated as of April 16, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Brian R. McCaffrey and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 incorporated herein by reference) and as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). 140 Exhibit No. Description - ------- ----------- (12) Employment Agreement dated as of March 18, 1988 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Joseph W. McDonnell and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (13) Employment Agreement dated as of July 29, 1992 by and between Anthony Nozzolillo and Long Island Lighting Company and related Trust Agreement and as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (14) Employment Agreement dated as of July 29, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between William G. Schiffmacher and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (15) Employment Agreement dated as of February 20, 1990 by and between Robert B. Steger and Long Island Lighting Company and related Trust Agreement (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). 141 Exhibit No. Description - ------- ----------- (16) Employment Agreement dated as of March 9, 1989 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between William E. Steiger, Jr. and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (17) Employment Agreement dated as of April 17, 1991 by and between Thomas J. Vallely, III and Long Island Lighting Company and related Trust Agreement as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (18) Employment Agreement dated as of March 20, 1987 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Walter F. Wilm, Jr. and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). (19) Employment Agreement dated as of November 4, 1988 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference) as amended by an amendment dated November 30, 1989 by and between Edward J. Youngling and Long Island Lighting Company and related Trust Agreement (filed as Exhibit 10(q) to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference) as amended by an amendment dated December 2, 1991 (filed as Exhibit 10(w) to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference) as amended by an amendment dated as of December 31, 1992 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference) and as amended by an amendment dated December 31, 1993 which amendment is identical to that filed with Exhibit 10(x)(1). 142 Exhibit No. Description - ------- ----------- (20) Retirement Agreement dated as of January 7, 1987 by and between George J. Sideris and Long Island Lighting Company, as amended March 20, 1987, and related Trust Agreement (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1986 and incorporated herein by reference). *(21) Indemnification Agreement dated as of February 23, 1994 by and between Theodore A. Babcock and Long Island Lighting Company. (22) Indemnification Agreement dated as of January 31, 1992 by and between A. James Barnes and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). (23) Indemnification Agreement dated as of May 30, 1990 by and between George Bugliarello and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (24) Indemnification Agreement dated as of April 17, 1992 by and between Renso L. Caporali and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). (25) Indemnification Agreement dated as of November 19, 1987 by and between William J. Catacosinos and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (26) Indemnification Agreement dated as of April 23, 1992 by and between Peter O. Crisp and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). (27) Indemnification Agreement dated as of May 14, 1990 by and between William N. Dimoulas and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (28) Indemnification Agreement dated as of November 25, 1987 by and between James T. Flynn and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (29) Indemnification Agreement dated as of November 19, 1987 by and between Winfield E. Fromm and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). - ----------------------- * Filed herewith. 143 Exhibit No. Description - ------- ----------- *(30) Indemnification Agreement dated as of January 3, 1994 by and between Vicki L. Fuller and Long Island Lighting Company. (31) Indemnification Agreement dated as of September 11, 1992 by and between Robert J. Grey and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). (32) Indemnification Agreement dated as of November 25, 1987 by and between Robert X. Kelleher and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (33) Indemnification Agreement dated as of November 25, 1987 by and between John D. Leonard, Jr. and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (34) Indemnification Agreement dated as of November 25, 1987 by and between Adam M. Madsen and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (35) Indemnification Agreement dated as of May 30, 1990 by and between Kathleen A. Marion and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (36) Indemnification Agreement dated as of January 21, 1991 by and between Arthur C. Marquardt and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (37) Indemnification Agreement dated as of November 25, 1987 by and between Brian R. McCaffrey and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (38) Indemnification Agreement dated as of March 18, 1988 by and between Joseph W. McDonnell and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). (39) Indemnification Agreement dated as of July 29, 1992 by and between Anthony Nozzolillo and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1992 and incorporated herein by reference). - --------------------- * Filed herewith. 144 Exhibit No. Description - ------- ----------- *(40) Indemnification Agreement dated as of April 20, 1993 by and between Katherine D. Ortega and Long Island Lighting Company. (41) Indemnification Agreement dated as of November 19, 1987 by and between Basil A. Paterson and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (42) Indemnification Agreement dated as of November 25, 1987 by and between William Schiffmacher and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (43) Indemnification Agreement dated as of February 8, 1992 by and between Richard L. Schmalensee and Long Island Lighting Company (filed as an Exhibit to the Company Form 10- K for the Year Ended December 31, 1991 and incorporated herein by reference). (44) Indemnification Agreement dated as of November 30, 1987 by and between George J. Sideris and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (45) Indemnification Agreement dated as of February 20, 1990 by and between Robert B. Steger and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). (46) Indemnification Agreement dated as of March 1, 1989 by and between William E. Steiger, Jr. and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1990 and incorporated herein by reference). (47) Indemnification Agreement dated as of November 19, 1987 by and between John H. Talmage and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (48) Indemnification Agreement dated as of April 17, 1991 by and between Thomas J. Vallely, III and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1991 and incorporated herein by reference). (49) Indemnification Agreement dated as of November 19, 1987 by and between Phyllis A. Vineyard and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). - --------------------- * Filed herewith. 145 Exhibit No. Description - ------- ----------- (50) Indemnification Agreement dated as of November 25, 1987 by and between Walter F. Wilm, Jr. and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1987 and incorporated herein by reference). (51) Indemnification Agreement dated as of November 4, 1988 by and between Edward J. Youngling and Long Island Lighting Company (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). (52) Long Island Lighting Company Officers' and Directors' Protective Trust dated as of April 18, 1988 by and between the Company and Clarence Goldberg, as Trustee (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1988 and incorporated herein by reference). (53) Long Island Lighting Company's Retirement Plan for Directors dated as of February 2, 1990 (filed as an Exhibit to the Company's Form 10-K for the Year Ended December 31, 1989 and incorporated herein by reference). *(54) Agreement dated as of April 20, 1993 by and between the Company and Lionel M. Goldberg. *(55) Agreement dated as of April 20, 1993 by and between the Company and Eben W. Pyne. *23 Consent of Ernst & Young, Independent Auditors. *24(a) Powers of Attorney executed by the Directors and Officers of the Company. *24(b) Certificate as to Corporate Power of Attorney. *24(c) Certified copy of Resolution of Board of Directors authorizing signature pursuant to Power of Attorney. Financial Statements of subsidiary companies accounted for by the equity method have been omitted because such subsidiaries do not constitute significant subsidiaries. - ---------------------- * Filed herewith. EX-3.A 2 RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3(a) RESTATED CERTIFICATE OF INCORPORATION OF LONG ISLAND LIGHTING COMPANY PURSUANT TO SECTION 807 OF THE BUSINESS CORPORATION LAW We, Anthony F. Earley, Jr. and Kathleen A. Marion, being respectively the President and Secretary of LONG ISLAND LIGHTING COMPANY, pursuant to Section 807 of the Business Corporation Law, do hereby certify: 1. The name of the Corporation is Long Island Lighting Company. 2. The Certificate of Incorporation was filed in the office of the Secretary of State on December 31, 1910. A Restated and Amended Certificate of Incorporation under Section 807 of the Business Corporation Law was filed by the Department of State on October 9, 1980. 3. The text of the Certificate of Incorporation of the Corporation, as amended and supplemented by all certificates heretofore filed pursuant to law, as now in force and effect, is hereby restated in a single certificate, without further change or amendment thereto, except for the necessary inclusion of identifying headings and cross-references for amendments to said certificate which are now incorporated herein. 4. The entire text of the Certificate of Incorporation of Long Island Lighting Company, as amended and supplemented by all certificates heretofore filed pursuant to law is hereby restated to read as follows: CERTIFICATE OF INCORPORATION OF LONG ISLAND LIGHTING COMPANY UNDER SECTION 3 OF THE NEW YORK TRANSPORTATION CORPORATIONS LAW FIRST: The name of the Corporation is LONG ISLAND LIGHTING COMPANY. SECOND: The office of the Corporation is to be located in Hicksville, Town of Oyster Bay, County of Nassau, State of New York; and the address to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation which may be served upon him is 175 East Old Country Road, Hicksville, New York, 11801. 2 THIRD: The purposes of the Corporation shall be as follows: Manufacturing, using and supplying gas (herein defined, and intended throughout this Restated Certificate of Incorporation to include, gas either manufactured, natural or mixed) and electricity, for producing light, heat or power, and in lighting streets, avenues, public parks and places, and public and private buildings, in the Counties of Suffolk, Nassau and Queens, in the State of New York. Engaging in any lawful act or activity for which corporations may be formed under the Business Corporation Law but not in any act or activity for which the consent or approval of any state department, official, board, agency or other body is required without such consent or approval first being obtained. In furtherance of the foregoing purposes, the Corporation shall have the following powers: To manufacture, use, acquire, purchase, store, transport, sell and deal in gas and electricity. To manufacture, use, acquire, purchase, store, sell and deal in derivatives of gas or electricity; by-products of the manufacture, use and storage of gas or electricity; water, and by-products of water, produced, treated, processed, purified or desalinized in conjunction with the manufacture of gas or electricity; instruments and devices for the production, conversion or utilization of energy; energy produced or converted as a by-product or derivative of or convenient adjunct to the manufacture and storage of gas or electricity. To purchase, acquire, make, sell, finance, and lease any and all machines, instruments, substances, apparatus and equipment in furtherance of or convenient to the sale of gas or electricity. To purchase, take, receive, subscribe for, or otherwise acquire, own, hold, vote, employ, sell, lend, lease, exchange, transfer or otherwise dispose of, mortgage, pledge, use or otherwise deal in and with bonds and other obligations, shares, or other securities or interests issued by others, whether engaged in similar or different business, governmental, or other activities, all as more fully set forth in Section 202 of the Business Corporation Law of New York State. To exercise the aforesaid powers for any and all lawful purposes, and generally to exercise all of the rights and powers conferred by the statutes of the State of New York on corporations incorporated for the purpose of supplying gas or electricity, or both, for light, heat and power, or by any other statutes which are or may hereafter become applicable to such corporations. In addition, to have and exercise all powers necessary or convenient to effect any or all of the purposes for which the corporation is formed. 2 3 FOURTH: The total number of shares which the Corporation is authorized to issue, with an aggregate par value of two billion two hundred seven million five hundred thousand dollars ($2,207,500,000), is one hundred ninety-four million five hundred thousand (194,500,000) shares, divided into classes as follows: one hundred fifty million (150,000,000) shares of Common Stock of the par value of Five Dollars ($5) each, seven million five hundred thousand (7,500,000) shares of Preference Stock of the par value of One Dollar ($1) each, seven million (7,000,000) shares of Preferred Stock of the par value of One Hundred Dollars ($100) each, and thirty million (30,000,000) shares of Preferred Stock of the par value of Twenty-five Dollars ($25) each. FIFTH: I. The capital of the Corporation shall be at least equal to the sum of the aggregate par value of all issued shares having par value, plus the sum of $8,533,344 transferred to capital by resolution of the Board of Directors, and such additional amount as from time to time, by resolution of the Board of Directors, may be transferred thereto. II. Shares of the Corporation, including without limitation shares of "Preferred Stock, 5-3/4%, Series I", which have been heretofore or may be hereafter purchased, redeemed or otherwise reacquired and cancelled by the Corporation, may be reissued from time to time as shares of the Corporation of the same class as any such shares so purchased, redeemed or otherwise reacquired and cancelled by the Corporation, provided that no shares of Preferred Stock or Preference Stock so purchased, redeemed or otherwise reacquired and cancelled by the Corporation shall be reissued as shares of the same series of Preferred Stock or Preference Stock theretofore issued. III. The designations, preferences, privileges, and voting powers of the shares of each class, and the restrictions or qualifications thereof, are as follows: A. PREFERRED STOCK 1. The Preferred Stock may be issued from time to time in one or more series, the shares of each such series to have such designations, preferences, privileges and voting powers, and restrictions or qualifications thereof, as are provided herein or as may be fixed prior to the issuance of such series by the Board of Directors; and the Board of Directors is hereby expressly authorized to fix from time to time before issuance the designations, preferences, privileges and voting powers of each such series which are not fixed herein, and the restrictions or qualifications thereof. 2. The following designations, preferences, privileges and voting powers, and restrictions or qualifications thereof, shall apply to all shares of Preferred Stock authorized by this certificate, provided, however, that the Corporation may in the manner provided by law authorize and issue additional shares of Preferred Stock: (a) The holders of each series of Preferred Stock shall be entitled to receive, if and when declared payable by the Board of Directors out of 3 4 assets legally available for the payment of dividends, cumulative cash dividends at such rate per share and payable quarterly on such dates as shall be fixed by resolution adopted by the Board of Directors prior to the issuance of such series. Dividends on each share of Preferred Stock shall commence to accrue on and be cumulative from the first day of the current dividend period within which such share was issued. If for any past dividend period or periods dividends shall not have been paid or declared and set apart for payment upon all outstanding shares of Preferred Stock at the rate per annum applicable thereto, the deficiency shall be fully paid or declared and set apart for payment (at any time without reference to any payment date) before any dividend shall be declared or paid or set apart for the Common Stock or any other class of stock ranking junior to the Preferred Stock. Accumulations of dividends shall not bear interest. In case the stated dividends are not paid in full, the shares of all series of the Preferred Stock shall share ratably in the payment of dividends, including accumulations, if any, in accordance with the sums which would be payable on said shares if all dividends were declared and paid in full. (b) The holders of the Preferred Stock shall not be entitled to receive any dividends thereon other than the dividends referred to in paragraph (a) hereof. (c) Upon any involuntary dissolution, liquidation, or winding up of the Corporation, the holders of shares of Preferred Stock shall be entitled to receive out of the assets of the Corporation, the par value of their shares, plus, in the case of each share, an amount equal to all dividends on such share accrued and unpaid thereon to the date of payment upon such dissolution, liquidation or winding up of the Corporation, before any distribution of the assets to be distributed shall be made to the holders of the Common Stock or any other class of stock ranking junior to the Preferred Stock. Upon any voluntary dissolution, liquidation, or winding up of the Corporation, the holders of shares of Preferred Stock shall be entitled to receive out of the assets of the Corporation the then applicable redemption price of their shares, plus, in the case of each share, an amount equal to all dividends on such share accrued and unpaid thereon to the date of payment upon such dissolution, liquidation or winding up of the Corporation, before any distribution of the assets to be distributed shall be made to the holders of the Common Stock or any other class of stock ranking junior to the Preferred Stock. In case the amounts payable on liquidation are not paid in full, the shares of all series shall share ratably in any distribution of assets other than by way of dividends in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full. After payment to the holders of Preferred Stock of the preferential amounts to which they are entitled upon an involuntary or upon a voluntary dissolution, liquidation or winding up, as the case may be, as hereinabove provided, the holders of Preferred Stock, as such, shall have no right or claim to any of the remaining assets of the Corporation, either upon any 4 5 distribution of surplus assets, or upon involuntary or upon voluntary dissolution, liquidation or winding up. The sale, lease, exchange, assignment, transfer or conveyance of all or substantially all the property of the Corporation to, or the merger or consolidation of the Corporation into or with, any other corporation shall not be deemed to be an involuntary or a voluntary dissolution, liquidation or winding up for the purposes of this paragraph (c). (d) At the option of the Board of Directors of the Corporation, the Corporation may redeem the whole or any part of the Preferred Stock at any time outstanding, or the whole or any part of any series thereof, at any time or from time to time, at the then applicable redemption price thereof as may be fixed by resolution adopted by the Board of Directors prior to the issuance of such series, plus accrued and unpaid dividends to the date of redemption; provided, however, that upon redemption of any outstanding shares of Preferred Stock not less than thirty (30) nor more than sixty (60) days previous to the date fixed for redemption, notice of the time and place thereof shall be given to the holders of record of Preferred Stock so to be redeemed, by mail and publication in a newspaper, printed in the English language and customarily published on each business day, of general circulation in the Borough of Manhattan, City and State of New York, in such manner as may be prescribed by the By-laws of the Corporation or by resolution of the Board of Directors; and, provided further, that the accidental failure to mail any such notice to one or more of such holders shall not affect the validity of such redemption as to the other holders, and that such notice shall be deemed to have been duly given to any holder of the Preferred Stock within the meaning of the foregoing provision when the same shall have been published as aforesaid and a copy deposited in the United States mails, postage prepaid, addressed to such holder at his last-known address as it appears on the books of the Corporation; and, provided further, that such notice shall include a statement to the effect that privileges of conversion or exchange, if any, not theretofore expiring, will expire at the close of business on the full business day next preceding the date fixed for redemption; and, provided further, that in every case of redemption of less than all of the outstanding shares of any one series of Preferred Stock, such redemption shall be made pro rata, or the shares of such series to be redeemed shall be chosen by lot in such manner as may be prescribed by resolution of the Board of Directors. At any time after notice of redemption has been given in the manner prescribed by the By-laws of the Corporation or by resolution of the Board of Directors to the holders of stock so to be redeemed, the Corporation may deposit funds sufficient for such redemption with a solvent bank or trust company having its principal office in the Borough of Manhattan, City and State of New York and having a combined capital and surplus of at least $5,000,000 named in such notice payable on the date fixed for redemption, as aforesaid, and in the amounts aforesaid, to the respective orders of the holders of the shares so to be redeemed, on endorsement to the Corporation or otherwise, as may be required, and upon surrender of the certificates for such shares. Upon the deposit of said money as aforesaid, or, if no such deposit is made, upon said redemption date (unless the Corporation defaults in making payment of the redemption price) such holders shall 5 6 cease to be stockholders with respect to said shares, and from and after the making of said deposit, or, if no such deposit is made, after the redemption date (the Corporation not having defaulted in making the payment of the redemption price), the said holders shall have no interest in or claims against the Corporation with respect to said shares except only the right to receive said moneys on the date fixed for redemption, as aforesaid, from said bank or trust company, or from the Corporation, as the case may be, without interest thereon, upon endorsement, if required, and surrender of the certificates as aforesaid and the right to exercise, on or before the close of business on the full business day next preceding the date fixed for redemption, privileges of conversion or exchange, if any, not theretofore expiring. Any moneys deposited by the Corporation as aforesaid which shall not be required for such redemption because of the exercise of any such right of conversion or exchange subsequent to the date of such deposit shall be repaid to the Corporation forthwith. In case the holder of any Preferred Stock redeemed as aforesaid shall not, within six (6) years after said deposit, claim the amount deposited as above stated for the redemption thereof, the depositary shall, upon demand, pay over to the Corporation such amount so deposited and the depositary thereupon shall be relieved from all responsibility to such holder. Subject to the provisions hereof, the Board of Directors shall have authority to prescribe from time to time the manner in which Preferred Stock shall be redeemed and cancelled. Nothing herein contained shall limit or deprive the Corporation of the right to redeem or purchase any shares of Preferred Stock in any other manner now or hereafter permitted by law. (e) Except as hereinafter provided and except as some provision of law expressly confers a right to vote regardless of any provision to the contrary in this Certificate or other certificate filed pursuant to law, the holders of Preferred Stock shall not be entitled to any notice of meetings of stockholders of the Corporation, or to vote, or to any voting rights whatsoever as stockholders of the Corporation, and are hereby specifically excluded from the right to vote in a proceeding for authorizing any guaranty pursuant to Section 908 of the Business Corporation Law, for sale of the franchises and property pursuant to Section 909 of the Business Corporation Law, for establishing priorities or creating preferences among the various classes of stock pursuant to Section 801 of the Business Corporation Law, for consolidation or merger pursuant to Section 901 of the Business Corporation Law, for voluntary dissolution pursuant to Section 1001 of the Business Corporation Law, or for change of name pursuant to the Business Corporation Law, or in the election of directors or in any other proceeding or at any stockholders' meeting. The foregoing provisions are subject to the following: (1) So long as any shares of Preferred Stock are outstanding, the Corporation shall not without authorization (given in person or by proxy, in writing or at a meeting duly called for that purpose in accordance with Section 605 of the Business 6 7 Corporation Law of the State of New York or as otherwise permitted by law) by at least two-thirds of the votes entitled to be cast by the holders of the total number of shares of Preferred Stock then outstanding: (A) amend, alter, change or repeal any of the express terms of the Preferred Stock then outstanding in a manner to affect the holders of such shares adversely otherwise than to increase the authorized number of shares of Preferred Stock, provided, however, that if such amendment, alteration, change or repeal would adversely affect the holders of one or more, but not all, of the series of Preferred Stock at the time outstanding, authorization by at least two-thirds of the votes entitled to be cast by the holders of the total number of shares of all such series so affected shall be required in lieu of authorization by at least two-thirds of the votes entitled to be cast by the holders of the total number of shares of Preferred Stock then outstanding; or (B) create or authorize any class of stock having a preference superior to the preferences of the Preferred Stock as to assets or dividends, or create or authorize any security convertible into shares of stock of any such kind; or (C) issue any shares of, or ranking on a parity with, the Preferred Stock under this Certificate, unless for any twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the calendar month within which such additional shares shall be issued, the net earnings of the Corporation available for the payment of interest charges on the Corporation's interest bearing indebtedness, determined after provision for depreciation and all taxes, and in accordance with sound accounting practice, shall have been at least one and one-half (1-1/2) times the aggregate of the annual interest charges on the interest bearing indebtedness of the Corporation and annual dividend requirements on all shares of, or ranking on a parity with, Preferred Stock to be outstanding immediately after the proposed issue of such shares of, or ranking on a parity with, the Preferred Stock. There shall be excluded from the foregoing computation, interest charges on all such indebtedness and dividends on all stock which is to be retired in connection with the issue of such shares of, or ranking on a parity with, the Preferred Stock. Where such shares of, or ranking on a parity with, the Preferred Stock are to be issued in connection with the acquisition of new property, the net earnings of the property so acquired may be included on a pro forma basis in the foregoing computation, computed on the same basis as the net earnings of the Corporation. Nothing in this subparagraph (C) however shall prevent the Corporation from issuing shares of, or ranking on a parity with, the Preferred Stock in connection with the purchase, 7 8 redemption or other acquisition of or any exchange for shares of, or ranking on a parity with, the Preferred Stock, if the aggregate amount of annual dividends payable on the shares to be issued and the aggregate amount payable on such shares in case of voluntary dissolution shall not exceed said respective amounts payable on the shares of, or ranking on a parity with, the Preferred Stock which are to be purchased, redeemed or otherwise acquired. (2) So long as any shares of Preferred Stock are outstanding, the Corporation shall not without authorization (given in person or by proxy, in writing or at a meeting duly called for that purpose in accordance with Section 605 of the Business Corporation Law of the State of New York or as otherwise permitted by law) by a majority of the votes entitled to be cast by the holders of the total number of shares of Preferred Stock then outstanding: (A) sell, lease, exchange, assign, transfer or convey all or substantially all of the property or business of the Corporation or merge or consolidate into or with any other company; provided, however, that nothing herein contained shall require such authorization in respect of the merger or consolidation of the Corporation into or with any other company if the company resulting from such merger or consolidation will, immediately after such merger or consolidation, have only such authorized classes of stock and such outstanding shares of stock as would have been permitted immediately prior to such merger or consolidation under the provisions hereof without any further consent of the holders of the Preferred Stock, and if each holder of the Preferred Stock immediately preceding such merger or consolidation shall receive the same number of shares, with the same rights and preferences, of the resulting company. For the purposes of this clause insofar as any earnings test may be applicable, the earnings, interest charges on debt and dividend requirements of the merging or consolidating companies shall be determined on a combined basis. No consent of the holders of the Preferred Stock shall be required under the provisions hereof if, at or prior to the time when the act is to take effect with respect to which consent would otherwise be required, provision is made for the redemption of all shares of Preferred Stock at the time outstanding; or (B) increase the authorized number of shares of Preferred Stock. (3) If and when dividends payable on any shares of Preferred Stock shall be in default in an amount equivalent to or exceeding four (4) full quarterly dividends, thereafter and until all dividends on the shares of Preferred Stock in default shall have been paid or declared and set aside for payment, the holders of the shares of Preferred Stock, voting separately as a class and 8 9 regardless of series, shall be entitled to elect the smallest number of directors necessary to constitute a majority of the full Board of Directors, and, subject to the provisions of Paragraph "FIFTH" Section "III," Subdivision "B," Subparagraph "2(f)(3)," hereof, the holders of the shares of the Common Stock, voting separately as a class, shall be entitled to elect the remaining directors of the Corporation, anything herein or in the By-laws to the contrary notwithstanding. The terms of office of all persons who may be directors of the Corporation shall terminate upon the election of a majority of the Board of Directors by the holders of the shares of Preferred Stock, whether or not the holders of the shares of the Common Stock shall then have elected the remaining directors of the Corporation. (4) If and when all dividends then in default on the shares of Preferred Stock then outstanding shall be paid or declared and set aside for payment (and such dividends shall be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the holders of shares of Preferred Stock shall be divested of the special right with respect to the election of directors provided in Paragraph "FIFTH," Section "III," Subdivision "A," Subparagraph "2(e)(3)" hereof, and the voting power, with respect thereto, shall, subject to the provisions of Paragraph "FIFTH," Section "III," Subdivision "B," Subparagraph "2(f)(3)" hereof, revert to the holders of the shares of the Common Stock; but always subject to the same provisions for vesting such special right in the holders of the shares of Preferred Stock in case of further like default or defaults in dividends thereon as provided in Paragraph "FIFTH," Section "III," Subdivision "A," Subparagraph "2(e)(3)" hereof. Upon the termination of any such special right upon payment or setting aside for payment of all accumulated and defaulted dividends on the shares of Preferred Stock, the terms of office of all persons who may have been elected directors of the Corporation by vote of the holders of the shares of Preferred Stock, as a class, pursuant to such special right shall forthwith terminate, and the resulting vacancies shall be filled by the vote of a majority of the remaining directors. (5) In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the shares of Preferred Stock, as a class, pursuant to the foregoing provisions hereof, the remaining directors elected by such holders, by affirmative vote of a majority thereof, or the remaining director so elected if there be but one, may elect a successor or successors to hold office for the unexpired terms of the director or directors whose place or places shall be vacant, and such successor or successors shall be deemed to have been elected by such holders. Likewise, subject to the provisions of Paragraph "FIFTH," Section "III," Subdivision "B," Subparagraph "2(f)(3)" hereof, in case of any vacancy in the office of a director occurring among the directors elected by the holders of the shares of the Common Stock pursuant to the foregoing provisions hereof, the remaining directors elected by the holders of the Common Stock, by affirmative vote of 9 10 a majority thereof, or the remaining director so elected if there be but one, may elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant, and such successor or successors shall be deemed to have been elected by such holders. (6) Whenever under the provisions hereof, the right shall have accrued to the holders of the shares of Preferred Stock to elect directors, the Board of Directors shall within ten (10) days after delivery to the Corporation at its principal office of a request to such effect signed by any holder of shares of any series of Preferred Stock entitled to vote, call a special meeting of the stockholders to be held within fifty (50) days from the delivery of such request for the purpose of electing directors (unless under the provisions of the By-laws of the Corporation as then in effect, an annual meeting of stockholders of the Corporation is to be held within sixty (60) days after the vesting in the holders of the Preferred Stock of the right to elect directors). At all meetings of stockholders held for the purpose of electing directors during such time as the holders of the shares of Preferred Stock shall have the special right, voting separately and as a class, to elect directors pursuant hereto, the presence in person or by proxy of the holders of a majority of the outstanding shares of any other class entitled to vote at such meeting shall be required to constitute a quorum of that other class for the election of directors, and the presence in person or by proxy of the holders of shares representing a majority of the votes entitled to be cast by the holders of the total number of shares of Preferred Stock then outstanding shall be required to constitute a quorum of such class for the election of directors; provided, however, that the absence of a quorum of the holders of stock of any such class shall not prevent the election of directors at any such meeting (or at any adjournment thereof) by the other such class or classes if the necessary quorum of the holders of stock of such class or classes is present in person or by proxy at such meeting; in the absence of a quorum of the holders of stock of any class of stock a majority of those holders of the stock of such class who are present in person or by proxy shall have power to adjourn the meeting for the election of the directors to be elected by such class from time to time without notice other than announcement at the meeting until a quorum shall be present in person or by proxy, but such adjournment shall not be made to a date beyond the date for the mailing of notice of the next annual meeting of the Corporation or special meeting in lieu thereof. (7) Whenever the holders of Preferred Stock shall be entitled, as a class, to vote, authorize, consent or otherwise act, they shall be entitled to cast one-quarter of one vote for each share of Preferred Stock of the par value of Twenty-five Dollars ($25) each, and one vote for each share of Preferred Stock of the par value of One Hundred Dollars ($100) each, held by them respectively. 10 11 (f) The holders of shares of Preferred Stock at any time outstanding shall have no preemptive or preferential right to subscribe for or purchase any shares of stock, or rights or options to purchase shares of stock whether now or hereafter authorized, or any securities convertible into or exchangeable for shares of stock or into rights or options to purchase shares of stock of the Corporation of any class. 3. The designations, preferences, privileges and voting powers, and the restrictions or qualifications thereof, of each series of Preferred Stock are as follows: (a) Series B Preferred Stock. A series consisting initially of 100,000 shares of the Preferred Stock of the par value of $100 per share is designated "Preferred Stock, 5%, Series B" (hereinafter called "Series B Preferred Stock"). The dividend rate per annum of the shares of Series B Preferred Stock is $5.00 per share. The dividend payment dates for the shares of Series B Preferred Stock are the first days of January, April, July and October; and the dividend periods for such shares are the quarterly periods beginning on such dates commencing April 1, 1952. The price at which the shares of Series B Preferred Stock shall be redeemable is $102.00 per share if redeemed on or before March 31, 1967, and $101.00 per share if redeemed thereafter. (b) Series D Preferred Stock. A series consisting initially of 70,000 shares of the Preferred Stock of the par value of $100 per share is designated "Preferred Stock, 4.25%, Series D" (hereinafter called "Series D Preferred Stock"). The dividend rate per annum of the shares of Series D Preferred Stock is $4.25 per share. The dividend payment dates from the shares of Series D Preferred Stock are the first days of January, April, July and October; and the dividend periods for such shares are the quarterly periods beginning on such dates commencing January 1, 1954. The price at which the shares of Series D Preferred Stock shall be redeemable is $102.25 per share if redeemed on or before December 31, 1968, and $102.00 per share if redeemed thereafter. (c) Series E Preferred Stock. A series consisting initially of 200,000 shares of the Preferred Stock of the par value of $100 per share is designated "Preferred Stock, 4.35%, Series E" (hereinafter called "Series E Preferred Stock"). The dividend rate per annum of the shares of Series E Preferred Stock is $4.35 per share. The dividend payment dates for the shares of Series E Preferred Stock are the first days of January, April, July and October; and the dividend periods for such shares are the quarterly periods beginning on such dates commencing April 1, 1954. The price at which the shares of Series E Preferred Stock shall be redeemable is $102.25 per share if redeemed on or before March 31, 1969, and $102.00 per share if redeemed thereafter. (d) Series F Preferred Stock. A series consisting initially of 50,000 shares of the Preferred Stock of the par value of $100 per share is designated "Preferred Stock, 4.35%, Series F" (hereinafter called "Series F Preferred Stock"). The dividend rate per annum of the shares of Series F Preferred Stock is $4.35 per share. The dividend payment dates for the shares of Series F Preferred Stock are the first days of January, April, 11 12 July and October; and the dividend periods for such shares are the quarterly periods beginning on such dates commencing April 1, 1955. The price at which the shares of Series F Preferred Stock shall be redeemable is $102.25 per share if redeemed on or before March 31, 1970, and $102.00 per share if redeemed thereafter. (e) Series H Preferred Stock. A series consisting initially of 200,000 shares of the Preferred Stock of the par value of $100 per share is designated "Preferred Stock, 5-1/8%, Series H" (hereinafter called "Series H Preferred Stock"). The dividend rate per annum of the shares of Series H Preferred Stock is $5.125 per share. The dividend payment dates for the shares of Series H Preferred Stock are the first days of January, April, July and October; and the dividend periods for such shares are the quarterly periods beginning on such dates commencing October 1, 1960. The price at which the shares of Series H Preferred Stock shall be redeemable is $107.50 per share if redeemed on or before September 30, 1970, $103.00 per share if redeemed thereafter and on or before September 30, 1975, and $102.00 per share if redeemed thereafter. (f) Series I Preferred Stock (1) Number and Designation of Series. A series consisting initially of 301,994 shares of the authorized Preferred Stock of the Corporation of the par value of $100 is designated "Convertible Preferred Stock, 5-3/4%, Series I" (hereinafter called the "Series I Preferred Stock"). (2) Dividend Rate. The dividend rate per annum of the shares of Series I Preferred Stock is $5.75 per share. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series I Preferred Stock are the tenth days of February, May, August and November; and the dividend periods for such shares are the quarterly periods beginning on such dates commencing November 10, 1967. (4) Redemption Price. The price at which the shares of Series I Preferred Stock shall be redeemable is $105 per share if redeemed on or before November 30, 1968, $104 per share if redeemed thereafter and on or before November 30, 1969, $103 per share if redeemed thereafter and on or before November 30, 1970, $102 per share if redeemed thereafter and on or before November 30, 1971, and $101 per share if redeemed thereafter and on or before November 30, 1972, and $100 per share if redeemed thereafter. (5) Conversion. The holder of any shares of Series I Preferred Stock, at his option, at any time and from time to time (or as to any share of Series I Preferred Stock called for redemption, then up to the close of business on the third full business day next preceding the date fixed for redemption), may convert all or any part of the Series I Preferred Stock held by him into shares of the Common Stock of the Corporation (hereinafter 12 13 called the "Common Stock") at the rate, and upon the other terms, hereinafter set forth. In order to convert said shares of Series I Preferred Stock, such holder shall surrender the certificates for said shares (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation shall so require) to the Corporation at the office of any transfer agent for the shares of Common Stock. For all purposes of this section (5), the "date of conversion" of such shares of Series I Preferred Stock shall be deemed to be the date of the surrender of the certificates for such shares for conversion notwithstanding the stock transfer books are at the time closed; and for the purpose of receiving dividends, the converting holder of Series I Preferred Stock shall be deemed to have become, on the date of conversion, the record holder of the Commons Stock deliverable upon such conversion. (A) General Provisions Governing Issuance of Common Stock. Upon receipt by the Corporation of any certificates for Series I Preferred Stock surrendered for conversion, the Corporation shall, as soon as practicable, execute and deliver to such holder a certificate or certificates for the number of full shares of Common Stock sufficient for the conversion of said Series I Preferred Stock as aforesaid. The stock certificates so delivered shall be in the name of the record holder of the Series I Preferred Stock certificates so surrendered for conversion, or in such other name or names as he may direct, in which latter case he shall pay all stock transfer taxes that may be payable in respect thereof. The Corporation shall pay the amount of any and all taxes which may be imposed in respect of any issue or delivery of stock certificates under this section (5) and which shall be payable in order that such stock may be issued in the name of the record holder of the Series I Preferred Stock certificates so surrendered for conversion. The Corporation shall not be required to deliver certificates for shares of Common Stock upon conversion while its stock transfer books are closed, but such certificates shall be delivered as soon as practicable after the stock transfer books shall be opened. The Corporation shall not be required upon any such conversion to issue a certificate representing any fraction of a share of Common Stock, but in lieu thereof will pay a cash adjustment based on the market price. All shares of Common Stock issued upon conversion of Series I Preferred Stock pursuant to the provisions of this section (5) shall be fully paid and nonassessable. (B) Initial Rate Conversion; Adjustments. The initial rate of conversion of Series I Preferred Stock under this section (5) shall be 3.5714 shares of Common Stock for each share of Series I Preferred Stock, or (for the purpose of the adjustment hereinafter mentioned, and treating each share of Series I Preferred Stock as 13 14 the equivalent of $100) at the initial conversion price of $28 per share of Common Stock. The conversion price and the rate of conversion shall be subject to adjustment from time to time as provided in the next following subdivisions [1] to [3], inclusive, the number of shares deliverable in respect of each share of Series I Preferred Stock upon any conversion being determined by dividing $100 by the conversion price in effect at that time. [1] Issuance of Additional Shares of Common Stock. In case the Corporation shall at any time or from time to time issue any additional shares of Common Stock in excess of the 18,119,661 shares outstanding on October 25, 1967 (other than shares of Common Stock issued upon conversion of Series I Preferred Stock as herein provided and shares of Common Stock referred to in subdivision (g) of this subdivision [1] without consideration or for a consideration per share less than the conversion price in effect immediately prior to the time of such issue, then forthwith upon such issuance, the conversion price shall be adjusted (calculated to the nearest cent) by the following process: To the sum of $507,350,508, being the aggregate value of the 18,119,661 shares of Common Stock outstanding on October 25, 1967, taken at the initial conversion price of $28 per share, shall be added the aggregate consideration (determined as hereinafter provided) received by the Corporation for all additional shares of Common Stock issued after October 25, 1967 (including shares of Common Stock issued upon conversion of Series I Preferred Stock under this section (5) but excluding shares of Common Stock referred to in subdivision (g) of this subdivision [1]); and such total shall be divided by the total number of shares of Common Stock outstanding immediately after such issuance (excluding shares of Common Stock referred to in subdivision (g) of this subdivision [1]), and the quotient resulting from such division (if less than the conversion price in effect immediately prior to such issuance) shall be the adjusted conversion price to be thereafter in effect until again adjusted as provided herein; provided, however, that the conversion price in effect from time to time shall not be reduced, and the number of shares of Common Stock deliverable upon conversion shall not be increased, pursuant to this subdivision [1], unless and until, by reason of the happening of any one or more of the events specified in this subdivision [1], the adjusted conversion price shall be reduced by 25 cents or more per share, but any adjustment which would otherwise be required to be made shall be carried forward and made at the time of and together with any subsequent adjustment which, together with any adjustment or adjustments so carried forward shall amount to 25 cents or more per share of Common Stock; and provided further, that such conversion price having at any time been reduced by adjustment under this subdivision [1] shall never thereafter be increased under this subdivision [1], notwithstanding any 14 15 subsequent issue of shares of Common Stock. For the purpose of this subdivision [1], the following provisions shall be applicable with respect to the issuance of additional shares of Common Stock: [a] Rights or Options below Prevailing Conversion Price. In case the Corporation shall grant any rights or options to subscribe for or to purchase such additional shares (other than rights or options granted to stockholders of the Corporation in satisfaction of their statutory preemptive rights), at a price per share less than the conversion price in effect immediately prior to the time of the granting of such rights or options, all such additional shares shall be deemed to have been issued as of the date of the granting of such rights or options and the minimum aggregate consideration called for upon the exercise of such rights or options, plus the consideration, if any, received by the Corporation for such rights or options, shall be deemed to be the consideration received by the Corporation (as of the date of the granting of such rights or options) for the issuance of such additional shares. [b] Securities Convertible below Prevailing Conversion Price. In case (i) the Corporation shall issue any obligations or any stock (other than Series I Preferred Stock), convertible into or exchangeable for such additional shares, and (ii) the price per share for which such additional shares are deliverable upon such conversion or exchange (determined by dividing (I) the total amount received or receivable by the Corporation as consideration for the issuance of such convertible obligations or stock, plus the minimum aggregate amount of any additional consideration payable to the Corporation upon conversion or exchange, by (II) the total maximum number of such additional shares necessary to effect the conversion or exchange of all such convertible obligations or stock), shall be less than the conversion price in effect immediately prior to the time of such issuance. then such issuance shall be deemed to be an issuance (as of the date of issuance of such convertible obligations or stock) of the total maximum number of such additional shares necessary to effect the conversion or exchange of all such convertible obligations or stock, and the price determined as provided in the next preceding paragraph (ii) shall be deemed to be the consideration actually received (as of the date of the issuance of such convertible obligations or stock) for the issuance of such additional shares. 15 16 [c] Purchase Rights and Securities Convertible at or above Prevailing Conversion Price and Preemptive Rights. In case (i) the Corporation shall grant any rights or options to subscribe for or to purchase such additional shares or shall issue any obligations or any stock (other than Series I Preferred Stock) convertible into or exchangeable for such additional shares, and the price per share at which such additional shares may be subscribed for or purchased pursuant to such rights or options, or are deliverable upon such conversion or exchange (determined as provided in the next preceding subdivision [b], shall be equal to or greater than the conversion price in effect immediately prior to the time of such issuance, or (ii) the Corporation shall grant to its stockholders, in satisfaction of their statutory preemptive rights, any rights or options to subscribe for or to purchase such additional shares, such additional shares shall not be deemed to have been issued until the exercise of such rights or options or the conversion or exchange of such obligations or stock (in whole or in part), and the consideration received by the Corporation for the issuance of such additional shares shall be the consideration received upon the exercise of the rights or options so exercised, plus the consideration, if any, received by the Corporation for such rights or options, or the consideration received by the Corporation for the issuance of the obligations or stock so converted or exchanged, plus the amount of any additional consideration paid to the Corporation upon such conversion or exchange. [d] Stock Dividends. In case any such additional shares shall be issued as a stock dividend on any class of capital stock, such shares shall be deemed to have been issued without consideration and to have been issued and to be outstanding on the day next succeeding the record date for the determination of stockholders entitled to such dividend. In the event of the declaration of a dividend without the fixing of a record date for the determination of the stockholders entitled thereto, the first business day during which the stock transfer books of the Corporation shall be closed for the purpose of such determination shall be deemed to be the record date. [e] Computation of Consideration. In case any such additional shares, or any obligations or stock convertible into or exchangeable for any such additional shares, shall be issued or sold for cash, the consideration received by the Corporation therefor shall be deemed to be the net amount of 16 17 cash received therefor, before deducting any commissions and expenses paid by the Corporation for any underwriting of, or otherwise in connection with, the issue or sale thereof; and, if such issue or sale be for a consideration other than cash (in whole or in part), then, for the purposes of this subdivision [1], the consideration actually received therefor shall be deemed to be such amount as shall be determined in a resolution of the Board of Directors of the Corporation as the fair value of such consideration at the time of such issue or sale, provided, however, that no value shall be attributed to services performed for the Corporation by its officers and employees. The reclassification of securities other than Common Stock into securities including Common Stock shall be deemed to involve the issuance for a consideration other than cash of such Common Stock immediately prior to the close of business on the record date for the determination of stockholders entitled to such Common Stock, or, if no record date is fixed, on the first business day during which the stock transfer books of the Corporation shall be closed for the purpose of such determination. [f] Consideration upon Conversion. The consideration received for any such additional shares issued upon conversion of Series I Preferred Stock under this section (5) shall be deemed to be $100 for each share of Series I Preferred Stock so converted. [g] Common Stock Issued to Officers or Employees. For purposes of computations made pursuant to this subdivision [1], there shall be excluded from consideration such shares of Common Stock (and any rights or options to subscribe for such shares) up to an aggregate of 500,000 such shares, and the consideration received by the Corporation therefor, issued after October 25, 1967 to officers or employees pursuant to a plan approved by vote of the holders of Common Stock, such number of shares to be adjusted from time to time to proportionately reflect any subdivision or combination of the outstanding shares of Common Stock or any stock dividend that would have been payable on such number of shares if outstanding. [h] In case the Corporation shall at any time subdivide or combine the outstanding shares of Common Stock, the amount of 25 cents referred to above in this subdivision [1] (or the amount to which such amount may have been previously adjusted pursuant to this paragraph) shall be proportionately decreased in the case of a subdivision or increased in the case of a combination, effective at the close of business on the date of such subdivision or combination. 17 18 [i] Outstanding Common Stock. The number of shares of Common Stock at any time outstanding include all shares of Common Stock held in the treasury of the Corporation, and all shares of Common Stock issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The resale or exchange of shares of Common Stock held in the treasury of the Corporation shall not be deemed to be an issuance thereof. [2] Subdivisions and Combinations. In case the Corporation shall at any time or from time to time subdivide or combine, by reclassification or otherwise, the outstanding shares of Common Stock, the conversion price then in effect shall be proportionately reduced in the case of a subdivision or increased in the case of a combination, effective at the close of business on the date of such subdivision or combination. [3] Reorganization and Reclassification. In case of any capital reorganization or any reclassification of the capital stock of the Corporation (except as provided in the next preceding paragraph [2] and except a change in par value, or from par value to no par value, or from no par value to par value), any holder of Series I Preferred Stock, whether theretofore or thereafter issued, upon conversion thereof, shall be entitled to receive, in lieu of the shares of Common Stock to which he would have become entitled upon conversion but for such reorganization or reclassification, the shares of stock (of any class or classes) or other securities or property of the Corporation to which such shares of Common Stock would have been entitled upon such reorganization or reclassification; and, in any such case, appropriate provision (as determined by a resolution of the Board of Directors of the Corporation) shall be made for the application of this section (5) with respect to the rights and interests thereafter of the holders of Series I Preferred Stock, to the end that this section (5) (including the specified changes in and other adjustments of the conversion rate and price) shall thereafter be applicable, as nearly as reasonably practicable, to any shares of stock or securities or other property thereafter deliverable upon the conversion of Series I Preferred Stock. [4] Statement of Adjusted Conversion Rate. Whenever the rate of conversion or the conversion price is required to be adjusted as aforesaid, the Corporation shall forthwith prepare a written statement signed by the President or a Vice President and the Treasurer or an Assistant Treasurer of the Corporation (which, unless one of the officers signing the same is an accountant and shall so state, shall be signed also by an accountant), setting forth the adjusted rate and price determined as provided in this subdivision (B) and in reasonable detail the facts requiring such adjustment. Such statement shall at all reasonable times during business hours be open to inspection by the holders of Series I Preferred Stock. In addition, the Corporation shall forthwith cause a notice setting forth the adjusted conversion rate and price and 18 19 the reason for such adjustment to be mailed, first class postage prepaid, to all holders of record of outstanding Series I Preferred Stock, at their last known addresses as the same appear on the books of the Corporation, and to be published once in a newspaper, printed in the English language and customarily published on each business day, of general circulation in the Borough of Manhattan, City and State of New York. (C) No Adjustment of Dividends. Upon conversion of Series I Preferred Stock under this section (5), no adjustment shall be made in respect of dividends upon the Series I Preferred Stock converted or upon the Common Stock issued in exchange therefor. (D) Termination. In case of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, all conversion rights of the holders of the Series I Preferred Stock shall terminate on a date fixed by resolution of the Board of Directors of the Corporation, such date so fixed to be not earlier than 10 days prior to the effective date of such liquidation, dissolution or winding up. (E) Consolidation and Merger. In case the Corporation shall, while any shares of Series I Preferred Stock remain outstanding, consolidate with or merge into any other corporation, proper provision shall be made that, on the terms and in the manner provided in this section (5), the holder of any Series I Preferred Stock may thereafter convert the same into the same kind and amount of securities as may be issuable by the terms of such consolidation or merger with respect to the number of shares of Common Stock into which such Series I Preferred Stock is convertible at the time of such consolidation or merger; and proper provision shall also be made for the application after such consolidation or merger of this section (5) with respect to the rights and interests thereafter of the holders of Series I Preferred Stock, to the end that this section (5) (including the specified changes in and other adjustments of the conversion rate and price) shall thereafter be applicable, as nearly as reasonably practicable, to any shares of stock or securities thereafter deliverable upon the conversion of Series I Preferred Stock. (F) Notice of Certain Transactions. In case [1] the Corporation shall pay any dividend payable in stock (of any class or classes) upon Common Stock or make any distribution (other than ordinary cash dividends) to the holders of Common Stock; [2] the Corporation shall grant to the holders of Common Stock any rights or options; [3] of any capital reorganization or reclassification of the capital stock of the Corporation; [4] the Corporation shall consolidate with or merge into any other corporation or sell or transfer all or substantially all of its assets; or 19 20 [5] of the liquidation, dissolution or winding up of the Corporation, then the Corporation shall cause notice of any such intended action, and of the date of any termination of the conversion rights of holders of Series I Preferred Stock incident to any liquidation, dissolution or winding up, to be mailed, first class postage prepaid, not less than 20 nor more than 40 days prior to the date on which the transfer books of the Corporation shall close or a record be taken for such stock dividend, distribution or granting of rights or options, or such capital reorganization, reclassification, consolidation, merger, sale, liquidation, dissolution or winding up shall be effective, as the case may be, to all holders of record of outstanding Series I Preferred Stock, at their last known addresses as the same appear on the books of the Corporation, and to be published once in a newspaper, printed in the English language and customarily published on each business day, of general circulation in the Borough of Manhattan, City and State of New York, not less than 20 nor more than 40 days prior to such date. (G) Reservation of Stock. The Corporation shall reserve and set apart a number of shares of authorized but unissued Common Stock sufficient to enable it at any time to fulfill all its obligations with respect to the conversion of Series I Preferred Stock under this section (5). Whenever any shares of Common Stock required to be reserved for the purposes of conversion of Series I Preferred Stock require registration with or approval of any governmental authority under any Federal or state law, or listing with any securities exchange, before such shares may be issued upon conversion, the Corporation shall promptly cause such shares to be registered, approved or listed, as the case may be. (H) For purpose of this section (5), the term "Common Stock" shall include any stock of any class of the Corporation which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and which is not subject to redemption by the Corporation. However, shares issuable on conversion of shares of the Series I Preferred Stock shall include only shares of the class designated as Common Stock of the Corporation as of October 25, 1967, or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and which are not subject to redemption by the Corporation. (g) Series L Preferred Stock (1) Number and Designation of Series. A series consisting initially of 350,000 shares of the Preferred Stock of the par value of $100 per share is designated "Preferred Stock, 7.40%, Series L" (hereinafter called the "Series L Preferred Stock"). 20 21 (2) Dividend Rate. The dividend rate per annum of the shares of Series L Preferred Stock is $7.40 per share. Dividends shall be calculated on the basis of a 30-day month and a year of 360 days. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series L Preferred Stock are the last days of January, April, July and October; and the dividend periods for such shares are the quarterly periods beginning on such dates commencing July 31, 1973. (4) Optional Redemption. Subject to the restrictions set forth in section (6) of this subdivision (g), at the option of the Board of Directors of the Corporation, the Corporation may redeem the whole or any part of the Series L Preferred Stock at any time outstanding, at any time or from time to time, at the then applicable optional redemption price (hereinafter called the "optional redemption price"), plus accrued and unpaid dividends to the date of redemption. The optional redemption price at which Series L Preferred Stock shall be redeemable is $115 per share if redeemed on or before July 30, 1978, $110 per share if redeemed thereafter and on or before July 30, 1983, the price per share specified below if redeemed thereafter and on or before July 30, 2006:
If Redeemed If Redeemed During the During the 12-Month Optional 12-Month Optional Period Ending Redemption Period Ending Redemption July 30 Price July 30 Price ------- ----- ------- ----- 1984............... $105.20 1996.............. $102.53 1985............... 104.98 1997.............. 102.30 1986............... 104.76 1998.............. 102.07 1987............... 104.54 1999.............. 101.84 1988............... 104.32 2000.............. 101.61 1989............... 104.10 2001.............. 101.38 1990............... 103.88 2002.............. 101.15 1991............... 103.66 2003.............. 100.92 1992............... 103.44 2004.............. 100.69 1993............... 103.22 2005.............. 100.46 1994............... 102.99 2006.............. 100.23 1995............... 102.76
and $100 per share if redeemed thereafter. The applicable optional redemption price at which the shares of Series L Preferred Stock shall be redeemable as specified in this section (4) shall be deemed to be the "applicable redemption price" of Series L Preferred Stock payable to the holders thereof upon any voluntary dissolution, liquidation, or winding up of the Corporation as specified in the second paragraph of paragraph (c) of Subparagraph "2" of Subdivision 21 22 "A" of Section "III" of Paragraph "FIFTH" of the Certificate of Incorporation. (5) Sinking Fund. As a sinking fund for the redemption of Series L Preferred Stock, subject to the provisions of section (6) of this subdivision (g), on July 31, 1979, and on each July 31 thereafter to and including July 31, 2010, the Corporation shall redeem 10,500 shares of the Series L Preferred Stock (or the number of shares of the Series L Preferred Stock then outstanding if less than 10,500), and on July 31, 2011 (if any of the Series L Preferred Stock remains outstanding) the Corporation shall redeem all the Series L Preferred Stock then outstanding, in each case at a price of $100 per share, plus, in each case, accrued and unpaid dividends to the date of redemption; provided that, if the Corporation shall purchase any shares of Series L Preferred Stock pursuant to section (10) below, the number of shares otherwise required by this section (5) to be redeemed on each July 31 thereafter (after giving effect to any prior reduction pursuant to this proviso) shall be reduced by a number which bears (to the nearest full number) the same relation to the number of shares otherwise required to be redeemed as aforesaid as the aggregate number of shares so purchased (since the then most recent reduction) bears to the aggregate number of shares outstanding immediately prior to giving effect to such purchase. No redemption of Series L Preferred Stock pursuant to section (4) of this subdivision (g) shall constitute a redemption of such shares in lieu of or as a credit against any sinking fund redemption required by this section (5). (6) Restrictions on Optional Redemption and Sinking Fund Redemption. Less than all of the shares of Series L Preferred Stock shall not be redeemed pursuant to section (4) or (5) above unless full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series L Preferred Stock, other than shares of Series L Preferred Stock previously or then to be called for redemption. The obligation of the Corporation to redeem shares for the sinking fund at any time as provided in section (5) of this subdivision (g) shall be subject to any restrictions now existing in the Corporation's Indenture of Mortgage and Deed of Trust dated as of September 1, 1951, as heretofore supplemented (including any extension of said existing restrictions in said Indenture of Mortgage and Deed of Trust for the benefit of any series of Bonds hereafter issued thereunder) and in the Corporation's 5-1/2% Promissory Notes due 1973-1982 and to any applicable restrictions of law. Notwithstanding the foregoing provisions of this section (6), the obligation of the Corporation to redeem Series L Preferred Stock annually commencing on July 31, 1979, pursuant to section (5) of this subdivision (g) above, shall be cumulative. (7) Restrictions on Payments on Junior Stock. The Corporation shall not declare or pay or set apart any dividend for the Common Stock or any other class of stock ranking junior to the 22 23 Series L Preferred Stock, or make any payment on account of, or set apart money for a sinking or analogous fund for, the purchase, redemption or other retirement of the Common Stock or any other class of stock ranking junior to the Series L Preferred Stock, or make any distribution in respect thereof, either directly or indirectly, and whether in cash or property or obligations or stock of the Corporation, unless at the date of declaration in the case of any such dividend, or at the date of any such other payment, setting apart or distribution, (a) full cumulative sinking fund redemptions required by section (5) of this subdivision (g) shall have been made and (b) full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series L Preferred Stock, other than shares of Series L Preferred Stock previously or then to be called for redemption. (8) Restriction on Sinking Fund Payments on Other Stock. The Corporation shall not redeem or purchase any shares ranking on a parity with the Series L Preferred Stock as to assets or dividends, pursuant to any sinking fund (which term shall include any analogous requirement) for the redemption or purchase of such shares, and shall not set apart money for any such fund, at any time when the sinking fund redemption required by section (5) of this subdivision (g) shall be in arrears; except that, at any time when the sinking fund redemption required by section (5) of this subdivision (g) shall be in arrears and when arrears exist in any sinking or analogous fund retirement required for any shares ranking as aforesaid on a parity with the Series L Preferred Stock, the Corporation may redeem or purchase for the respective funds shares of Series L Preferred Stock and such other shares, pro rata, as nearly as practicable, according to the amounts in dollars of the arrears in the redemptions or purchases required for the respective funds. (9) Provisions Applicable to Redemption. Not less than thirty (30) nor more than sixty (60) days previous to a date fixed for redemption pursuant to section (4) or (5) of this subdivision (g), notice of the time and place thereof shall be given by mail to the holders of record of the Series L Preferred Stock so to be redeemed. Such notice shall be deemed to have been duly given to any holder of the Series L Preferred Stock within the meaning of the foregoing provision when the same shall have been deposited in the United States mails, postage prepaid, addressed to such holder at his last-known address as it appears on the books of the Corporation. In every case of redemption of less than all of the Series L Preferred Stock pursuant to section (4) or (5) of this subdivision (g), such redemption shall be made pro rata. At any time after notice of redemption has been given in the manner prescribed above to the holders of the shares so to be redeemed, the Corporation may deposit funds sufficient for such redemption with a solvent bank or trust company named in such notice having its principal office in the Borough of Manhattan, City and State of New York, and having a combined capital and surplus of at least 23 24 $5,000,000, and payable on the date fixed for redemption, as aforesaid, to the respective orders of the holders of the shares so to be redeemed, on endorsement of the certificates for such shares, and upon surrender thereof, to the Corporation, or otherwise as may be required. Upon the deposit of said money as aforesaid, or if no such deposit is made, upon said redemption date (unless the Corporation defaults in making payment of the redemption price plus accrued and unpaid dividends as aforesaid) such holders shall cease to be stockholders with respect to said shares, and from and after the making of said deposit, or, if no such deposit is made, after the redemption date (the Corporation not having defaulted in making the payment of the redemption price plus accrued and unpaid dividends as aforesaid), the said holders shall have no interest in or claims against the Corporation with respect to said shares except only the right to receive said moneys on the date fixed for redemption, as aforesaid, from said bank or trust company, or from the Corporation, as the case may be, without interest thereon, upon endorsement, if required, and surrender of the certificates as aforesaid. In case the holder of any shares of the Series L Preferred Stock redeemed as aforesaid shall not, within six (6) years after said deposit, claim the amount deposited as above stated for the redemption thereof, the depositary shall, upon demand, pay over to the Corporation such amount so deposited and the depositary thereupon shall be relieved from all responsibility to such holder. (10) Limitation on Retirement of Series L Preferred Stock. The Corporation shall not purchase, redeem or otherwise retire any Series L Preferred Stock except by a redemption thereof pursuant to section (4) and (5) of this subdivision (g) or by a purchase thereof pursuant to an offer to purchase made upon the same terms to all holders of Series L Preferred Stock, which offer shall require the Corporation to purchase pro rata among the shares tendered, shall remain open for a period of at least thirty (30) days after copies thereof have been mailed as set forth below and may contain such other terms as the Corporation elects. A copy of such offer shall be deemed to have been duly mailed to any holder of Series L Preferred Stock within the meaning of this section (10) when the same shall have been deposited in the United States mails, postage prepaid, addressed to such holder at his last-known address as it appears on the books of the Corporation. No Series L Preferred Stock shall be purchased pursuant to any such offer between the date of the giving of notice of any redemption made pursuant to sections (4) or (5) of this subdivision (g) and the date fixed for such redemption. (11) Reissuance of Redeemed Series L Preferred Stock. No shares of Series L Preferred Stock purchased, redeemed or otherwise reacquired by the Corporation shall be reissued, resold or otherwise transferred by the Corporation as Series L Preferred Stock. 24 25 (h) Series R Preferred Stock (1) Number and Designation of Series. A series consisting initially of 600,000 shares of the Preferred Stock of the par value of $100 per share is designated "Preferred Stock, 8.50%, Series R" (hereinafter called the "Series R Preferred Stock"). (2) Dividend Rate. The dividend rate per annum of the shares of Series R Preferred Stock is $8.50 per share. Dividends shall be calculated on the basis of a 30-day month and a year of 360 days. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series R Preferred Stock are the fifteenth days of March, June, September and December; and the dividend periods for such shares are the quarterly periods beginning on such dates commencing December 15, 1977. (4) Optional Redemption. Subject to the restrictions set forth in section (6) of this subdivision (h), at the option of the Board of Directors of the Corporation, the Corporation may redeem the whole or any part of the Series R Preferred Stock at any time outstanding, at any time or from time to time, at the then applicable optional redemption price (hereinafter called the "optional redemption price"), plus accrued and unpaid dividends to the date of redemption. The optional redemption price at which Series R Preferred Stock shall be redeemable is $115 per share if redeemed on or before December 14, 1987, and the price per share specified below if redeemed thereafter and on or before December 14, 1994:
If Redeemed If Redeemed During the During the 12-Month Optional 12-Month Optional Period Ending Redemption Period Ending Redemption December 14 Price December 14 Price ----------- ----- ----------- ----- 1988............... $103.50 1992.............. $101.50 1989............... 103.00 1993.............. 101.00 1990............... 102.50 1994.............. 100.50 1991............... 102.00
and $100 per share if redeemed thereafter. The applicable optional redemption price at which the shares of Series R Preferred Stock shall be redeemable as specified in this section (4) shall be deemed to be the "applicable redemption price" of Series R Preferred Stock payable to the holders thereof upon any voluntary dissolution, liquidation, or winding up of the Corporation as specified in the second paragraph of paragraph (c) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Certificate of Incorporation. 25 26 (5) Sinking Fund. As a sinking fund for the redemption of Series R Preferred Stock, subject to the provisions of section (6) of this subdivision (h), on December 15, 1982, and on each December 15 thereafter through December 15, 1997, the Corporation shall redeem a number of shares of the Series R Preferred Stock equal to 6-1/4% of the number of shares thereof originally issued (or the number of shares of the Series R Preferred Stock then outstanding if less than 6-1/4% of the number of shares thereof originally issued), in each case at a price of $100 per share, plus, in each case, accrued and unpaid dividends to the date of redemption; provided that, if the Corporation shall purchase any shares of Series R Preferred Stock pursuant to section (10) of this subdivision (h), the number of shares otherwise required by this section (5) to be redeemed on each December 15 thereafter (after giving effect to any prior reduction pursuant to this proviso) shall be reduced by a number which bears (to the nearest full number) the same relation to the number of shares otherwise required to be redeemed as aforesaid as the aggregate number of shares so purchased (since the then most recent reduction) bears to the aggregate number of shares outstanding immediately prior to giving effect to such purchase. The Corporation shall have the noncumulative option on December 15, 1982 or any December 15 thereafter through December 15, 1996, to increase by up to 100% the number of shares of Series R Preferred Stock otherwise required by this section (5) to be redeemed on such December 15; provided that the aggregate number of shares of Series R Preferred Stock redeemed pursuant to this option shall not exceed 25% of the number of shares of the Series R Preferred Stock originally issued. No redemption of Series R Preferred Stock pursuant to section (4) of this subdivision (h) or pursuant to the next preceding sentence shall constitute a redemption of such shares in lieu of or as a credit against any sinking fund redemption required by this section (5). (6) Restrictions on Optional Redemption and Sinking Fund Redemption. Less than all of the shares of Series R Preferred Stock shall not be redeemed pursuant to section (4) or (5) of this subdivision (h) unless full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series R Preferred Stock, other than shares of Series R Preferred Stock previously or then to be called for redemption. Prior to December 15, 1982, the shares of Series R Preferred Stock shall not be redeemed pursuant to section (4) of this subdivision (h) as a part of, or in anticipation of, a refunding operation involving the application, directly or indirectly, of the proceeds (a) from the incurring of indebtedness or the sale and lease back of property or the incurring of other obligations, in any case having an interest rate or an effective cost of money to the Corporation of less than 8.50% per annum, (b) from the sale of any shares of stock ranking ahead of the Common Stock as to assets or dividends, in any case having a dividend rate or an effective cost of money to the Corporation of less than 8.50% per annum, or (c) from the sale of Common Stock. The obligation of the Corporation to redeem shares 26 27 for the sinking fund at any time as provided in section (5) of this subdivision (h) shall be subject to any restrictions now existing in the Corporation's Indenture of Mortgage and Deed of Trust dated as of September 1, 1951, as heretofore supplemented, and to any applicable restrictions of law. Notwithstanding the foregoing provisions of this section (6), the obligation of the Corporation to redeem Series R Preferred Stock annually commencing on December 15, 1982, pursuant to section (5) of this subdivision (h), shall be cumulative. (7) Restrictions on Payments on Junior Stock. The Corporation shall not declare or pay or set apart any dividend for the Common Stock or any other class of stock ranking junior to the Series R Preferred Stock, or make any payment on account of, or set apart money for a sinking or analogous fund for, the purchase, redemption or other retirement of the Common Stock or any other class of stock ranking junior to the Series R Preferred Stock, or make any distribution in respect thereof, either directly or indirectly, and whether in cash or property or obligations or stock of the Corporation, unless at the date of declaration in the case of any such dividend, or at the date of any such other payment, setting apart or distribution, (a) full cumulative sinking fund redemptions required by section (5) of this subdivision (h) shall have been made and (b) full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series R Preferred Stock, other than shares of Series R Preferred Stock previously or then to be called for redemption. (8) Restriction on Sinking Fund Payments on Other Stock. The Corporation shall not redeem or purchase any shares ranking on a parity with the Series R Preferred Stock as to assets or dividends, pursuant to any sinking fund (which term shall include any analogous requirements) for the redemption or purchase of such shares, and shall not set apart money for any such fund, at any time when the sinking fund redemption required by section (5) of this subdivision (h) shall be in arrears; except that, at any time when the sinking fund redemption required by section (5) of this subdivision (h) shall be in arrears and when arrears exist in any sinking or analogous fund retirement required for any shares ranking as aforesaid on a parity with the Series R Preferred Stock, the Corporation may redeem or purchase for the respective funds shares of Series R Preferred Stock and such other shares, pro rata, as nearly as practicable, according to the amounts in dollars of the arrears in the redemptions or purchases required for the respective funds. (9) Provisions Applicable to Redemption. Not less than thirty (30) nor more than sixty (60) days previous to a date fixed for redemption pursuant to section (4) or (5) of this subdivision (h), notice of the time and place thereof shall be given by mail to the holders of record of the Series R Preferred Stock so to be redeemed. Such notice shall be deemed to have been duly given to 27 28 any holder of the Series R Preferred Stock within the meaning of the foregoing provision when the same shall have been deposited in the United States mails, postage prepaid, addressed to such holder at his last-known address as it appears on the books of the Corporation. In every case of redemption of less than all of the Series R Preferred Stock pursuant to section (4) or (5) of this subdivision (h), such redemption shall be made pro rata. At any time after notice of redemption has been given in the manner prescribed above to the holders of the shares so to be redeemed, the Corporation may deposit funds sufficient for such redemption with a solvent bank or trust company named in such notice having its principal office in the Borough of Manhattan, City and State of New York, and having a combined capital and surplus of at least $5,000,000, and payable on the date fixed for redemption, as aforesaid, to the respective orders of the holders of the shares so to be redeemed, on endorsement of the certificates for such shares, and upon surrender thereof, to the Corporation, or otherwise as may be required. Upon the deposit of said money as aforesaid, or if no such deposit is made, upon said redemption date (unless the Corporation defaults in making payment of the redemption price plus accrued and unpaid dividends as aforesaid) such holders shall cease to be stockholders with respect to said shares, and from and after the making of said deposit, or, if no such deposit is made, after the redemption date (the Corporation not having defaulted in making the payment of the redemption price plus accrued and unpaid dividends as aforesaid), the said holders shall have no interest in or claims against the Corporation with respect to said shares except only the right to receive said moneys on the date fixed for redemption, as aforesaid, from said bank or trust company, or from the Corporation, as the case may be, without interest thereon, upon endorsement, if required, and surrender of the certificates as aforesaid. In case the holder of any shares of the Series R Preferred Stock redeemed as aforesaid shall not, within six (6) years after said deposit, claim the amount deposited as above stated for the redemption thereof, the depositary shall, upon demand, pay over to the Corporation such amount so deposited and the depositary thereupon shall be relieved from all responsibility to such holder. (10) Limitation on Retirement of Series R Preferred Stock. The Corporation shall not purchase, redeem or otherwise retire any Series R Preferred Stock except by a redemption thereof pursuant to section (4) or (5) of this subdivision (h) or by a purchase thereof pursuant to an offer to purchase made upon the same terms to all holders of Series R Preferred Stock, which offer shall require the Corporation to purchase pro rata among the shares tendered, shall remain open for a period of at least thirty (30) days after copies thereof have been mailed as set forth below and may contain such other terms as the Corporation elects. A copy of such offer shall be deemed to have been duly mailed to any holder of Series R Preferred Stock within the meaning of this section (10) when the same shall have been deposited in the United States mails, postage 28 29 prepaid, addressed to such holder at his last-known address as it appears on the books of the Corporation. No Series R Preferred Stock shall be purchased pursuant to any such offer between the date of the giving of notice of any redemption made pursuant to section (4) or (5) of this subdivision (h) and the date fixed for such redemption. (11) Reissuance of Redeemed Series R Preferred Stock. No shares of Series R Preferred Stock purchased, redeemed or otherwise reacquired by the Corporation shall be reissued, resold or otherwise transferred by the Corporation as Series L, M or R Preferred Stock. (i) Series AA Preferred Stock (1) Number and Designation of Series. A series consisting initially of 14,520,000 shares of the Preferred Stock of the par value of $25 per share is designated "Preferred Stock, 7.95%, Series AA" (hereinafter called the "Series AA Preferred Stock"). (2) Dividend Rate. The dividend rate per annum of the shares of Series AA Preferred Stock is $1.9875 per share. Dividends shall be calculated on the basis of a 30-day month and a year of 360 days. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series AA Preferred Stock are the first days of March, June, September and December; the initial dividend period for such shares shall commence on the day when such shares are issued and thereafter the dividend periods for such shares shall be the quarterly periods beginning on such dates commencing September 1, 1992. (4) Optional Redemption. The Series AA Preferred Stock will not be subject to optional redemption. (5) Mandatory Redemption. Subject to the restrictions set forth in section (6) of this subdivision (i), the Corporation shall redeem on June 1, 2000, all of the outstanding shares of Series AA Preferred Stock at $25 per share, plus accrued and unpaid dividends to the date of redemption. In the case of a redemption of Series AA Preferred Stock as specified in this section (5), the Company shall take the action and provide the notice specified in paragraph (d) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation, with respect to optional redemption of Preferred Stock. (6) Restrictions on Mandatory Redemption. Unless full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series AA Preferred Stock, the Corporation shall not redeem pursuant to section (5) of this subdivision (i) less than all of the then outstanding shares of Series AA Preferred Stock. 29 30 The obligation of the Corporation to redeem shares as provided in section (5) of this subdivision (i) shall be subject to any restrictions now existing in the Corporation's Indenture of Mortgage and Deed of Trust dated as of September 1, 1951, as heretofore supplemented (including any extension of said existing restrictions in said Indenture of Mortgage and Deed of Trust for the benefit of any series of Bonds hereafter issued thereunder) and to any applicable restrictions of law. (7) Restrictions on Payments on Junior Stock. The Corporation shall not declare or pay or set apart any dividend for the Common Stock or any other class of stock ranking junior to the Series AA Preferred Stock, or make any payment on account of, or set apart money for a sinking or analogous fund for, the purchase, redemption or other retirement of the Common Stock or any other class of stock ranking junior to the Series AA Preferred Stock, or make any distribution in respect thereof, either directly or indirectly, and whether in cash or property or obligations or stock of the Corporation, unless at the date of declaration in the case of any such dividend, or at the date of any such other payment, setting apart or distribution, full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series AA Preferred Stock, other than shares of Series AA Preferred Stock previously or then to be called for redemption. (8) Restrictions on Sinking Fund Payments on Other Stock. The Corporation shall not redeem or purchase any shares ranking on a parity with the Series AA Preferred Stock as to assets or dividends, pursuant to any sinking fund requirement (which terms shall include any analogous requirement) for the redemption or purchase of such shares, and shall not set apart money for any such requirement, at any time when the redemption required by section (5) of this subdivision (i) shall be in arrears; except that, at any time when the redemption required by section (5) of this subdivision (i) shall be in arrears and when arrears exist in respect of any sinking fund or analogous requirement for any shares ranking as aforesaid on a parity with the Series AA Preferred Stock, the Corporation may redeem or purchase for the respective requirements shares of Series AA Preferred Stock and such other shares, pro rata, as nearly as practicable, according to the amounts in dollars of the arrears in the redemptions or purchases required for the respective requirements. (9) Acquisition of Series AA Preferred Stock. Except as hereinbefore provided, the Corporation may, at its option, purchase, redeem or otherwise acquire any shares of Series AA Preferred Stock. (10) Redemption Upon Voluntary Dissolution, Liquidation, or Winding Up of the Corporation. The applicable redemption price payable upon any voluntary dissolution, liquidation, or winding up of the Corporation as specified in the second paragraph of paragraph (c) of Subparagraph "2" of Subdivision "A" of Section "III" of 30 31 Paragraph "FIFTH" of the Restated Certificate of Incorporation shall be the par value of the Series AA Preferred Stock. (j) Series CC Preferred Stock (1) Number and Designation of Series. A series consisting initially of 570,000 shares of the Preferred Stock of the par value of $100 per share is designated "Preferred Stock, 7.66%, Series CC" (hereinafter called the "Series CC Preferred Stock"). (2) Dividend Rate. The dividend rate per annum of the shares of Series CC Preferred Stock is $7.66 per share. Dividends shall be calculated on the basis of a 30-day month and a year of 360 days. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series CC Preferred Stock are the first days of February, May, August and November; the initial dividend period for such shares shall commence on the day when such shares are issued and thereafter the dividend periods for such shares shall be the quarterly periods beginning on such dates commencing November 1, 1992. (4) Optional Redemption. The Series CC Preferred Stock will not be subject to optional redemption. (5) Mandatory Redemption. Subject to the restrictions set forth in section (6) of this subdivision (j), the Corporation shall redeem on August 1, 2002, all of the outstanding shares of Series CC Preferred Stock at $100 per share, plus accrued and unpaid dividends to the date of redemption. In the case of a redemption of Series CC Preferred Stock as specified in this section (5), the Company shall take the action and provide the notice specified in paragraph (d) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation, with respect to optional redemption of Preferred Stock. (6) Restrictions on Mandatory Redemption. Unless full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series CC Preferred Stock, the Corporation shall not redeem pursuant to section (5) of this subdivision (j) less than all of the then outstanding shares of Series CC Preferred Stock. The obligation of the Corporation to redeem shares as provided in section (5) of this subdivision (j) shall be subject to any restrictions now existing in the Corporation's Indenture of Mortgage and Deed of Trust dated as of September 1, 1951, as heretofore supplemented (including any extension of said existing restrictions in said Indenture of Mortgage and Deed of Trust for the benefit of any series of Bonds hereafter issued thereunder) and to any applicable restrictions of law. 31 32 (7) Restrictions on Payments on Junior Stock. The Corporation shall not declare or pay or set apart any dividend for the Common Stock or any other class of stock ranking junior to the Series CC Preferred Stock, or make any payment on account of, or set apart money for a sinking or analogous fund for, the purchase, redemption or other retirement of the Common Stock or any other class of stock ranking junior to the Series CC Preferred Stock, or make any distribution in respect thereof, either directly or indirectly, and whether in cash or property or obligations or stock of the Corporation, unless at the date of declaration in the case of any such dividend, or at the date of any such other payment, setting apart or distribution, full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series CC Preferred Stock, other than shares of Series CC Preferred Stock previously or then to be called for redemption. (8) Restrictions on Sinking Fund Payments on Other Stock. The Corporation shall not redeem or purchase any shares ranking on a parity with the Series CC Preferred Stock as to assets or dividends, pursuant to any sinking fund requirement (which terms shall include any analogous requirement) for the redemption or purchase of such shares, and shall not set apart money for any such requirement, at any time when the redemption required by section (5) of this subdivision (j) shall be in arrears; except that, at any time when the redemption required by section (5) of this subdivision (j) shall be in arrears and when arrears exist in respect of any sinking fund or analogous requirement for any shares ranking as aforesaid on a parity with the Series CC Preferred Stock, the Corporation may redeem or purchase for the respective requirements shares of Series CC Preferred Stock and such other shares, pro rata, as nearly as practicable, according to the amounts in dollars of the arrears in the redemptions or purchases required for the respective requirements. (9) Acquisition of Series CC Preferred Stock. Except as hereinbefore provided, the Corporation may, at its option, purchase, redeem or otherwise acquire any shares of Series CC Preferred Stock. (10) Redemption Upon Voluntary Dissolution, Liquidation, or Winding Up of the Corporation. The applicable redemption price payable upon any voluntary dissolution, liquidation, or winding up of the Corporation as specified in the second paragraph of paragraph (c) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation shall be the par value of the Series CC Preferred Stock. (k) Series GG Preferred Stock (1) Number and Designation of Series. A series consisting initially of 880,000 shares of the Preferred Stock of the par value of $25 per share is designated "Preferred Stock, $1.67, Series GG" (hereinafter called the "Series GG Preferred Stock"). 32 33 (2) Dividend Rate. The dividend rate per annum of the shares of Series GG Preferred Stock is $1.67 per share. Dividends shall be calculated on the basis of a 30-day month and a year of 360 days. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series GG Preferred Stock are the first days of March, June, September and December; the initial dividend period for such shares shall commence on the day when such shares are issued and thereafter the dividend periods for such shares shall be the quarterly periods beginning on such dates commencing June 1, 1993. (4) Optional Redemption. The Series GG Preferred Stock will not be subject to optional redemption. (5) Mandatory Redemption. Subject to the restrictions set forth in section (6) of this subdivision (k), the Corporation shall redeem on March 1, 1999, all of the outstanding shares of Series GG Preferred Stock at $25 per share, plus accrued and unpaid dividends to the date of redemption. In the case of a redemption of Series GG Preferred Stock as specified in this section (5), the Company shall take the action and provide the notice specified in paragraph (d) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation, with respect to optional redemption of Preferred Stock. (6) Restrictions on Mandatory Redemption. Unless full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series GG Preferred Stock, the Corporation shall not redeem pursuant to section (5) of this subdivision (k) less than all of the then outstanding shares of Series GG Preferred Stock. The obligation of the Corporation to redeem shares as provided in section (5) of this subdivision (k) shall be subject to any restrictions now existing in the Corporation's Indenture of Mortgage and Deed of Trust dated as of September 1, 1951, as heretofore supplemented (including any extension of said existing restrictions in said Indenture of Mortgage and Deed of Trust for the benefit of any series of Bonds hereafter issued thereunder) and to any applicable restrictions of law. (7) Restrictions on Payments on Junior Stock. The Corporation shall not declare or pay or set apart any dividend for the Common Stock or any other class of stock ranking junior to the Series GG Preferred Stock, or make any payment on account of, or set apart money for a sinking or analogous fund for, the purchase, redemption or other retirement of the Common Stock or any other class of stock ranking junior to the Series GG Preferred Stock, or make any distribution in respect thereof, either directly or indirectly, and whether in cash or property or obligations or stock of the Corporation, unless at the date of declaration in the case of 33 34 any such dividend, or at the date of any such other payment, setting apart or distribution, full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series GG Preferred Stock, other than shares of Series GG Preferred Stock previously or then to be called for redemption. (8) Restrictions on Sinking Fund Payments on Other Stock. The Corporation shall not redeem or purchase any shares ranking on a parity with the Series GG Preferred Stock as to assets or dividends, pursuant to any sinking fund requirement (which terms shall include any analogous requirement) for the redemption or purchase of such shares, and shall not set apart money for any such requirement, at any time when the redemption required by section (5) of this subdivision (k) shall be in arrears; except that, at any time when the redemption required by section (5) of this subdivision (k) shall be in arrears and when arrears exist in respect of any sinking fund or analogous requirement for any shares ranking as aforesaid on a parity with the Series GG Preferred Stock, the Corporation may redeem or purchase for the respective requirements shares of Series GG Preferred Stock and such other shares, pro rata, as nearly as practicable, according to the amounts in dollars of the arrears in the redemptions or purchases required for the respective requirements. (9) Acquisition of Series GG Preferred Stock. Except as hereinbefore provided, the Corporation may, at its option, purchase, redeem or otherwise acquire any shares of Series GG Preferred Stock. (10) Redemption Upon Voluntary Dissolution, Liquidation, or Winding Up of the Corporation. The applicable redemption price payable upon any voluntary dissolution, liquidation, or winding up of the Corporation as specified in the second paragraph of paragraph (c) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation shall be the par value of the Series GG Preferred Stock. (l) Series NN Preferred Stock (1) Number and Designation of Series. A series consisting initially of 1,554,000 shares of the Preferred Stock of the par value of $25 per share is designated "Preferred Stock, $1.95, Series NN" (hereinafter called the "Series NN Preferred Stock"). (2) Dividend Rate. The dividend rate per annum of the shares of Series NN Preferred Stock is $1.95 per share. Dividends shall be calculated on the basis of a 30-day month and a year of 360 days. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series NN Preferred Stock are the first days of March, June, September and December; the initial dividend period for such shares shall commence on the day when such shares are issued and 34 35 thereafter the dividend periods for such shares shall be the quarterly periods beginning on such dates commencing June 1, 1993. (4) Optional Redemption. Subject to the restrictions set forth in section (6) of this subdivision (l), at the option of the Board of Directors of the Corporation, the Corporation may, on or after March 1, 1998, redeem the whole or any part of the Series NN Preferred Stock at any time outstanding, at any time or from time to time, at the then applicable optional redemption price (hereinafter called the "optional redemption price"), plus accrued and unpaid dividends to the date of redemption. The optional redemption price at which Series NN Preferred Stock shall be redeemable is $26.95 per share if redeemed on or after March 1, 1998 and on or before February 28, 1999; $26.56 per share if redeemed thereafter and on or before February 29, 2000; $26.17 per share if redeemed thereafter and on or before February 28, 2001; $25.78 per share if redeemed thereafter and on or before February 28, 2002; $25.39 per share if redeemed thereafter and on or before February 28, 2003; and $25 per share if redeemed thereafter. The applicable optional redemption price at which the shares of Series NN Preferred Stock shall be redeemable as specified in this section (4) shall be deemed to be the "applicable redemption price" of Series NN Preferred Stock payable to the holders thereof for the purposes of optional redemptions, as specified in paragraph (d) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation. (5) Sinking Fund. As a sinking fund for the redemption of Series NN Preferred Stock, subject to the provisions of section (6) of this subdivision (l), on March 1, 1999, and on each March 1 thereafter, the Corporation shall redeem 77,700 shares of the Series NN Preferred Stock (or the number of shares of the Series NN Preferred Stock then outstanding if less than 77,700), in each case at a price of $25 per share, plus, in each case, accrued and unpaid dividends to the date of redemption. Notwithstanding the provisions of section (6) of this subdivision (l), the foregoing obligation of the Corporation to redeem Series NN Preferred Stock annually shall be cumulative. In addition, the Corporation shall have the noncumulative option on March 1, 1999 or any March 1 thereafter, to increase by up to 77,700 the number of shares of Series NN Preferred Stock otherwise required by this section (5) of this subdivision (l) to be redeemed on such March 1. At its option, the Corporation may credit against any sinking fund redemption required by this section (5) of this subdivision (l) any shares of Series NN Preferred Stock redeemed pursuant to Section (4) of this subdivision (l), redeemed pursuant to the next preceding sentence or acquired pursuant to section (9) of this subdivision (l) below. All shares of Series NN Preferred Stock redeemed pursuant to section (4) of this subdivision (l) or this section (5) of this subdivision (l) and all shares of Series NN Preferred Stock credited against any sinking fund redemption obligation pursuant to this section (5) of this subdivision (l) shall be cancelled. 35 36 (6) Restrictions on Optional Redemption and Sinking Fund Redemption. Unless full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series NN Preferred Stock other than shares of Series NN Preferred Stock previously or then to be called for redemption, the Corporation shall not redeem pursuant to sections (4) or (5) of this subdivision (l) less than all of the then outstanding shares of Series NN Preferred Stock. The obligation of the Corporation to redeem shares for the sinking fund as provided in section (5) of this subdivision (l) shall be subject to any restrictions now existing in the Corporation's Indenture of Mortgage and Deed of Trust dated as of September 1, 1951, as heretofore supplemented (including any extension of said existing restrictions in said Indenture of Mortgage and Deed of Trust for the benefit of any series of Bonds hereafter issued thereunder) and to any applicable restrictions of law. (7) Restrictions on Payments on Junior Stock. The Corporation shall not declare or pay or set apart any dividend for the Common Stock or any other class of stock ranking junior to the Series NN Preferred Stock, or make any payment on account of, or set apart money for a sinking or analogous fund for, the purchase, redemption or other retirement of the Common Stock or any other class of stock ranking junior to the Series NN Preferred Stock, or make any distribution in respect thereof, either directly or indirectly, and whether in cash or property or obligations or stock of the Corporation, unless at the date of declaration in the case of any such dividend, or at the date of any such other payment, setting apart or distribution, full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series NN Preferred Stock, other than shares of Series NN Preferred Stock previously or then to be called for redemption. (8) Restrictions on Sinking Fund Payments on Other Stock. The Corporation shall not redeem or purchase any shares ranking on a parity with the Series NN Preferred Stock as to assets or dividends, pursuant to any sinking fund (which term shall include any analogous requirement) for the redemption or purchase of such shares, and shall not set apart money for any such fund, at any time when the sinking fund redemption required by section (5) of this subdivision (l) shall be in arrears; except that, at any time when the sinking fund redemption required by section (5) of this subdivision (l) shall be in arrears and when arrears exist in respect of any sinking fund or analogous fund retirement required for any shares ranking as aforesaid on a parity with the Series NN Preferred Stock, the Corporation may redeem or purchase for the respective funds shares of Series NN Preferred Stock and such other shares, pro rata, as nearly as practicable, according to the amounts 36 37 in dollars of the arrears in the redemptions or purchases required for the respective funds. (9) Acquisition of Series NN Preferred Stock. Except as hereinbefore provided, the Corporation may, at its option, purchase, redeem or otherwise acquire any shares of Series NN Preferred Stock. (10) Redemption Upon Voluntary Dissolution, Liquidation, or Winding Up of the Corporation. The applicable redemption price payable upon any voluntary dissolution, liquidation, or winding up of the Corporation as specified in the second paragraph of paragraph (c) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation shall be the par value of the Series NN Preferred Stock." (m) Series QQ Preferred Stock (1) Number and Designation of Series. A series consisting initially of 3,464,000 shares of the Preferred Stock of the par value of $25 per share is designated "Preferred Stock, 7.05%, Series QQ" (hereinafter called the "Series QQ Preferred Stock"). (2) Dividend Rate. The dividend rate per annum of the shares of Series QQ Preferred Stock is $1.7625 per share. Dividends shall be calculated on the basis of a 30-day month and a year of 360 days. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series QQ Preferred Stock are the first days of May, August, November and February, commencing August 1, 1993; the initial dividend period for such shares shall commence on the day when such shares are issued and thereafter the dividend periods for such shares shall be the quarterly periods beginning on such dates, commencing August 1, 1993. (4) Optional Redemption. The Series QQ Preferred Stock will not be subject to optional redemption. (5) Mandatory Redemption. Subject to the restrictions set forth in section (6) of this subdivision (m), the Corporation shall redeem on May 1, 2001, all of the outstanding shares of Series QQ Preferred Stock at $25 per share, plus accrued and unpaid dividends to the date of redemption. In the case of a redemption of Series QQ Preferred Stock as specified in this section (5), the Company shall take the action and provide the notice specified in paragraph (d) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation, with respect to optional redemption of Preferred Stock. (6) Restrictions on Mandatory Redemption. Unless full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series QQ Preferred Stock, 37 38 the Corporation shall not redeem pursuant to section (5) of this subdivision (m) less than all of the then outstanding shares of Series QQ Preferred Stock. The obligation of the Corporation to redeem shares as provided in section (5) of this subdivision (m) shall be subject to any restrictions now existing in the Corporation's Indenture of Mortgage and Deed of Trust dated as of September 1, 1951, as heretofore supplemented (including any extension of said existing restrictions in said Indenture of Mortgage and Deed of Trust for the benefit of any series of Bonds hereafter issued thereunder) and to any applicable restrictions of law. (7) Restrictions on Payments on Junior Stock. The Corporation shall not declare or pay or set apart any dividend for the Common Stock or any other class of stock ranking junior to the Series QQ Preferred Stock, or make any payment on account of, or set apart money for a sinking or analogous fund for, the purchase, redemption or other retirement of the Common Stock or any other class of stock ranking junior to the Series QQ Preferred Stock, or make any distribution in respect thereof, either directly or indirectly, and whether in cash or property or obligations or stock of the Corporation, unless at the date of declaration in the case of any such dividend, or the date of any such other payment, setting apart or distribution, full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series QQ Preferred Stock, other than shares of Series QQ Preferred Stock previously or then to be called for redemption. (8) Restrictions on Sinking Fund Payments on Other Stock. The Corporation shall not redeem or purchase any shares ranking on a parity with the Series QQ Preferred Stock as to assets or dividends, pursuant to any sinking fund requirement (which terms shall include any analogous requirement) for the redemption or purchase of such shares, and shall not set apart money for any such requirement, at any time when the redemption required by section (5) of this subdivision (m) shall be in arrears; except that, at any time when the redemption required by section (5) of this subdivision (m) shall be in arrears and when arrears exist in respect of any sinking fund or analogous requirement for any shares ranking as aforesaid on a parity with the Series QQ Preferred Stock, the Corporation may redeem or purchase for the respective requirements shares of Series QQ Preferred Stock and such other shares, pro rata, as nearly as practicable, according to the amounts in dollars of the arrears in the redemptions or purchases required for the respective requirements. (9) Acquisition of Series QQ Preferred Stock. Except as hereinbefore provided, the Corporation may, at its option, purchase, redeem or otherwise acquire any shares of Series QQ Preferred Stock. 38 39 (10) Redemption Upon Voluntary Dissolution, Liquidation, or Winding Up of the Corporation. The applicable redemption price payable upon any voluntary dissolution, liquidation, or winding up of the Corporation as specified in the second paragraph of paragraph (c) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation shall be the par value of the Series QQ Preferred Stock. (n) Series UU PREFERRED STOCK (1) Number and Designation of Series. A series consisting initially of 2,240,000 shares of the Preferred Stock of the par value of $25 per share is designated `Preferred Stock, 6.875%, Series UU' (hereinafter called the `Series UU Preferred Stock'). (2) Dividend Rate. The dividend rate per annum of the shares of Series UU Preferred Stock is $1.71875 per share. Dividends shall be calculated on the basis of a 30-day month and a year of 360 days. (3) Dividend Payment Dates. The dividend payment dates for the shares of Series UU Preferred Stock are the fifteenth days of January, April, July and October, commencing January 15, 1994; the initial dividend period for such shares shall commence on the day when such shares are issued and thereafter the dividend periods for such shares shall be the quarterly periods beginning on such dates, commencing January 15, 1994. (4) Optional Redemption. Subject to the restrictions set forth in section (6) of this subdivision (n), at the option of the Board of Directors of the Corporation, the Corporation may, on or after October 15, 2003, redeem the whole or any part of the Series UU Preferred Stock at any time outstanding, at any time or from time to time, at $25 per share (hereinafter called the "optional redemption price"), plus accrued and unpaid dividends to the date of redemption. The optional redemption price at which the shares of Series UU Preferred Stock shall be redeemable as specified in this section (4) shall be deemed to be the "applicable redemption price" of Series UU Preferred Stock payable to the holders thereof for the purposes of optional redemptions, as specified in paragraph (d) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation. (5) Sinking Fund. As a sinking fund for the redemption of Series UU Preferred Stock, subject to the provisions of section (6) of this subdivision (n), on October 15, 1999, and on each October 15 thereafter, the Corporation shall redeem 112,000 shares of the Series UU Preferred Stock (or the number of shares of the Series UU Preferred Stock then outstanding if less than 112,000), in each case at a price of $25 per share, plus, in each case, accrued and unpaid dividends to the date of redemption. Notwithstanding the provisions of section (6) of this subdivision (n), the foregoing obligation of the Corporation to redeem Series UU Preferred Stock annually shall 39 40 be cumulative. In addition, the Corporation shall have the noncumulative option on October 15, 1999 or any October 15 thereafter, to increase by up to 112,000 the number of shares of Series UU Preferred Stock otherwise required by this section (5) of this subdivision (n) to be redeemed on such October 15. At its option, the Corporation may credit against any sinking fund redemption required by this section (5) of this subdivision (n) any shares of Series UU Preferred Stock redeemed pursuant to section (4) of this subdivision (n), redeemed pursuant to the next preceding sentence or acquired pursuant to section (9) of this subdivision (n) below. All shares of Series UU Preferred Stock redeemed pursuant to section (4) of this subdivision (n) or this section (5) of this subdivision (n) and all shares of Series UU Preferred Stock credited against any sinking fund redemption obligation pursuant to this section (5) of this subdivision (n) shall be cancelled. (6) Restrictions on Optional Redemption and Sinking Fund Redemption. Unless full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series UU Preferred Stock other than shares of Series UU Preferred Stock previously or then to be called for redemption, the Corporation shall not redeem pursuant to sections (4) or (5) of this subdivision (n) less than all of the then outstanding shares of Series UU Preferred Stock. The obligation of the Corporation to redeem shares for the sinking fund as provided in section (5) of this subdivision (n) shall be subject to any restrictions now existing in the Corporation's Indenture of Mortgage and Deed of Trust dated as of September 1, 1951, as heretofore supplemented (including any extension of said existing restrictions in said Indenture of Mortgage and Deed of Trust for the benefit of any series of Bonds hereafter issued thereunder) and to any applicable restrictions of law. (7) Restrictions on Payments on Junior Stock. The Corporation shall not declare or pay or set apart any dividend for the Common Stock or any other class of stock ranking junior to the Series UU Preferred Stock, or make any payment on account of, or set apart money for a sinking or analogous fund for, the purchase, redemption or other retirement of the Common Stock or any other class of stock ranking junior to the Series UU Preferred Stock, or make any distribution in respect thereof, either directly or indirectly, and whether in cash or property or obligations or stock of the Corporation, unless at the date of declaration in the case of any such dividend, or at the date of any such other payment, setting apart or distribution, full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Series UU Preferred Stock, other than shares of Series UU Preferred Stock previously or then to be called for redemption. 40 41 (8) Restrictions on Sinking Fund Payments on Other Stock. The Corporation shall not redeem or purchase any shares ranking on a parity with the Series UU Preferred Stock as to assets or dividends, pursuant to any sinking fund requirement (which terms shall include any analogous requirement) for the redemption or purchase of such shares, and shall not set apart money for any such requirement, at any time when the sinking fund redemption required by section (5) of this subdivision (n) shall be in arrears; except that, at any time when the sinking fund redemption required by section (5) of this subdivision (n) shall be in arrears and when arrears exist in respect of any sinking fund or analogous requirement for any shares ranking as aforesaid on a parity with the Series UU Preferred Stock, the Corporation may redeem or purchase for the respective requirements shares of Series UU Preferred Stock and such other shares, pro rata, as nearly as practicable, according to the amounts in dollars of the arrears in the redemptions or purchases required for the respective requirements. (9) Acquisition of Series UU Preferred Stock. Except as hereinbefore provided, the Corporation may, at its option, purchase, redeem or otherwise acquire any shares of Series UU Preferred Stock. (10) Redemption Upon Voluntary Dissolution, Liquidation, or Winding up of the Corporation. The applicable redemption price payable upon any voluntary dissolution, liquidation, or winding up of the Corporation as specified in the second paragraph of paragraph (c) of Subparagraph "2" of Subdivision "A" of Section "III" of Paragraph "FIFTH" of the Restated Certificate of Incorporation shall be the par value of the Series UU Preferred Stock." B. PREFERENCE STOCK 1. The Preference Stock may be issued from time to time in one or more series, the shares of each such series to have such designations, preferences, privileges and voting powers, and restrictions or qualifications thereof, as are provided herein or as may be fixed from time to time prior to the issuance of such series by the Board of Directors; subject, however, to the prior rights of the holders of Preferred Stock set forth in Subdivision "A" of Section "III" of Paragraph "FIFTH" hereof, as to the payment of dividends and as to distributions upon any voluntary or involuntary dissolution, liquidation or winding up of the Corporation and in the provisions for particular series of Preferred Stock as to the retirement of shares pursuant to a sinking fund or fund of a similar nature, if any; and the Board of Directors is hereby expressly authorized to fix from time to time before issuance, the designations, preferences, privileges and voting powers of each such series which are not fixed herein, and the restrictions or qualifications thereof. 2. The following designations, preferences, privileges and voting powers, and restrictions or qualifications thereof, shall apply to all shares of Preference Stock authorized by this certificate, provided, however, that the 41 42 Corporation may in the manner provided by law authorize and issue additional shares of Preference Stock: (a) The holders of each series of Preference Stock shall be entitled to receive, if and when declared payable by the Board of Directors out of assets legally available for the payment of dividends, cumulative cash dividends at such rate per share and payable quarterly on such dates as shall be fixed by resolution adopted by the Board of Directors prior to the issuance of such series. Dividends on shares of each series of Preference Stock shall commence to accrue on and be cumulative from such day as shall be fixed by resolution of the Board of Directors at the time of, or prior to, the issuance of said series. If for any past dividend period or periods dividends shall not have been paid or declared and set apart for payment, upon all outstanding shares of Preference Stock at the rate per annum applicable thereto, the deficiency shall be fully paid or declared and payment thereof shall be provided therefor (at any time without reference to any payment date) before any dividends shall be declared or paid or any amount provided therefor with respect to the Common Stock or any other class of stock ranking junior to the Preference Stock. Accumulations of dividends shall not bear interest. In case the stated dividends are not paid in full, the shares of all series of the Preference Stock shall share ratably in the payment of dividends, including accumulations, if any, in accordance with the sums which would be payable on said shares if all dividends were declared and paid in full. (b) The holders of Preference Stock shall not be entitled to receive any dividends thereon other than the dividends referred to in paragraph (a) hereof. (c) Upon any involuntary dissolution, liquidation, or winding up of the Corporation, the holders of shares of Preference Stock shall be entitled to receive out of the assets of the Corporation the involuntary liquidating value of their shares, which, with respect to any series of Preference Stock, shall be such amount not in excess of the consideration therefor as may be determined by the Board of Directors, prior to issuance of each series of Preference Stock, plus, in the case of each share, an amount equal to all dividends on such share accrued and unpaid thereon to the date of payment upon such dissolution, liquidation or winding up of the Corporation, before any distribution of the assets to be distributed shall be made to the holders of the Common Stock or any other class of stock ranking junior to the Preference Stock. Upon any voluntary dissolution, liquidation, or winding up of the Corporation, the holders of shares of Preference Stock shall be entitled to receive out of the assets of the Corporation the then applicable redemption price, if any, of their shares, plus, in the case of each share, an amount equal to all dividends on such share accrued and unpaid thereon to the date of payment upon such dissolution, liquidation or winding up of the Corporation, before any distribution of assets to be distributed shall be made to the holders of the Common Stock or any other class of stock ranking junior to the Preference Stock. 42 43 In case the amounts payable on liquidation are not paid in full, the shares of all series shall share ratably in any distribution of assets other than by way of dividends in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full. After payment to the holders of Preference Stock of the preferential amounts to which they are entitled upon an involuntary or upon a voluntary dissolution, liquidation or winding up, as the case may be, as hereinabove provided, the holders of Preference Stock, as such, shall have no right or claim to any of the remaining assets of the Corporation, either upon any distribution of surplus assets, or upon involuntary or upon voluntary dissolution, liquidation or winding up. The sale, lease, exchange, assignment, transfer or conveyance of all or substantially all the property of the Corporation to, or the merger or consolidation of the Corporation into or with, any other corporation shall not be deemed to be an involuntary or voluntary dissolution, liquidation or winding up for the purposes of this paragraph (c). (d) The Board of Directors of the Corporation, at its option, may establish for one or more series of Preference Stock, prior to the issuance of each series of Preference Stock by the Board of Directors, limitations on the issuance of additional shares of Preference Stock based upon the net earnings of the Corporation. The Board of Directors shall, when establishing such limitation, provide the method of computation therefor. (e) The Board of Directors of the Corporation may reserve the right to redeem the whole or any part of any series of the Preference Stock at any time outstanding, at any time or times, at the then applicable redemption price thereof, upon such conditions as may be fixed by resolution adopted by the Board of Directors prior to the issuance of such series, plus payment of accrued and unpaid dividends to the date of redemption; provided, however, that upon redemption of any outstanding shares of Preference Stock, not less than thirty (30) nor more than sixty (60) days previous to the date fixed for redemption, notice of the time and place thereof shall be given to the holders of record of Preference Stock so to be redeemed, either by mail and publication in a newspaper, printed in the English language and customarily published on each business day, of general circulation in the Borough of Manhattan, City and State of New York, in such manner as may be prescribed by the By-laws of the Corporation or by resolution of the Board of Directors; and, provided further, that the accidental failure to mail any such notice to one or more of such holders shall not affect the validity of such redemption as to the other holders, and that such notice shall be deemed to have been duly given to any holder of the Preference Stock within the meaning of the foregoing provision when the same shall have been published as aforesaid and a copy deposited in the United States mails, postage prepaid, addressed to such holder at his last known address as it appears on the books of the Corporation; and, provided further, that such notice shall include a statement to the effect that privileges of conversion or exchange, if any, not theretofore expiring, will expire at the close of business on the full business day next preceding the date fixed for 43 44 redemption; and, provided further, that in every case of the redemption of less than all of the outstanding shares of any one series of Preference Stock, such redemption shall be made in such manner as may be prescribed by resolution adopted by the Board of Directors prior to the issuance of such series. At any time after notice of redemption has been given in the manner prescribed by the By-laws of the Corporation or by resolution of the Board of Directors to the holders of stock so to be redeemed, the Corporation may deposit funds sufficient for such redemption with a solvent bank or trust company having its principal office in the Borough of Manhattan, City and State of New York and having a combined capital and surplus of at least $5,000,000 named in such notice payable on the date fixed for redemption as aforesaid, and in the amounts aforesaid, to the respective orders of the holders of the shares so to be redeemed, on endorsement to the Corporation or otherwise, as may be required and upon surrender of the certificates for such shares. Upon the deposit of said money as aforesaid, or, if no such deposit is made, upon said redemption date, (unless the Corporation defaults in making payment of the redemption price) such holders shall cease to be stockholders with respect to said shares, and from and after the making of said deposit, or if no such deposit is made, after the redemption date (the Corporation not having defaulted in making the payment of the redemption price), the said holders shall have no interest in or claims against the Corporation with respect to said shares except only the right to receive said moneys as of the date fixed for redemption, as aforesaid, from said bank or trust company, or from the Corporation, as the case may be, without interest thereon, upon endorsement, if required, and surrender of the certificates as aforesaid and the right to exercise, on or before the close of business on the full business day next preceding the date fixed for redemption, privileges of conversion or exchange, if any, not theretofore expiring. Any moneys deposited by the Corporation as aforesaid which shall not be required for such redemption because of the exercise of any such right of conversion or exchange subsequent to the date of such deposit shall be repaid to the Corporation forthwith. Subject to the provisions hereof, the Board of Directors shall have authority to prescribe from time to time the manner in which Preference Stock shall be redeemed and cancelled. Nothing herein contained shall limit or deprive the Corporation of the right to redeem or purchase any shares of Preference Stock in any other manner now or hereafter permitted by law. (f) Except as hereinafter provided and except as some provision of law expressly confers a right to vote regardless of any provision to the contrary in this Certificate or other Certificates filed pursuant to law, the holders of Preference Stock shall not be entitled to any notice of meetings of stockholders of the Corporation, or to vote, or to any voting rights whatsoever as stockholders of the Corporation, and are hereby specifically excluded from the right to vote in a proceeding for authorizing any guaranty pursuant to Section 908 of the Business Corporation Law, for sale of the franchises and property pursuant to Section 909 of the Business Corporation Law, for establishing priorities 44 45 or creating preferences among the various classes of stock pursuant to Section 801 of the Business Corporation Law, for consolidation or merger pursuant to Section 901 of the Business Corporation Law, for voluntary dissolution pursuant to Section 1001 of the Business Corporation Law, or in the election of directors or in any other proceeding or at any stockholders' meeting; subject to the following: (1) So long as any shares of Preference Stock are outstanding, the Corporation shall not without the consent (given in person or by proxy, in writing or at a meeting duly called for that purpose in accordance with Section 605 of the Business Corporation Law of the State of New York or as otherwise permitted by law) of the holders of at least two-thirds of the total number of shares of Preference Stock then outstanding: (A) amend, alter, change or repeal any of the express terms of the Preference Stock then outstanding in a manner to affect the holders of such shares adversely otherwise than to increase the authorized number of shares of Preference Stock, provided, however, that if such amendment, alteration, change or repeal would adversely affect the holders of one or more, but not all, of the series of Preference Stock at the time outstanding, consent of the holders of at least two-thirds of the total number of shares of all such series so affected shall be required in lieu of the consent of the holders of at least two-thirds of the total number of shares of Preference Stock then outstanding, or: (B) create or authorize any class of stock having a preference superior to the preferences of the Preference Stock as to assets or dividends, or create or authorize any security convertible into shares of stock of any such kind; provided, however, that the holders of the Preference Stock shall have no voting rights with respect to an increase in the authorized number of shares of the Preferred Stock or with respect to the issuance of any series of the Preferred Stock. (2) So long as any shares of Preference Stock are outstanding, the Corporation shall not without the consent (given in person or by proxy, in writing or at a meeting duly called for that purpose in accordance with Section 605 of the Business Corporation Law of the State of New York or as otherwise permitted by law) of the holders of a majority of the total number of shares of Preference Stock then outstanding, increase the authorized number of shares of Preference Stock. (3) If and when dividends payable on any shares of Preference Stock shall be in default in an amount equivalent to or exceeding six (6) full quarterly dividends, thereafter and until all dividends on the shares of Preference Stock in default shall have been paid or declared and set aside for payment, the holders of the shares of Preference Stock, voting separately as a class and regardless of series shall be entitled to elect two (2) directors of 45 46 the Corporation, and subject to the provisions of Paragraph "FIFTH", Section "III", Subdivision "A", and Subparagraph "2(e)(3)" hereof, the holders of the shares of Common Stock, voting separately as a class, shall be entitled to elect the remaining directors of the Corporation, anything herein or in the By-laws to the contrary notwithstanding. The term of office of any director of the Corporation shall not be affected by the special rights of the holders of the Preference Stock to elect directors as herein described; and the term of office of each director then serving shall continue until a successor has been duly elected and shall qualify. (4) If and when all dividends then in default on the shares of Preference Stock then outstanding shall be paid or declared and set aside for payment (and such dividends shall be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the holders of shares of Preference Stock shall be divested of the special right with respect to the election of directors provided in Paragraph "FIFTH", Section "III", Subdivision "B", Subparagraphs "2(f)(3)" to "2(f)(6)", inclusive, hereof, and the voting power with respect thereto, shall revert to the holders of the shares of the Common Stock; but always subject to the same provisions for vesting such special right in the holders of the shares of Preference Stock in case of further like default or defaults in dividends thereon as provided in Paragraph "FIFTH", Section "III", Subdivision "B", Subparagraphs "2(f)(3)" to "2(f)(6)", inclusive, hereof. Upon the termination of any such special right upon payment or setting aside for payment of all accumulated and defaulted dividends on the shares of Preference Stock, the terms of office of all persons who may have been elected directors of the Corporation by vote of the holders of the shares of Preference Stock, as a class, pursuant to such special right shall forthwith terminate, and the resulting vacancies shall be filled by the vote of a majority of the remaining directors. (5) In the case of any vacancy in the office of a director occurring among the directors elected by the holders of the shares of Preference Stock voting as a class, pursuant to the foregoing provisions hereof, the remaining director so elected may elect a successor to hold office for the unexpired term of the director whose place shall be vacant, and such successor shall be deemed to have been elected by such holders. (6) Whenever under the provisions hereof, the right shall have accrued to the holders of the shares of Preference Stock to elect directors, the Board of Directors shall within ten (10) days after delivery to the Corporation at its principal office of a request to such effect signed by any holder of shares of any series of Preference Stock entitled to vote, call a special meeting of the stockholders to be held within fifty (50) days from the delivery of such request for the purpose of electing directors (unless under the provisions of the By-laws of the Corporation as then in effect, an annual meeting of stockholders of the Corporation is to be held 46 47 within sixty (60) days after the vesting in the holders of the Preference Stock of the right to elect directors). At all meetings of stockholders held for the purpose of electing directors during such time as the holders of the shares of Preference Stock shall have the special right to elect directors pursuant hereto, the presence in person or by proxy of the holders of a majority of the outstanding shares of the Preference Stock shall be required to constitute a quorum of such class for the election of directors and the presence in person or by proxy of the holders of a majority of the votes entitled to be cast by the holders of the total number of the outstanding shares of any other class entitled to vote at such meeting shall be required to constitute a quorum of that other class; provided, however, that the absence of a quorum of the holders of stock of any such class shall not prevent the election of directors at any such meeting (or at any adjournment thereof) by the other such class or classes if the necessary quorum of the holders of stock of such class or classes is present in person or by proxy at such meeting; in the absence of a quorum of the holders of stock of any class of stock with general or special rights of voting at such meeting, a majority of those holders of the stock of such class who are present in person or by proxy shall have power to adjourn the meeting for the election of the directors to be elected by such class from time to time without notice other than announcement at the meeting, until a quorum shall be present in person or by proxy, but such adjournment shall not be made to a date beyond the date for the mailing of notice of the next annual meeting of the Corporation or special meeting in lieu thereof. (7) At all meetings of the stockholders of the Corporation at which the holders of Preference Stock are entitled to vote they shall be entitled to one vote for each share of such Preference Stock held by them respectively. (g) Except as may be authorized by resolution of the Board of Directors of the Corporation prior to the issuance of a series of Preference Stock, the holders of shares of such series of Preference Stock at any time outstanding shall have no preemptive or preferential right to subscribe for or purchase any shares of stock, or rights or options to purchase shares of stock whether now or hereafter authorized, or any securities convertible into or exchangeable for shares of stock or into rights or options to purchase shares of stock of the Corporation of any class. C. COMMON STOCK 1. At all meetings of the Stockholders of the Corporation, the holders of the Common Stock shall be entitled to one vote for each share of Common Stock held by them respectively, provided, however, that at all elections of directors of the Corporation, subject to the powers of the holders of Preferred Stock set forth in Paragraph "FIFTH", Section 47 48 "III", Subdivision "A" hereof and to the powers of the holders of Preference Stock set forth in Paragraph "FIFTH", Section "III", Subdivision "B" hereof, each holder of Common Stock shall be entitled to as many votes as shall equal the number of votes which (except for this proviso as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of Common Stock multiplied by the number of directors to be elected, and he may cast all such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he may see fit. 2. Whenever full cumulative dividends for all past dividend periods and for the then current dividend period shall have been paid or declared and set apart for payment on the then outstanding Preferred Stock, Preference Stock and other stock having priority as to dividends over the Common Stock and all obligations, if any, of the Company to retire shares of the Preferred Stock or Preference Stock pursuant to a sinking fund or fund of a similar nature shall have been met in full, the Board of Directors may, but only out of assets legally available for the payment of dividends, declare and pay dividends on the Common Stock. 3. In the event of any liquidation, dissolution or winding up of the Corporation or any other proceeding resulting in any distribution of all its assets to its stockholders, after there shall have been paid to or set apart for holders of all then outstanding stock having priority over the Common Stock the full preferential amounts to which they are respectively entitled, the holders of the Common Stock shall be entitled to receive pro rata all of the remaining assets of the Corporation available for distribution to its stockholders. 4. Authorized shares of Common Stock may be sold for such consideration as, from time to time, may be fixed by the Board of Directors. 5. The holders of shares of Common Stock at any time outstanding shall have no preemptive or preferential right to subscribe for or purchase any shares of stock, or rights or options to purchase shares of stock whether now or hereafter authorized, or any securities convertible into or exchangeable for shares of stock or into rights or options to purchase shares of stock of the Corporation of any class. SIXTH: The duration of the Corporation is to be perpetual. SEVENTH: The Secretary of State is designated as the Agent of the Corporation upon whom process in any action or proceeding against the Corporation may be served. EIGHTH: The Board of Directors of the Corporation, none of whom need be stockholders, shall be not less than seven (7), nor more than fifteen (15). NINTH: I. The Board of Directors shall have the power from time to time to fix and determine and to vary the amount to be reserved as working capital of the Corporation and, before the payment of any dividends or making any distribution of profits, it may set aside out of the surplus or net profits of the Corporation such sum or sums as it may from time to time in its absolute discretion think proper whether as a reserve fund to meet contingencies or for the equalizing of dividends or for repairing or maintaining any property of the Corporation or for such corporate purposes as the Board shall think conducive to 48 49 the interests of the Corporation, subject only to such limitations as the By-laws may from time to time impose. II. The Board of Directors shall also have power, except as otherwise provided by law, to make, alter, amend and repeal the By-laws of the Corporation; and to make and determine the use and disposition of any surplus or net profits over and above the capital of the Corporation. III. The Board of Directors shall have the power to appoint an Executive Committee from among their number, which Committee, to the extent and in the manner provided in the By-laws of the Corporation, shall have and may exercise all of the powers of the Board of Directors, so far as may be permitted by law, in the management of the business and affairs of the Corporation whenever the Board of Directors is not in session. TENTH: No director of the Corporation shall have personal liability to the Corporation or its shareholders for damages for any breach of duty as a director except for liability if a judgment or other final adjudication adverse to such director establishes that the acts or omissions of the director were in bad faith or involved intentional misconduct or a knowing violation of law or that the director personally gained in fact a financial profit or other advantage to which such director was not legally entitled or that the acts of such director violated Section 719 of the New York Business Corporation Law. Notwithstanding the foregoing, nothing in this Paragraph TENTH shall eliminate or limit the liability of a director for any act or omission which occurred prior to the date of the adoption of the Certificate of Amendment to the Restated Certificate of Incorporation that includes this Article. No amendment to or repeal of this Article nor the adoption of any provision of the Restated Certificate of Incorporation inconsistent with this Article shall apply to or have any adverse effect on any right or protection of any director of the Corporation for or with respect to any acts or omissions of such director which had occurred prior to the adoption of a Certificate of Amendment to the Restated Certificate of Incorporation that includes such amendment, repeal or adoption of an inconsistent provision. If the Business Corporation Law of New York is amended hereafter to expand or further limit the liability of a director, then the liability of a director of the Corporation shall be expanded to the extent required or limited to the extent permitted by the Business Corporation Law of New York, as so amended. ELEVENTH: The Corporation is a gas and electric corporation, subject to the jurisdiction of the Public Service Commission of the State of New York, and is presently engaged in supplying gas and electric service in Suffolk and Nassau Counties, and in the Fifth Ward of the Borough and County of Queens, City of New York. 49 50 6. This Restated Certificate of Incorporation has been duly authorized by the Board of Directors of Long Island Lighting Company pursuant to Section 807 of the New York Business Corporation Law. IN WITNESS WHEREOF, we have made and subscribed this Certificate and affirm the same as true under the penalties of perjury, this 11th day of November, 1993. /s/ ANTHONY F. EARLEY, JR. ---------------------- ANTHONY F. EARLEY, JR. President /s/ KATHLEEN A. MARION --------------------- KATHLEEN A. MARION Secretary 50 EX-4.C 3 DEBENTURE - SIXTH & SEVENTH INDENTURE 1 Exhibit 4(c) ----------------------------------------------------------------- ----------------------------------------------------------------- LONG ISLAND LIGHTING COMPANY and STATE STREET BANK AND TRUST COMPANY, as Trustee -------------------- DEBENTURES 7.125% Series Due 2005 -------------------- Sixth Supplemental Indenture Dated as of June 1, 1993 ------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- 2 SIXTH SUPPLEMENTAL INDENTURE, dated as of June 1, 1993 (herein called the "Sixth Supplemental Indenture"), between LONG ISLAND LIGHTING COMPANY, a corporation duly organized and existing under the laws of the State of New York (hereinafter called the "Company"), party of the first part, and STATE STREET BANK AND TRUST COMPANY, a corporation duly organized and existing under the laws of the State of Massachusetts (the successor in interest to The Connecticut Bank and Trust Company, National Association), as Trustee under the Original Indenture referred to below (hereinafter called the "Trustee"), party of the second part. WITNESSETH: WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture, dated as of November 1, 1986 (hereinafter called the "Original Indenture"; the Original Indenture, as supplemented or amended from time to time, including by this Sixth Supplemental Indenture, is hereinafter sometimes referred to as the "Indenture"), to provide for the issuance from time to time of certain of its unsecured debentures, notes or other evidences of indebtedness (hereinafter called the "Securities"), the form and terms of which are to be established as set forth in Sections 201 and 301 of the Original Indenture; and WHEREAS, Section 901 of the Original Indenture provides, among other things, that the Company and the Trustee 3 2 may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of establishing the form and terms of the Securities of any series as permitted in Sections 201 and 301 of the Original Indenture; and WHEREAS, the Company desires to create a series of Securities in an aggregate principal amount of up to $200,000,000 to be designated the "Debentures, 7.125% Series Due 2005" (the "Debentures") and all action on the part of the Company necessary to authorize the issuance of the Debentures under the Original Indenture and this Sixth Supplemental Indenture has been duly taken; and WHEREAS, all acts and things necessary to make the Debentures when executed by the Company and completed, authenticated and delivered by the Trustee as in the Original Indenture and this Sixth Supplemental Indenture provided, the valid and binding obligations of the Company and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; NOW, THEREFORE, THIS SIXTH SUPPLEMENTAL INDENTURE WITNESSETH: That in consideration of the premises and of the acceptance and purchase of the Debentures by the holders thereof, and of the acceptance of this trust by the Trustee, the Company covenants and agrees with the Trustee, for the equal benefit of holders of the Debentures, as follows: 4 3 ARTICLE ONE DEFINITIONS The use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture and the form of Debenture attached hereto as Exhibit A. ARTICLE TWO TERMS AND ISSUANCE OF THE DEBENTURES Section 201. Issue of Debentures. A series of Securities which shall be designated the "Debentures, 7.125% Series Due 2005" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Original Indenture and this Sixth Supplemental Indenture (including the form of Debenture set forth in Exhibit A hereto). The aggregate principal amount of Debentures which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of the Indenture, exceed $200,000,000. Section 202. Form of Debentures; Incorporation of Terms. The form of the Debentures shall be substantially in the form of Exhibit A attached hereto, the terms of which are herein incorporated by reference and which are part of this Sixth Supplemental Indenture. 5 4 Section 203. Place of Payment. The Place of Payment for the Debentures will be initially the office of State Street Bank and Trust Company, National Association in New York City which, at the date hereof, is located at 61 Broadway, Concourse Level, New York, New York 10006. ARTICLE THREE MISCELLANEOUS Section 301. Execution as Supplemental Indenture. This Sixth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Sixth Supplemental Indenture forms a part thereof. Section 302. Conflict With Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Sixth Supplemental Indenture by any of the provisions of the Trust Indenture Act of 1939, as amended, such required provision shall control. Section 303. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 304. Successors and Assigns. All covenants and agreements in this Sixth Supplemental Indenture by the 6 5 Company shall bind its successors and assigns, whether so expressed or not. Section 305. Separability Clause. In case any provision in this Sixth Supplemental Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 306. Benefits of Sixth Supplemental Indenture. Nothing in this Sixth Supplemental Indenture or in the Debentures, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the holders of the Debentures, any benefit or any legal or equitable right, remedy or claim under this Sixth Supplemental Indenture. Section 307. Governing Law. This Sixth Supplemental Indenture and each Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of said State. Section 308. Execution and Counterparts. This Sixth Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 7 6 IN WITNESS WHEREOF, the parties hereto have caused this Sixth Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. [Corporate Seal] LONG ISLAND LIGHTING COMPANY By: /s/ Ralph T. Brandifino ---------------------------- Ralph T. Brandifino Senior Vice President-Finance Attest: /s/ Herbert M. Leiman - --------------------- Assistant Secretary [Corporate Seal] STATE STREET BANK AND TRUST COMPANY, as Trustee By: /s/ W. Jeffrey Kramer ----------------------- W. Jeffrey Kramer Assistant Vice President Attest: /s/ Sheree Mailhot - ------------------------ Assistant Vice President 8 STATE OF NEW YORK ) ) ss.: COUNTY OF NASSAU ) On the 24th day of May, 1993, before me personally came Ralph T. Brandifino, to me known, who, being by me duly sworn, did depose and say that he is a Senior Vice President of Long Island Lighting Company, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Joanne S. Carr ------------------ Notary Public Joanne S. Carr Notary Public, State of New York No. 4881993 Qualified in Suffolk County Commission Expires Dec. 29th, 1994 STATE OF CONNECTICUT ) ) ss.: COUNTY OF HARTFORD ) On the 25th day of May, 1993, before me personally came W. Jeffrey Kramer, to me known, who, being by me duly sworn, did depose and say that he is an Assistant Vice President of State Street Bank and Trust Company, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Maryanne Y. Dufresne ------------------------ Notary Public MARYANNE Y. DUFRESNE NOTARY PUBLIC MY COMMISSION EXPIRES JULY 31, 1997 9 EXHIBIT A [Form of Face of Debenture] LONG ISLAND LIGHTING COMPANY DEBENTURE 7.125% Series Due 2005 No. __________ $__________ LONG ISLAND LIGHTING COMPANY, a corporation duly organized and existing under the laws of the State of New York (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ___________________________________, or registered assigns, the principal sum of __________________________________ Dollars on June 1, 2005 and to pay interest thereon from the date of the initial issuance or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on June 1 and December 1 in each year, commencing December 1, 1993, at the rate per annum provided in the title hereof, until the principal hereof is paid or made available for payment, and, subject to the terms of the Indenture, at the rate per annum provided in the title hereof on any overdue principal and (to the extent that the payment of such interest shall be legally enforceable) on any overdue installment of interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest payment, which shall be the May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, in which event notice whereof shall be given to Holders of Securities of this series not less than ten days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. 10 2 Payment of the principal of and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature of one of its authorized officers, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 11 3 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: _____________ [Seal] LONG ISLAND LIGHTING COMPANY By: ------------------------- [Title:] By: ------------------------- [Title:] [Form of Trustee's Certificate of Authentication] This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By: -------------------------- Authorized Signature 12 4 [Form of Reverse of Debenture] LONG ISLAND LIGHTING COMPANY DEBENTURE 7.125% Series Due 2005 This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of November 1, 1986, as supplemented (herein collectively called the "Indenture"), between the Company and State Street Bank and Trust Company (the successor in interest to The Connecticut Bank and Trust Company, National Association), as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. The Securities of this series are not subject to any sinking fund. The Securities of this series may not be redeemed prior to Maturity. Interest payments for this Security will be computed on the basis of a 360-day year of twelve 30-day months. If an Interest Payment Date falls on a day that is not a Business Day, such Interest Payment Date will be the following day that is a Business Day. In certain circumstances described in the Indenture, the Company's obligations in respect of the Securities of this series or in respect of certain covenants made for the benefit of Securities of this series, may be discharged prior to payment, upon the deposit with the Trustee of cash and/or U.S. Government Obligations in the required amount and upon compliance with certain other provisions of the Indenture. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the 13 5 Indenture at any time by the Company and the Trustee with the consent of the Holders of 66-2/3% in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, 14 6 whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse for the payment of the principal of or interest on this Security, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Security shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 15 [CONFORMED COPY] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LONG ISLAND LIGHTING COMPANY and STATE STREET BANK AND TRUST COMPANY, as Trustee ---------------------- DEBENTURES 6.25% Series Due 2001 ---------------------- Seventh Supplemental Indenture Dated as of July 1, 1993 ---------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- 16 SEVENTH SUPPLEMENTAL INDENTURE, dated as of July 1, 1993 (herein called the "Seventh Supplemental Indenture"), between LONG ISLAND LIGHTING COMPANY, a corporation duly organized and existing under the laws of the State of New York (hereinafter called the "Company"), party of the first part, and STATE STREET BANK AND TRUST COMPANY, a corporation duly organized and existing under the laws of the State of Massachusetts (the successor in interest to The Connecticut Bank and Trust Company, National Association), as Trustee under the Original Indenture referred to below (hereinafter called the "Trustee"), party of the second part. WITNESSETH: WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture, dated as of November 1, 1986 (hereinafter called the "Original Indenture"; the Original Indenture, as supplemented or amended from time to time, including by this Seventh Supplemental Indenture, is hereinafter sometimes referred to as the "Indenture"), to provide for the issuance from time to time of certain of its unsecured debentures, notes or other evidences of indebtedness (hereinafter called the "Securities"), the form and terms of which are to be established as set forth in Sections 201 and 301 of the Original Indenture; and 17 2 WHEREAS, Section 901 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of establishing the form and terms of the Securities of any series as permitted in Sections 201 and 301 of the Original Indenture; and WHEREAS, the Company desires to create a series of Securities in an aggregate principal amount of up to $145,000,000 to be designated the "Debentures, 6.25% Series Due 2001" (the "Debentures") and all action on the part of the Company necessary to authorize the issuance of the Debentures under the Original Indenture and this Seventh Supplemental Indenture has been duly taken; and WHEREAS, all acts and things necessary to make the Debentures when executed by the Company and completed, authenticated and delivered by the Trustee as in the Original Indenture and this Seventh Supplemental Indenture provided, the valid and binding obligations of the Company and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed; 18 3 NOW, THEREFORE, THIS SEVENTH SUPPLEMENTAL INDENTURE WITNESSETH: That in consideration of the premises and of the acceptance and purchase of the Debentures by the holders thereof, and of the acceptance of this trust by the Trustee, the Company covenants and agrees with the Trustee, for the equal benefit of holders of the Debentures, as follows: ARTICLE ONE DEFINITIONS The use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture and the form of Debenture attached hereto as Exhibit A. ARTICLE TWO TERMS AND ISSUANCE OF THE DEBENTURES Section 201. Issue of Debentures. A series of Securities which shall be designated the "Debentures, 6.25% Series Due 2001" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Original Indenture and this Seventh Supplemental Indenture (including the form of Debenture set forth in Exhibit A hereto). 19 4 The aggregate principal amount of Debentures which may be authenticated and delivered under the Indenture shall not, except as permitted by the provisions of the Indenture, exceed $145,000,000. Section 202. Form of Debentures; Incorporation of Terms. The form of the Debentures shall be substantially in the form of Exhibit A attached hereto, the terms of which are herein incorporated by reference and which are part of this Seventh Supplemental Indenture. Section 203. Place of Payment. The Place of Payment for the Debentures will be initially the office of State Street Bank and Trust Company, National Association in New York City which, at the date hereof, is located at 61 Broadway, Concourse Level, New York, New York 10006. ARTICLE THREE MISCELLANEOUS Section 301. Execution as Supplemental Indenture. This Seventh Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Seventh Supplemental Indenture forms a part thereof. 20 5 Section 302. Conflict With Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Seventh Supplemental Indenture by any of the provisions of the Trust Indenture Act of 1939, as amended, such required provision shall control. Section 303. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 304. Successors and Assigns. All covenants and agreements in this Seventh Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 305. Separability Clause. In case any provision in this Seventh Supplemental Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 306. Benefits of Seventh Supplemental Indenture. Nothing in this Seventh Supplemental Indenture or in the Debentures, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and 21 6 the holders of the Debentures, any benefit or any legal or equitable right, remedy or claim under this Seventh Supplemental Indenture. Section 307. Governing Law. This Seventh Supplemental Indenture and each Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of said State. Section 308. Execution and Counterparts. This Seventh Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 22 7 IN WITNESS WHEREOF, the parties hereto have caused this Seventh Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. [Corporate Seal] LONG ISLAND LIGHTING COMPANY By: /s/ Ralph T. Brandifino ----------------------- Ralph T. Brandifino Senior Vice President-Finance Attest: /s/ Herbert M. Leiman - --------------------- Assistant Secretary [Corporate Seal] STATE STREET BANK AND TRUST COMPANY, as Trustee By: /s/ W. Jeffrey Kramer --------------------- W. Jeffrey Kramer Assistant Vice President Attest: /s/ V. Glunt - ------------------------ Assistant Vice President 23 STATE OF NEW YORK ) ) ss.: COUNTY OF NASSAU ) On the 8th day of July, 1993, before me personally came Ralph T. Brandifino, to me known, who, being by me duly sworn, did depose and say that he is a Senior Vice President of Long Island Lighting Company, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Joanne S. Carr ------------------ Notary Public Joanne S. Carr Notary Public, State of New York No. 4881993 Qualified in Suffolk County Commission Expires Dec. 29th, 1994 STATE OF CONNECTICUT ) ) ss.: COUNTY OF HARTFORD ) On the 12th day of July, 1993, before me personally came W. Jeffrey Kramer, to me known, who, being by me duly sworn, did depose and say that he is an Assistant Vice President of State Street Bank and Trust Company, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. /s/ Maryanne Y. Dufresne ------------------------ Notary Public MARYANNE Y. DUFRESNE NOTARY PUBLIC MY COMMISSION EXPIRES JULY 31, 1997 24 EXHIBIT A [Form of Face of Debenture] LONG ISLAND LIGHTING COMPANY DEBENTURE 6.25% Series Due 2001 No. __________ $__________ LONG ISLAND LIGHTING COMPANY, a corporation duly organized and existing under the laws of the State of New York (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to ___________________________________, or registered assigns, the principal sum of __________________________________ Dollars on July 15, 2001 and to pay interest thereon from the date of the initial issuance or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 15 and July 15 in each year, commencing January 15, 1994, at the rate per annum provided in the title hereof, until the principal hereof is paid or made available for payment, and, subject to the terms of the Indenture, at the rate per annum provided in the title hereof on any overdue principal and (to the extent that the payment of such interest shall be legally enforceable) on any overdue installment of interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest payment, which shall be the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, in which event notice whereof shall be given to Holders of Securities of this series not less than ten days prior to such 25 2 Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature of one of its authorized officers, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 26 3 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: ____________ [Seal] LONG ISLAND LIGHTING COMPANY By: ------------------------------ [Title:] By: ------------------------------ [Title:] [Form of Trustee's Certificate of Authentication] This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By: ---------------------------------- Authorized Signature 27 4 [Form of Reverse of Debenture] LONG ISLAND LIGHTING COMPANY DEBENTURE 6.25% Series Due 2001 This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of November 1, 1986, as supplemented (herein collectively called the "Indenture"), between the Company and State Street Bank and Trust Company (the successor in interest to The Connecticut Bank and Trust Company, National Association), as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $145,000,000. The Securities of this series are not subject to any sinking fund. The Securities of this series may not be redeemed prior to Maturity. Interest payments for this Security will be computed on the basis of a 360-day year of twelve 30-day months. If an Interest Payment Date falls on a day that is not a Business Day, such Interest Payment Date will be the following day that is a Business Day. In certain circumstances described in the Indenture, the Company's obligations in respect of the Securities of this series or in respect of certain covenants made for the benefit of Securities of this series, may be discharged prior to payment, upon the deposit with the Trustee of cash and/or U.S. Government Obligations in the required amount and upon compliance with certain other provisions of the Indenture. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. 28 5 The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of 66-2/3% in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a different authorized denomination, as requested by the Holder surrendering the same. 29 6 No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse for the payment of the principal of or interest on this Security, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. This Security shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-10.E 4 9 MILE POINT OPERATING AGREEMENT 1 Exhibit 10(e) NINE MILE POINT NUCLEAR STATION UNIT 2 OPERATING AGREEMENT 2 TABLE OF CONTENTS STATEMENT OF INTENT ARTICLE 1 - EFFECTIVE DATE OF AGREEMENT 1.1 Effective Date of Agreement 1.2 Operating Period; Deactivation; Purchase Option 1.3 Amending the Agreement ARTICLE 2 - GENERAL ORGANIZATION 2.1 Commitment to Safe Operation 2.2 Unit Goals 2.3 Policies and Plans 2.4 Operational Control 2.3 Informational Responsibility ARTICLE 3 - MANAGEMENT COMMITTEE 3.1 Establishment of Management Committee 3.2 Meetings, Agendas and Voting, Etc. 3.3 Responsibilities of the Management Committee 3.4 Annual Plan and Budget 3.5 Variances 3.6 Circumstances Requiring Immediate Action 3.7 Owners' Representative On-site 3.8 Representation on Unit Committees, Task Forces and SRAB 3.9 Rights and Responsibilities of On-Site Representative and Other Owner Personnel ARTICLE 4 - SERVICES TO BE PROVIDED 4.1 List of Services ARTICLE 5 - PAYMENTS 5.1 Operating Costs 5.2 Operating Account 5.3 Failure to Advance Funds ARTICLE 6 - AUDITS 6.1 Audit Committee; Inspection of Records 6.2 Inspection Costs; Inspection Report 6.3 Adjustments or Corrective Action 3 ARTICLE 7 - FUEL 7.1 Fuel Committee; Meetings, Agenda and Minutes 7.2 Fuel Supply 7.3 Fuel Pricing Accounts 7.4 Spent Fuel 7.5 Separate Activities for Units 1 and 2 ARTICLE 8 - ACCOUNTING 8.1 Accounting Committee; Meetings and Agenda ARTICLE 9 - INSURANCE AND INDEMNITY 9.1 Compensation Withholdings 9.2 Workers' Compensation and Employers' Liability Insurance 9.3 Comprehensive General Liability Insurance Policy 9.4 Property Insurance 9.5 Employees' Fidelity Bond 9.6 Liability for Loss, Expense or Damage Not Covered by Insurance 9.7 Amount of Coverage; Modifications 9.8 Insurance Premiums 9.9 Sharing of Regulatory Penalty and Breach of This Agreement 9.10 Meaning of Section 6 in September 22, 1975 Operating Agreement Among the Parties (the 1975 Operating Agreement) ARTICLE 10 - MEASUREMENT 10.1 Output Measurement 10.2 Periodic Testing of Meters ARTICLE 11 - GENERAL 11.1 Non-Waiver of Provisions 11.2 Procedure for Appeal of Management Committee Decision 11.3 Procedure for Resolution of Appeal 11.4 Conflict with Basic Agreement 11.5 Independence of Settlement Agreement ARTICLE 12 - FORMATION AND EFFECTIVENESS OF OPERATING COMPANY 12.1 Formation and Effectiveness of Operating Company 4 NINE MILE POINT NUCLEAR STATION UNIT 2 OPERATING AGREEMENT Pursuant to Section 6.01 of the Basic Agreement, Niagara Mohawk Power Corporation (Niagara Mohawk), Long Island Lighting Company (LILCO), New York State Electric & Gas Corporation (NYSEG), Rochester Gas and Electric Corporation (RG&E), and Central Hudson Gas & Electric Corporation (Central Hudson) agree as follows with respect to the operation and maintenance of the Nine Mile Point Unit 2, and all activities and facilities supporting or otherwise relating to the plant (sometimes hereinafter collectively referred to as the "Unit" or the "Plant"). The term "Parties" as used herein shall refer to all the parties to this Agreement. The term "Non-Operating Owners" as used herein shall refer to LILCO, NYSEG, RG&E and Central Hudson collectively. STATEMENT OF INTENT It is the intent of the Parties to assure the safe, efficient and reliable operation of the Unit consistent with the goals and commitments specified in Sections 2.1 and 2.2 herein. It is the intent hereof that Niagara Mohawk shall have exclusive operational control of the operation and maintenance of the Unit. It is the further intent of the Parties to establish a framework for oversight by the Management Committee of the policy making, planning, budgeting, and operational decisions of Niagara Mohawk related to the Unit. In addition, as more fully explained in Section 2.3 and Article 3, the Non-Operating Owners shall have -1- 5 the right to approve or disapprove the annual budgets and annual plans (which shall include annual operating goals and objectives for the Unit) and any significant changes in either of them. To the extent any ambiguity arises as to the roles and responsibilities of Niagara Mohawk, the Non-Operating Owners, and the Management Committee hereunder, the provisions of this Agreement shall be construed consistent with the intent herein expressed. ARTICLE 1 - EFFECTIVE DATE OF AGREEMENT 1.1 Effective Date of Agreement This Agreement shall be effective as of the first date upon which all Parties have executed it and shall inure to, bind, and be for the benefit of the Parties, their successors, and assigns. 1.2 Operating Period; Deactivation; Purchase Option The Parties agree to operate the Plant for the applicable license period granted by the United States Nuclear Regulatory Commission (the "NRC" or the "Commission") or any successor agency having jurisdiction over the operation of nuclear power plants. The Parties shall meet five years prior to the expiration of an operating license, or sooner if required by any inability to operate the Plant on a permanent basis, to agree upon any further operating period, or upon a schedule for deactivation and decommissioning of the Plant. Niagara Mohawk, as agent for and on behalf of the Parties, shall maintain the Plant to the date that the Plant has been fully decommissioned inaccordance with all applicable laws or regulations then in effect. -2- 6 The cost of deactivation, discontinuance, dismantling, and continuing surveillance of the Plant shall be shared by the Parties in accordance with their Respective Percentages and the Parties each agree to establish appropriate reserves and/or take such other action as may be necessary to provide for the cost of such deactivation, discontinuance and dismantling. Prior to, or upon completion of deactivation, discontinuance and dismantling of the Plant, the Nuclear Plant Site may, at Niagara Mohawk's election, be conveyed to Niagara Mohawk at a price to be established by a recognized independent appraiser of land selected by all the Parties. Unless all the Parties, their successors and assigns, determine to retain their Respective Percentages and to continue to operate and maintain the Plant as is herein provided, Niagara Mohawk shall have the option to purchase the Nuclear Plant Site and the Plant at a price to be agreed to by the Parties, and if they are unable to agree, at a price to be established by a recognized independent firm of appraisers with substantial experience in appraising the value of utility plants selected by all the Parties. The Parties contemplate that, in any disposition of the Nuclear Plant Site and Plant, the operation and maintenance thereof as is herein provided, subject to the provisions of Section 1.3 hereof, may require the authority and consent of governmental bodies then having jurisdiction. Accordingly, it shall be a condition to the completion of any disposition or continued operation and maintenance, agreed to by the Parties hereto, that such authority and consent be first obtained. -3- 7 Any conveyance of a Respective Percentage contemplated by this Section 1.2 shall follow the relevant procedures for the original conveyance set forth in Article II of the Basic Agreement, and an appropriate release in form for recording from any indenture of mortgage of the Party making the conveyance which is a lien on the Nuclear Plant Site must be obtained and delivered by that Party to the acquiring Party or Parties. The costs of any appraisals accomplished under this Section 1.2 shall be shared by the Parties in accordance with their Respective Percentages. 1.3 Amending the Agreement This Agreement shall be revised from time to time if necessary so that it will not be in conflict with any rule, regulation, or order of any regulatory or governmental body having jurisdiction. Such amendment shall not be required during the pendency of any legal action which any Party hereto has commenced in good faith to contest the validity of any such rule, regulation or order, provided that the operation of the Plant will not be curtailed by such action. ARTICLE 2 - GENERAL ORGANIZATION 2.1 Commitment to Safe Operation Activities in relation to the Unit shall be conducted in such a way as to assure safe operation in accordance with all applicable nuclear safety requirements. To that end, the Unit shall be operated in strict compliance with the technical specifications and other terms and conditions of the operating license issued by the NRC, the regulations of the Commission and -4- 8 any applicable orders or directives issued by it. The parties further recognize that the Party licensed by the NRC to operate the Plant is responsible for safe operation of the Plant in accordance with these requirements. Niagara Mohawk, as agent for and on behalf of the Parties, shall operate the facility for the mutual benefit of the Parties in full accordance with that responsibility. Accordingly, the Parties agree and declare that no other provision of this Operating Agreement may be interpreted as contrary to, or in conflict with, this fundamental principle. 2.2 Unit Goals Within the requirements specified in Section 2.1, Unit operation and maintenance plans shall be designed to achieve these basic goals: (a) uniformly high standards of safety for the protection of workers at the Unit as well as for the welfare of the general public; (b) consistently reliable performance with a superior level of availability and minimal outage incidents and duration; (c) conformity with all applicable regulatory requirements and industry standards; and (d) consistent with goals (a), (b) and (c), a busbar cost as low as reasonably possible through careful control of operating and maintenance expenses and restraint in the commitment of capital funds to necessary projects with clearly positive benefit/cost relationships. -5- 9 2.3 Policies and Plans Niagara Mohawk shall develop and, as necessary, update its annual budgets and annual plans, which shall include unit operating goals and objectives, to guide its management of the Unit. All such plans and budgets shall be shared with the Non-Operating Cotenants and subject to their critical review to which Niagara Mohawk shall make reasonable response. Such plans and budgets shall be subject to the approval of the Non-Operating Cotenants, as set forth in Article 3. 2.4 Operational Control Niagara Mohawk shall have exclusive control of the operation and maintenance of the Unit. That control shall be exercised in a manner consistent with the requirements, goals, policies, plans and budgets it has developed as modified in light of the critical review of the Non-Operating Cotenants and in the interest of all the Parties. 2.5 Informational Responsibility Through committees and other groups established under Article 3, Niagara Mohawk shall keep the Parties regularly and fully advised of the manner in which it discharges its responsibilities under Section 2.4. ARTICLE 3 - MANAGEMENT COMMITTEE 3.1 Establishment of Management Committee a. Each Chief Executive Officer of a Party shall designate a member and an alternate to serve on the Management Committee at the pleasure of such Chief Executive Officer. Each Chief Executive Officer shall notify the others of the names of -6- 10 the individuals so appointed and of any chance in appointments. b. The Chief Executive Officers shall select a member of the Management Committee as its Chair. The Chair shall be rotated among the Non-Operating Parties annually unless the Chief Executive Officers shall otherwise determine by unanimous vote. c. Each non-operating party shall bear the salaries and expenses of its member and alternate on the Management Committee, unless the Management Committee shall otherwise determine. Niagara Mohawk shall be responsible for the salaries and expenses of its member or alternate on the Management Committee except to the extent such members or alternates are ordinarily dedicated to the operations of the Unit. If the Management Committee determines that a salary or an expense should be shared by the Parties in proportion to their Respective Percentages, the Party incurring such salary or expense in the first instance shall, at the end of each calendar month in which such salary or expense is so incurred, furnish to Niagara Mohawk a statement thereof in reasonable detail. Any such amount shall be paid to the appropriate Party as provided in Article 5. 3.2 Meetings, Agendas and Voting, Etc. a. Meetings. The Management Committee shall meet monthly, normally in person, according to a schedule established by the Chair. Any member may call a meeting to convene sooner than the next regularly scheduled meeting. Such a meeting may be in person, by conference call or partly in person and partly by conference call. b. Notice. Notice of regularly scheduled meetings shall be deemed given when circulation is made of minutes -7- 11 containing the meeting schedule. For any other meeting, all other members and alternates shall receive notice from the member calling the meeting at least five business days prior to the meeting, which notice the Management Committee may waive by unanimous consent of its members. c. Agendas. The agenda for a regularly scheduled meeting of the Management Committee shall be prepared by the Chair and received by members not fewer than five business days before the meeting, unless waived by the unanimous consent of the members of the Management Committee. The purpose of any other meeting shall be made known with the notice of meeting; its agenda shall be prepared by the member calling the meeting and received as much in advance of the meeting as is practical. d. Quorum. A quorum shall be deemed present when at least four owners are represented, in person or by conference call, either by a member or by an alternate, except no quorum shall be deemed present in the absence of a member or alternate from Niagara Mohawk. Niagara Mohawk shall use its best efforts to attend any meeting of the Management Committee. e. Voting. The Management Committee shall endeavor to conduct its business upon unanimous consent, but the Committee may take action if members representing Respective Percentages totaling in excess of 50 percent concur. f. Minutes. The Management Committee shall provide for the preparation of minutes of its meetings and the retention of any reports, reviews or evaluations prepared for it by any team, subcommittee or task force. -8- 12 3.3 Responsibilities of the Management Committee a. Consistent with the commitment of the Parties in Section 2.1 to safe operation, the goals stated in Section 2.2, and Niagara Mohawk's operational control provided in Section 2.4, Niagara Mohawk shall operate and maintain the Unit and shall report the status thereof to the Management Committee. b. The Management Committee shall critically review as appropriate the annual budgets and plans, which shall include annual operating goals and objectives for operation and maintenance of the Unit, developed by Niagara Mohawk. Niagara Mohawk will respond to any such critical review either with an appropriate modification of any of the above or with a reasonable explanation of why a modification is not appropriate. The Management Committee shall review and, when satisfied, approve the annual plans and the overall levels of the annual budgets for the Unit. The Management Committee, if it reasonably believes that the annual budgets or annual plans are not being met, may require Niagara Mohawk's senior nuclear officer to develop and implement appropriate corrective action. c. Niagara Mohawk shall inform and consult with the CEOs before appointing, relieving or declining to reappoint its senior nuclear officer. Niagara Mohawk's senior nuclear officer will be relieved by Niagara Mohawk if it is requested to do so in writing by the CEOs of all four of the Non-Operating Cotenants. d. When useful to the discharge of its responsibilities under Article 3, the Management Committee may review any developments of significance concerning cost, operations, scheduling, performance objectives, work force -9- 13 organization, regulatory concerns and other matters affecting or affected by Unit operation and maintenance. These matters may come to the Management Committee's attention from various sources including, but not limited to, Niagara Mohawk or the Owners' Representative On-site described in Section 3.7. e. Niagara Mohawk shall keep the Management Committee informed of regulatory proceedings regarding operation of the Unit, especially those which may result in any penalty, fine or assessment being imposed on the Unit or on any of the Parties. With respect to State regulatory proceedings involving a potential penalty, fine or assessment for imprudent management, whether to defend against such imposition, the overall defense to be mounted and any settlement thereof shall be decisions made by the Management Committee. However, it is the intent of the parties that Niagara Mohawk shall have the primary responsibility for the conduct of all regulatory proceedings. Representation by counsel of any Party in any regulatory proceeding involving the Unit will not be used by any other Party as the basis to seek disqualification of that counsel in any action brought by one Party against another. f. The Management Committee shall annually review the performance of key executives (including salary levels), as designated by Niagara Mohawk's senior nuclear officer, who are responsible for the operation of the Unit. This review shall be conducted in executive session before the principal executive members of the Management Committee. g. The Management Committee shall require the preparation of a charter by each of the Audit, Fuel, and Finance -10- 14 Committees specifying, among other things, the function, responsibilities and reporting requirements of the Committee. Said charters shall be reviewed and approved by the Management Committee. The Management Committee may from time to time require the amendment or modification of the committee charters to address changing needs and requirements. 3.4 Annual Plan and Budget a. Niagara Mohawk shall annually prepare, on or before August 1, i. a proposed plan, which shall include annual Unit operating goals and objectives, as well as budgets for the succeeding year (Year I) and ii. a preliminary plan and financial forecasts for the two following years (Years 2 and 3). Each annual budget or financial forecast, to the extent feasible, shall comprehensively address all expenditures for the Unit in the following categories: Fuel, Capital, Operations and Maintenance and Other. b. On or before September 15 of each year, the Management Committee shall complete preliminary review of the documents submitted to it under subsection (a) and provide Niagara Mohawk with its comments. c. Following timely revision by Niagara Mohawk responsive to the comments of the Management Committee, the Management Committee shall, on or before October 15 of each year, i) approve plans, which shall include annual Unit operating goals and annual objectives, and the -11- 15 overall level of the budgets for the following year and ii) give preliminary approval to the preliminary plan and financial forecasts for Years 2 and 3. d. The Management Committee may from time to time review the planning and budget process and Niagara Mohawk will respond to any comments or criticisms of that process. 3.5 Variances a. The approved plans, which shall include annual operating goals and annual objectives, and budget shall form the basis upon which Unit operation and maintenance are conducted during the plan and budget year. The Management Committee may from time to time approve revisions in the plan and budget, whereupon Unit operation and maintenance shall conform to revised plan and budget. b. Niagara Mohawk shall report at each regularly scheduled meeting of the Management Committee on the status of current and projected spending in relation to the capital and operating budgets. As part of this report (but sooner if circumstances require), Niagara Mohawk shall identify: i) significant expenditures it proposes to make not within the approved budget, ii) withholding of significant expenditures within the approved budget it proposes to make, or iii) if it has reason to believe that spending associated with a budgeted amount is (or will be) exceeding or underrunning the budget by a significant amount. -12- 16 c. Niagara Mohawk shall provide a detailed budget variance and forecast report on a monthly basis including explanation for each budget item exhibiting significant variance. d. If the total level of expenditures for any budget category (Fuel, Capital, Operation and Maintenance, and Other) is expected to exceed the budget by more than $1.0 million, Niagara Mohawk will inform the Management Committee and seek approval from the Management Committee for such increase in the total budgets; such approval shall not be unreasonably withheld. e. Notwithstanding the preceding paragraph, the Parties shall be liable to the extent of their Respective Percentages i) for any expenditure which Niagara Mohawk reasonably believes is required for compliance with the terms and conditions of the NRC Facility Operating License, its Technical Specifications and Environmental Protection Plan, the regulations of the Commission and any applicable orders or directives issued by it, and ii) for any expenditure which, in Niagara Mohawk's judgment, is essential for safe operation of the Plant. f. If the level of expenditure, or expenditures, described in the preceding paragraph is expected to result in the exceeding of an approved budget, Niagara Mohawk shall promptly so inform the Management Committee. Time permitting, Niagara Mohawk will review such expenditures with the Management Committee in advance. In any event, Niagara Mohawk will make every reasonable -13- 17 effort to offset such expenditures, and avoid increases in the currently approved budget amounts, through reduction or elimination of corresponding amounts of discretionary expenditures. 3.6 Circumstances Requiring Immediate Action a. Whenever circumstances require that action normally subject to Management Committee review and approval be taken before that Committee can be convened in person or telephonically, Niagara Mohawk shall (1) make reasonable efforts to so inform both the Owners' Representative On-site and Management Committee members or their alternates and (2) take such action as it deems appropriate having due regard for (a) the safeguarding of personnel and equipment, (b) the maintaining of the Unit in operable condition, (c) the ensuring of regulatory compliance, and (d) the interests of all the Parties. b. As soon as possible but not later than 24 hours after so acting, Niagara Mohawk shall report and explain its action to the Management Committee and shall recommend any follow-up action it deems appropriate. 3.7 Owners' Representative On-site a. Those members of the Management Committee designated by Chief Executive Officers of Non-Operating Owners may collectively retain a person or an organization (the Owners' Representative On-site) to monitor activities related to the Unit and to provide them with assessments thereof. The Owners' Representative On-site shall report to the Chair of the Management Committee or the Chair's designee. -14- 18 b. The Owners' Representative On-site shall coordinate the on-site activities of employees and agents of the Non-Operating Owners and shall, should the Non-Operating Owner members of the Management Committee so designate, represent the interests of those owners to Niagara Mohawk management and to those Niagara Mohawk managers exercising operational control under Section 2.4. In addition, the Owners' Representative On-Site shall inform in a timely fashion the Niagara Mohawk officer who directs operational control of the operation and maintenance of the Unit as to his observations and assessments concerning the operation and maintenance of the Unit. c. Niagara Mohawk may designate an individual for assignment as part of the Owners' Representative On-site. 3.8 Representation on Unit Committees, Task Forces and SRAB The Non-Operating Owners may have representation on all operation and engineering committees as well as task forces which are established from time to time by Niagara Mohawk to inquire into various questions and/or problems relating to the Unit. Niagara Mohawk shall make reasonable efforts to keep Owners' Representative On-Site informed regarding dates and times for regularly or periodically scheduled meeting of such committees and task forces so as to facilitate the representation provided for in this Section 3.8. The Non-Operating Owner members of the Management Committee may collectively designate one individual to be a member of the Safety Review and Audit Board and one individual to be a member of the Capital Review Committee. -15- 19 3.9 Rights and Responsibilities of On-site Representative and Other Owner Personnel a. The Owners' Representative On-site shall have reasonable access to Niagara Mohawk corporate management and to those Niagara Mohawk managers exercising operational control under Section 2.4. The Owners' Representative On-site and all other employees and agents of the Non-Operating Owners whose activities on-site are coordinated by the Owners' Representative On-site shall have reasonable access to all Unit-related correspondence, records, reports, and other information within the control of Niagara Mohawk wherever located, and shall have access to the Unit at all times subject to security and safety requirements comparable to those applied to Niagara Mohawk personnel. Niagara Mohawk shall provide the organization of the Owners' Representative On-site with suitable and sufficient office space at the Plant Site, facilities, equipment and supplies. b. The On-site Representative will be responsible to the Chair of the Management Committee for reporting on the operation and maintenance of the Unit. Such reports will have the purpose of providing oversight and assessment as determined by the Management Committee and of helping Niagara Mohawk achieve all of the goals for operation and maintenance of the Unit set forth in Article 2. To that end, both the On-site Representative and the appropriate Niagara Mohawk personnel responsible for operation and maintenance of the Unit will seek to achieve a cooperative working relationship, and will among other things, inform each other at the earliest practical time of any perceived -16- 20 deficiencies in the operation or maintenance of the Unit and of any suggested solutions. ARTICLE 4 - SERVICES TO BE PROVIDED 4.1 List of Services Niagara Mohawk agrees, subject to the provisions of Article 3, that it will: a. Make decisions respecting the operation and maintenance of the Unit and carry out improvements to the Unit; b. Select, hire, control and (when it deems such action appropriate) discharge personnel as required in the performance of this Agreement, such personnel to be employees solely of Niagara Mohawk and subject to the terms of any labor agreements to which Niagara Mohawk is a party pertaining to such employees and to such standards relating to compensation, benefits and terms of employment specified for Niagara Mohawk employees; c. purchase operating and maintenance materials, supplies, and services; d. perform or contract for maintenance, renewals and replacements required to protect the Unit and to keep it in safe and efficient operating condition and prepare and submit to the other Parties normal operating schedules for the Unit; e. engage legal, engineering, auditing and other consulting services related to the Unit; f. perform such accounting as is required for the Unit and furnish reports with respect thereto to the other Parties which will enable each Party to meet its accounting and -17- 21 statistical requirements, including the requirements of any regulatory bodies having jurisdiction over such Party; g. appoint, as Niagara Mohawk's member of the Management Committee, one of its two most senior officers or an officer who has authority, either in that officer's position or delegated from another officer with such authority, to direct both Unit operations and such engineering, licensing and other services as are necessary to support those operations; h. place all orders and contracts pertaining to operation and maintenance of the Unit in the name of Niagara Mohawk on behalf of the Parties hereto. The Parties hereto authorize Niagara Mohawk to sign such orders and contracts on their behalf. No party hereto will assume any liability under or by reason of any such orders or contracts except to the extent of its Respective Percentage; i. prepare bills in reasonable detail to the Parties for costs incurred hereunder; j. assist the Parties in regulatory proceedings and other contested matters (including, but not limited to, any action by any shareholders of any of the Parties) relative to the Unit, including the provision of witnesses and current and accurate Unit data; and k. support the timely preparation of Unit plans and budgets, as described in Section 3.4, with sufficient supervision, staffing and organization. -18- 22 ARTICLE 5 - PAYMENTS 5.1 Operating Costs Subject to the provisions of Article 3, it is agreed that the Parties shall share in the costs of operation, maintenance and replacements including Niagara Mohawk's overhead (including services and expenses of regular personnel, executive officers and supervisors, to the extent that such services pertain to operations and maintenance of the Unit) applicable to the performance of this Agreement, in their respective Percentages. 5.2 Operating Account Niagara Mohawk shall establish and maintain for purposes of this Agreement a special bank account or accounts, in a New York State bank designated by Niagara Mohawk, entitled "Niagara Mohawk Power Corporation, as Agent - Nine Mile Point Nuclear Station Unit 2 Nuclear Operating Account", with funds supplied by the Parties in accordance with their Respective Percentages. Each Party pursuant to written notice by Niagara Mohawk and in accordance with its Respective Percentage will deliver to Niagara Mohawk funds for the replenishment of the bank account or accounts by the Parties. In determining the dates and amounts of such replenishments, the Parties shall endeavor to avoid carrying in the bank account or accounts funds ill excess of a reasonable minimum balance for periods of time longer than necessary to provide for the orderly payment of invoices and payroll and other charges. Any income resulting from the investment of excess funds and the cost of funds required to be borrowed will accrue to the account of each co-tenant in their -19- 23 respective ownership percentages. All invoices or charges in connection with the performance of this Agreement shall be paid by Niagara Mohawk from the aforesaid account or accounts. 5.3 Failure to Advance Funds If at any time any party fails to advance funds owing under this Agreement when Niagara Mohawk requests it to do so, Niagara Mohawk may (unless it is clear that the failure will be promptly remedied) require all Parties to advance funds in proportion to their Respective Percentages to cover the shortfall for as long as may be required, but not longer than three months. A Party failing to advance funds whenever so required shall remain fully liable therefore under the Basic Agreement and this Operating Agreement and shall promptly tender the delinquent funds together with interest at the prime rate or an equivalent reference rate as may be established from time to time by The Chase Manhattan Bank N.A., at New York, New York. Niagara Mohawk shall accept and apply such tendered sums to eliminate or reduce the next succeeding request or requests for funds from those Parties covering the shortfall. Promptly upon the occurrence of the event described in the preceding paragraph, Niagara Mohawk shall notify all Parties of it and a meeting shall be convened to decide as promptly as possible on a longer-term course of action responsive to the particular circumstances. This Section shall not in any way restrict or limit the right of the non-defaulting Party (Parties) against the defaulting Party (Parties). -20- 24 ARTICLE 6 - AUDITS 6.1 Audit Committee; Inspection of Records The Audit Committee, consisting of a representative of each of the Parties, has previously been organized by the Parties and shall continue to exist. The members of such Committee shall consist of one representative appointed by each of the Chief Executive Officers of the Parties. The Chair of the Audit Committee shall be appointed by the Chief Executive Officers voting in accordance with their companies' Respective Shares. A vote representing more than 50 percent of the ownership interest in the Unit is required to appoint a Chair. The Audit Committee shall: a. report to the Chief Executive Officers collectively; b. plan the amount of audit effort to be expended on the Plant; the Audit Committee will also determine how the manpower will be provided in order to meet its commitments; c. determine specific areas for audit and develop the scope and objectives for each audit; d. perform the audits and discuss preliminary findings/ corrective actions with Niagara Mohawk Management; e. review audit results and submit draft reports to the Management Committee for comments and report final audit results to the Chief Executive Officers; and f. review the results of any Niagara Mohawk Internal Audit Reports of Unit Two activities. The scope of the Audit Committee shall be understood to include all costs relating to the Plant. The costs of all audits by the Audit Committee or by any independent certified public -21- 25 accountants retained by it shall be borne by the Owners in accord with their Respective Percentages. The correspondence, records, vouchers and books of account of Niagara Mohawk pertaining to all costs incurred for the account of the Parties under this Agreement shall be examined annually by a firm of independent certified public accountants in connection with the annual examination of Niagara Mohawk's accounts and records, and such firm will report to the Parties with respect to operation under this Agreement. The costs of such examination shall be borne by the Owners in accord with their Respective Percentages. The Parties or any individual Party shall have the right, during the term of this Agreement and for a period of two years after final payment, to inspect all correspondence, records, vouchers and books of account of Niagara Mohawk pertaining to work done or disbursements made for the account of the Party or Parties under this Agreement. This review may be performed by the Party's auditors, or a firm of independent certified public accountants retained by any Party or Parties. 6.2 Inspection Costs; Inspection Report If an inspection or review is requested or undertaken by fewer than four of the Parties, the Party or Parties requesting or undertaking such inspection or audit shall be responsible for the cost thereof. The reports of inspection, review or audits pursuant to this section shall be provided to the Audit Committee. The Party or Parties undertaking the audit shall report the results to the Chief Executive Officers of all the Parties who shall in turn advise Niagara Mohawk within three -22- 26 (3) months of receipt of such report, of any items that require adjustment or corrective action. 6.3 Adjustments or Corrective Action Niagara Mohawk shall permit such inspection, reviews or audits and make appropriate adjustments or take corrective action as may be required to reflect the results thereof. ARTICLE 7 - FUEL 7.1 Fuel Committee; Meetings, Agenda and Minutes A Fuel Committee has previously been organized and shall continue to exist. Each member of the Management Committee shall designate a representative to serve at the member's pleasure. The Chair shall be appointed by the Management Committee voting in accordance with their companies' Respective Shares. A vote representing more than SO percent of the ownership interest in the Unit is required to appoint a Chair. The Committee shall meet on a quarterly basis, or upon the request of any Party. The Chair shall, at least ten (lO) days in advance of each such regular meeting, provide each Party with a written agenda of the pertinent items to be discussed at the meeting relevant or material to nuclear fuel provisions for the Unit. Minutes of such meetings shall be prepared by the Chair and distributed to the Parties for correction or clarification. Comments of the Parties at a meeting or with regard to the minutes shall be considered and addressed by Niagara Mohawk. 7.2 Fuel Supply Subject to approvals of the Management Committee as provided in Article 3, Niagara Mohawk, as agent, shall continue -23- 27 to manage the fuel supply and make decisions in connection therewith, keeping the Parties informed of its actions. Each Party may elect to provide its own share of uranium and/or conversion services on the condition that such share will be made available pursuant to an agreed upon schedule for reload and to the extent that such commitments have not already been made by Niagara Mohawk as agent. However, Niagara Mohawk, acting as an individual Party, shall be limited to providing no more than seventy-five percent of its individual share for any one reload. The remaining amount required for Niagara Mohawk as an individual Party shall be provided as part of its overall procurement strategy acting as agent for all the Parties. (Niagara Mohawk controlled sources shall not be eligible to bid these latter procurements.) 7.3 Fuel Pricing Accounts. Each Party will maintain its own separate nuclear fuel pricing accounts, but all individual accounts shall be merged as a composite for New York Power Pool (NYPP) dispatch purposes. 7.4 Spent Fuel Subject to the approval of the Management Committee as provided in Article 3, Niagara Mohawk will continue to operate and manage all on-site and off-site spent fuel storage, reprocessing or permanent disposal of recovered fuel and waste products, as agent of the parties, with all costs, benefits and liabilities distributed among the Parties in accordance with the Respective Percentages. -24- 28 7.5 Separate Activities for Units 1 and 2 It is agreed that Niagara Mohawk will maintain entirely separate procurement, inventory accounting and disposal actions for Units 1 and 2. ARTICLE 8 - FINANCE AND ACCOUNTING The Finance Committee, consisting of a representative of each of the Parties, has been previously organized by the Parties and shall continue to exist. Each member of the Management Committee shall designate a representative to serve at the member's pleasure. The Parties may designate additional Finance Committee meeting attendees; however, only the designated representative or a designated alternate shall vote on behalf of the Party. The Chair of the Finance Committee shall be appointed by the Management Committee voting in accordance with their companies' Respective Shares. A vote representing more than 50 percent of the ownership interest in the unit is required to appoint a Chair. The Committee shall meet at the request of any Party for the purpose of addressing common financial issues related to the operation of NMP2. In addition, the Finance Committee shall oversee and direct the activities of the Accounting Committee which has been previously formed to establish and review accounting policy and procedures as they relate to the Unit. ARTICLE 9 - INSURANCE AND INDEMNITY 9.1 Compensation Withholdings Niagara Mohawk shall have sole responsibility for -25- 29 withholding from the compensation of its employees engaged in performing the services under this Agreement any taxes or contributions which are required by law to be withheld, and sole responsibility for paying such withheld amount and taxes applicable to the compensation of such employees imposed by law upon Niagara Mohawk to the proper governmental authority, and shall defend, indemnify and save harmless the Parties hereto from and against any liability on account thereof. 9.2 Workers' Compensation and Employers' Liability Insurance Niagara Mohawk shall provide workers' compensation and employers' liability insurance for its employees engaged in performing the services under this Agreement in accordance with the laws of the State of New York. The policy shall contain a subrogation waiver to the effect that the insurance company shall not proceed against any of the Parties hereto for recovery of any loss or losses paid under the policy even though due to the negligence of any Party or Parties. With respect to any claims made or any suits brought by Niagara Mohawk employees engaged in performing the services under this Agreement against LILCO, NYSEG, RG&E, or Central Hudson or any of them, and such claims or suits do not arise out of acts or omissions of LILCO, NYSEG, RG&E, or Central Hudson, and are not covered by insurance provided under Section 9.3 hereof, Niagara Mohawk agrees to defend, indemnify, and hold harmless LILCO, NYSEG, RG&E, or Central Hudson. -26- 30 9.3 Comprehensive General Liability Insurance Policy Through the life of this Agreement, Niagara Mohawk shall maintain liability insurance for the account and in the name of the Parties hereto by securing a standard Comprehensive General Liability Insurance Policy on a primary coverage basis toinsure the Parties and their agents against liability except for the nuclear risk, for bodily injury including personal injury to or death of any one or more persons and damage to property arising out of the operation of the Unit. Such insurance shall include a waiver of the insurer's right of subrogation against any of the Parties for such loss or damage even though due to the negligence of any of the Parties. Niagara Mohawk shall also maintain insurance in accord with the requirements of the United States Nuclear Regulatory Commission pursuant to the Commission's authority under 42 U.S.C. Section 2210 et seq. and the license issued by the United States Nuclear Regulatory Commission for the Unit. In the event the requirements of 42 U.S.C. Section 2210 et seq. are revised or terminated, Niagara Mohawk shall obtain and maintain such insurance and indemnification as is available for the nuclear risk on reasonable terms, subject to the consent of the Parties hereto. 9.4 Property Insurance Niagara Mohawk shall maintain for the account of the Parties in the name and on behalf of the Parties, property insurance as shall normally be provided by nuclear property insurance underwriters. Such insurance shall include a waiver of the insurer's right of subrogation against any of the Parties for -27- 31 such loss or damage even though due to the negligence of any of the Parties. Niagara Mohawk shall arrange with the insurers for any inspections necessitated thereby and shall promptly reportany losses to each Party, and shall assist and cooperate in the adjustment and settlement thereof. 9.5 Employees' Fidelity Bond Niagara Mohawk shall maintain such employee's fidelity bond coverage as it deems necessary. 9.6 Liability for Loss, Expense or Damage Not Covered by Insurance It is the intent of this Agreement that, insofar as practicable, all liabilities or losses in favor of third parties shall be covered by insurance; nonetheless, the Parties hereto hereby agree to share (including deductibles and retainages under policies of insurance as well as attorney's fees) in any loss, liability, expense, or damage (including personal injury, death or damage to property) of any kind whatsoever arising out of or connected with the design, construction, maintenance and operation of the Nine Mile Point Nuclear Station Unit 2, in accordance with their Respective Percentages (hereafter referred to as "Shared Liability") and hereby agree to indemnify and hold each other harmless with respect to any excess amount beyond the share contributed by each in accordance with their Respective Percentages, provided that no Party is required to participate in Shared Liability for any claim, loss, expense, or damage that is payable as a result of any settlement or compromise thereof unless all the Parties hereto shall have consented to such settlement or compromise. Shared Liability as to third parties, -28- 32 as set forth above, shall apply irrespective of the nature of the allegations of wrongdoing on the part of the Party(ies) hereto against whom recovery is being sought, whether pertaining to non-feasance, misfeasance, malfeasance or violations of statute or regulation, including, but not limited to (to the extent not prohibited by law) all claims and judgments against any such Party(ies). In no event shall any of the Parties be liable to any other Party, except to the extent of its Shared Liability, for consequential damages to third parties (including, but not limited to, loss of profits or revenue, loss of use of equipment, cost of capital, cost of substitute equipment, facilities, or services, down-time costs, cost of replacement or purchased power, or claims of customers) or punitive damages to third parties resulting from uninsured losses occurring as aforesaid. 9.7 Amount of Coverage; Modifications Any insurance arranged for or placed by Niagara Mohawk hereunder shall be for such amounts and with such deductibles as Niagara Mohawk, considering the nature of the risks and current insurance practices, shall determine. Such coverage and deductibles, however, shall satisfy the requirements of each Party hereto. To the extent that Niagara Mohawk places or arranges for insurance for the Parties as herein provided, the Parties will not obtain or provide such insurance, except that any Party may for its own account and at its own expense obtain or provide separate or excess liability coverage. During the life of this Agreement, from time to time, Niagara Mohawk may modify insurance coverages both as to type and amount and deductibles to conform to its own corporate practices -29- 33 and practices generally accepted in the utility industry. All Parties shall be notified of any change. Copies of any insurance policies placed or arranged for hereunder shall be furnished to all Parties. Notwithstanding any provision of this Article 9, Niagara Mohawk shall secure and maintain for the Unit an insruance program affording liability and property damage coverage which meets regulatory requirements. 9.8 Insurance Premiums All premiums for insurance maintained by Niagara Mohawk hereunder with respect to the Unit shall be included in the cost of operations and maintenance. 9.9 Sharing of Regulatory Penalty and Breach of This Agreement a. Except as this Section otherwise provides, each Party does hereby release each of the other Parties from all liability, causes of action, claims and judgments (hereinafter collectively referred to in this Section 9.9 as "Claims") in excess of each Party's Respective Percentage for actions or omissions occurring subsequent to the effective date of this Agreement and arising out of operation, maintenance, modification (including design thereof), or ownership of the Unit. b. Unless otherwise directed by the regulatory agency, the Parties shall share in accordance with their Respective Percentages any penalty, fine or assessment (hereinafter "Regulatory Penalty") imposed by a regulatory agency for actions or omissions i) arising from operation, maintenance, modification -30- 34 (including design thereof), or ownership of the Unit and ii) occurring subsequent to the effective date of this Agreement. In such circumstances, no Party will advocate any sharing of a Regulatory Penalty in any manner other than in accordance with the Respective Percentages before any regulatory body or court in which the manner of sharing of a Regulatory Penalty is at issue, including in an appeal from a regulatory body or court. If the Regulatory Penalty results directly from acts, omissions or circumstances constituting a Party's breach of this Agreement, that portion of the penalty that results directly from such acts, omissions or circumstances shall be borne by the Party in breach and the balance shall be allocated according to the Parties' Respective Percentages. As used in this Section 9.9, the term breach of this Agreement excludes circumstances described in (1) through (4) of paragraph (e) below so long as conditions (i) through (ii) therein are met. c. A party shall not be entitled to the release provided in paragraph (a) above for those Claims based upon acts, omissions or circumstances for which it is responsible that both (1) result directly in the Claims for which it seeks release and (2) constitute a breach of this Agreement which breach is not cured. d. A Party in breach of this Agreement shall have a continuing obligation to cure it. If a Claim for monetary damages does not lie under paragraph (c) above, any other Party may insist that the obligation be honored, may demand specific -31- 35 performance and may seek to enjoin any act or omission constituting the breach. e. It is not the intent of this Agreement to hold any Party responsible beyond its Respective Percentage for the economic or financial consequences of the failures of performance or achievement described in (1) through (4) below so long as conditions (i) through (ii) below are met. A Party shall not be deemed in breach of this Agreement by reason of 1) any failure of the Unit to perform to a generally accepted industry standard, 2) any failure of the Unit to achieve (despite Unit's plans being designed to attain them) specific goal or objective outlined in this Agreement or in Unit operation and maintenance plans and budgets, 3) any failure by the Party to achieve conformance with the approved annual operating plan or 4) any failure to comply with the technical specifications and other terms and conditions of the operating license issued by the NRC, the regulations of the Commission and any applicable orders or directives issued by it so long as i) such failure is not willful and ii) the Party has acted in good faith in all respects, including with respect to its obligations under this Agreement. -32- 36 9.10 Meaning of Section 6 in September 22, 1975 Operating Agreement Among the Parties (the 1975 Operating Agreement) The Parties agree that in any action before any court or administrative agency, or any appeal thereof, in which the meaning of Section 6 in the 1975 Operating Agreement is at issue no Party will use or cite the language of Sections 9.9 and 9.6 herein in any explication of, or argument as to, the meaning of Section 6 in the 1975 Operating Agreement, nor shall the current Sections 9.6 and 9.9 be construed to have any bearing on the meaning of Section 6 of the 1975 Operating Agreement. ARTICLE 10 - MEASUREMENT 10.1 Output Measurement Net output of the Unit shall be measured by suitable meters located at the Unit. Hourly production for Niagara Mohawk, LILCO, NYSEG, RG&E and Central Hudson shall be metered at Scriba Station and allocated to the nearest MWH in accordance with each Party's Respective Percentage or each Party's scheduled requirement for that hour. The Scriba Station meter shall also be used as the basis for cotenant energy accounting. 10.2 Periodic Testing of Meters Niagara Mohawk shall test the meters at regular intervals and at other times when any Party hereto has reason to believe that any meter is not registering accurately, and will notify LILCO, NYSEG, RG&E and Central Hudson when such tests are to be made in order that they may have a representative present during the test. -33- 37 ARTICLE 11 - GENERAL 11.1 Non-Waiver of Provisions The failure of the Parties to insist in any one or more instances upon strict performance of any of the provisions of this Agreement, or to take advantage of any rights hereunder, shall not be construed as a waiver of any such provisions or the relinquishment of any such rights, but the same shall continue and remain in full force and effect. 11.2 Procedure for Appeal of Management Committee Decision Any member may appeal a decisions of the Management committee to the Chief Executive Officers collectively within 10 days of the meeting at which such decisions is made. The member appealing shall describe the issue to be decided and submit a short, objective statement of the facts and reasoning supporting the member's positions and that of the Management Committee. Any non-appealing member of the Management Committee may supplement or respond to the statement within 10 days. In the event a matter is referred to the Chief Executive Officers after inability of the Management Committee to resolve a questions under Section 3.2, the Chair of the Management Committee shall describe the issue to be decided and submit a short, objective statement supporting alternative resolutions of that issue. Any other member of the Management Committee may supplement that statement within 10 days. 11.3 Procedure for Resolution of Appeal The Chief Executive Officers shall resolve any issue appealed or referred from the Management Committee by a vote representing greater than 50 percent of the interest in the Unit -34- 38 within 60 days after receipt of the appeal and any responding or supplementary statements. 11.4 Conflict with Basic Agreement To the extent any provision of the Basic Agreement conflicts with provisions of this Operating Agreement, notwithstanding the provisions of Article XIV of the Basic Agreement, the provisions of this Agreement shall control. 11.5 Independence of Settlement Agreement This Agreement does not supersede paragraph 6 or any other provision of the September 3, 1985 document entitled "Specification of Terms and Conditions of Offer of Settlement" to which representatives of Niagara Mohawk and Staff of the PSC subscribed and to which the non-operating owners later consented. ARTICLE 12 - EFFECTIVE DATE, TERM AND TERMINATION 12.1 Effective Date This Agreement shall be effective on January 1, 1993, upon the expiration of the most recent extension of the Interim Operating Agreement, dated February 21, 1992. It being the intention of the Parties that there be no lapse between the expiration of the Interim Operating Agreement and the effectiveness of this Agreement. 12.2 Term The term of this Agreement shall be 24 months from its effective date. Thereafter, this Agreement shall be extended and remain in full force and effect until terminated pursuant to Section 12.3. -35- 39 12.3 Termination Any Party may terminate this Agreement by providing to all of the other Parties a written Notice of Termination at any time after expiration of 18 months of the term set forth in Section 12.2. Such Notice of Termination shall take effect 6 months after it has been received by all Parties. ARTICLE 13 - OPERATING COMPANY FORMATION 13.1 Evaluation The Parties have been evaluating the possibility of creating a corporate entity ("Operating Company") to operate and maintain the Unit. Although they have decided not to create an Operating Company at this time, the Parties agree to vigorously pursue and complete the evaluation during the term of this Agreement. The operating agreement among the parties dated September 22, 1975, comprising Appendix B to the Basic Agreement of the same date, is hereby amended in its entirety with, and replaced by, this Nine Mile Point Nuclear Station Unit 2 Operating Agreement. -36- 40 IN WITNESS WHEREOF, the parties have duly executed this Operating Agreement by their duly authorized officers as of the date written opposite their names. NIAGARA MOHAWK POWER CORPORATION BY: /s/ John Endries DATED: December 22, 1992 ---------------------------- ----------------- ITS: President --------------------------- LONG ISLAND LIGHTING COMPANY BY: /s/ Anthony F. Earley, Jr. DATED: December 20, 1992 ---------------------------- ----------------- ITS: President --------------------------- NEW YORK STATE ELECTRIC & GAS CORPORATION BY: /s/ Jack H. Roskoz DATED: December 22, 1992 ---------------------------- ----------------- ITS: Sr. Vice President Electric Business Unit --------------------------- ROCHESTER GAS AND ELECTRIC CORPORATION BY: /s/ Roger W. Kober DATED: December 28, 1992 ---------------------------- ----------------- ITS: Chairman, Pres., CEO --------------------------- CENTRAL HUDSON GAS & ELECTRIC CORPORATION BY: /s/ Paul J. Ganci DATED: December 21, 1992 ---------------------------- ----------------- ITS: President ---------------------------
-37- EX-10.U 5 PARTICIPATION AGREEMENT SERIES A 1 ----------------------------------------------------------------- ----------------------------------------------------------------- NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY AND LONG ISLAND LIGHTING COMPANY ------------------------- PARTICIPATION AGREEMENT ------------------------- Dated as of November 1, 1993 ----------------------------------------------------------------- ----------------------------------------------------------------- - relating to - Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series A 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; EFFECTIVE DATE AND DURATION OF PARTICIPATION AGREEMENT Section 1.01. Definitions. . . . . . . . . . . . . . . . . . 3 Section 1.02. Rules of Construction. . . . . . . . . . . . . 3 Section 1.03. Effective Date of Participation Agreement; Duration of Participation Agreement. . . . . . . . . . . . 3 ARTICLE II REPRESENTATIONS Section 2.01. Representations and Warranties by the Authority. . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.02. Representations and Warranties by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III CONSTRUCTION OF THE PROJECT; ISSUANCE OF BONDS Section 3.01. Construction of the Project . . . . . . . . . 6 Section 3.02. Sale of Bonds and Deposit of Proceeds; Liability Under Bonds. . . . . . . . . . . . . . . . . . . 6 Section 3.03. Disbursements from Project Fund and Rebate Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.04. Revision of Construction Plans . . . . . . . . 7 Section 3.05. Certification of Completion of Project . . . . 8 Section 3.06. Payment of Cost of Construction of the Project in Event Project Fund Inadequate . . . . . . . . . . . . . 9 Section 3.07. No Interest in Project Conferred. . . . . . . 9 Section 3.08. Operation, Maintenance and Repair. . . . . . . 9 Section 3.09. Investment of Moneys in Funds Under the Indenture. . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.10. Agreement not to Exercise Option to Convert to Fixed Rate Absent Specified Rating . . . . . . . . . . . . 10 Section 3.11. Securities Depository. . . . . . . . . . . . . 10
(i) 3
Page ---- ARTICLE IV COMPANY NOTE AND PAYMENTS; LETTER OF CREDIT Section 4.01. Execution and Delivery of Company Note to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4.02. Redemption of Bonds. . . . . . . . . . . . . . 11 Section 4.03. Obligation for Payment Absolute; Deficiencies. 11 Section 4.04. Administration Fees; Expenses, Etc. . . . . . 12 Section 4.05. Compensation of Trustee, Paying Agent, Remarketing Agents, Indexing Agent and Tender Agent. . . . 12 Section 4.06. Project Not Security for Bonds. . . . . . . . 13 Section 4.07. Payment of Taxes and Assessments; No Liens or Charges. . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.08. Indemnification of Authority, Trustee, Tender Agent, Paying Agent, Remarketing Agents and Indexing Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 4.09. Company to Pay Attorneys' Fees and Disbursements . . . . . . . . . . . . . . . . . . . . . . 14 Section 4.10. No Abatement of Administration Fees and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 4.11. Payment to Tender Agent . . . . . . . . . . . 15 Section 4.12. The Letter of Credit . . . . . . . . . . . . . 15 ARTICLE V SPECIAL COVENANTS Section 5.01. No Warranty as to Suitability of Project . . . 17 Section 5.02. Authority's Rights to Inspect Project and Plans and Specifications . . . . . . . . . . . . . . . . . 17 Section 5.03. Company Consent to Amendment of Indenture . . 17 Section 5.04. Tax Covenant . . . . . . . . . . . . . . . . . 17 Section 5.05. Company Agrees to Perform Obligations Imposed by Indenture . . . . . . . . . . . . . . . . . . . . . . . 17 Section 5.06. Maintenance of Office or Agency of Company . . 18 Section 5.07. Further Assurances . . . . . . . . . . . . . . 18 Section 5.08. Payment of Taxes and Other Charges . . . . . . 18 Section 5.09. Maintenance of Properties . . . . . . . . . . 18 Section 5.10. Insurance . . . . . . . . . . . . . . . . . . 19 Section 5.11. Proper Books of Record and Account . . . . . . 19 Section 5.12. Certificates as to Defaults . . . . . . . . . 19 Section 5.13. Company Not to Permit Hindrance or Delay of Payment of Company Note . . . . . . . . . . . . . . . . . 20 Section 5.14. Corporate Existence, Consolidation, Merger or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.15. Financial Statements of Company . . . . . . . 21
(ii) 4
Page ---- Section 5.16. Compliance with Laws . . . . . . . . . . . . . 21 ARTICLE VI DEFAULTS BY COMPANY; REMEDIES Section 6.01. Events of Default; Acceleration . . . . . . . 22 Section 6.02. Certain Events of Default; Authority or Trustee May Take Certain Actions . . . . . . . . . . . . . 24 Section 6.03. Judicial Proceedings by Trustee . . . . . . . 24 ARTICLE VII MISCELLANEOUS Section 7.01. Disposition of Amounts After Payment of Bonds . 25 Section 7.02. Notices . . . . . . . . . . . . . . . . . . . . 25 Section 7.03. Successors and Assigns . . . . . . . . . . . . 25 Section 7.04. Amendment of Participation Agreement . . . . . 26 Section 7.05. Assignment by Authority . . . . . . . . . . . . 26 Section 7.06. Participation Agreement Supersedes Any Prior Agreements . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 7.07. Counterparts . . . . . . . . . . . . . . . . . 26 Section 7.08. Severability . . . . . . . . . . . . . . . . . 26 SECTION 7.09. NEW YORK LAW TO GOVERN . . . . . . . . . . . . 27 EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
(iii) 5 This PARTICIPATION AGREEMENT, dated as of November 1, 1993, between NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY, a body corporate and politic, constituting a public benefit corporation, established and existing under and by virtue of the laws of the State of New York (the "Authority"), and LONG ISLAND LIGHTING COMPANY, a corporation duly organized and existing and qualified to do business as a public utility under the laws of the State of New York (the "Company"), W I T N E S S E T H : WHEREAS, pursuant to special act of the Legislature of the State of New York (Title 9 of Article 8 of the Public Authorities Law of New York, as from time to time amended and supplemented, herein called the "Act"), the Authority has been established, as a body corporate and politic, constituting a public benefit corporation; and WHEREAS, pursuant to the Act, the Authority is empowered to contract with any power company to participate in the construction of facilities for the furnishing of electricity to the extent required by the public interest in development, health, recreation, safety, conservation of natural resources and aesthetics; and WHEREAS, pursuant to the Act, the Authority has also been empowered to extend credit and make loans from bond and note proceeds to any person for the construction, acquisition and installation of, or for the reimbursement to any person for costs in connection with, any special energy project, including, but not limited to, any land, works, system, building or other improvement, and all real and personal properties of any nature or any interest in any of them which are suitable for or related to the furnishing, generation or production of energy; and WHEREAS, the Authority is also authorized under the Act to borrow money and issue its negotiable bonds and notes to provide sufficient moneys for achieving its corporate purposes; and WHEREAS, the Authority is also authorized under the Act to enter into any contracts and to execute all instruments necessary or convenient for the exercise of its corporate powers and the fulfillment of its corporate purposes; and WHEREAS, the Company is a public utility corporation doing business in the State of New York and operates power plants in the State of New York; and WHEREAS, the Company has requested that the Authority participate in financing the acquisition, construction and 6 2. installation of certain facilities for the furnishing of electric energy within the Company's service area (such facilities for the furnishing of electric energy being hereinafter referred to as the "Project") and, as part of such participation, that the Authority issue bonds pursuant to the Act to provide funds to finance the cost to the Company of the Project and the expenses incurred in connection with the authorization, issuance and sale of such bonds; and WHEREAS, the Authority, pursuant to Resolution No. 801, adopted January 25, 1993, has determined to issue its Electric Facilities Revenue Bonds (Long Island Lighting Company Project), bearing the series designation set forth on the first page of this Participation Agreement in an aggregate principal amount of $50,000,000 (the "Bonds"), for the purpose of financing a portion of such costs and expenses, all such Bonds to be issued under and secured by an Indenture of Trust relating to the Bonds dated as of November 1, 1993, between the Authority and Chemical Bank, as Trustee (the "Indenture"); NOW, THEREFORE, for and in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, it is hereby agreed by and between the parties as follows: 7 3. ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; EFFECTIVE DATE AND DURATION OF PARTICIPATION AGREEMENT Section 1.01. Definitions. The terms used in this Participation Agreement which are defined in Section 1.01 of the Indenture shall have the meanings, respectively, herein, which such terms are given in said Section 1.01 of the Indenture. Section 1.02. Rules of Construction. Unless the context clearly indicates to the contrary, the following rules shall apply to the construction of the Participation Agreement: (a) Words importing the singular number shall include the plural number and vice versa; (b) All references herein to particular articles or sections are references to articles or sections of the Participation Agreement; (c) The captions and headings herein are solely for convenience of reference and shall not constitute a part of the Participation Agreement nor shall they affect its meaning, construction or effect; (d) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in the Participation Agreement, refer to the Participation Agreement in its entirety and not to the particular article or section of the Participation Agreement in which they appear, and the term "hereafter" means after, and the term "heretofore" means before, the date of the Participation Agreement; and (e) In the event that there is any conflict between the provisions of the Participation Agreement and those of the Indenture, the provisions of the Indenture shall govern the disposition of such conflict. Section 1.03. Effective Date of Participation Agreement; Duration of Participation Agreement. This Participation Agreement shall become effective upon its execution and delivery, and shall continue in full force and effect until the principal of, and premium, if any, and interest on, the Company Note and Bonds have been fully paid (or provision for their payment has been made in accordance with the provisions of the Indenture) and all sums to which the Authority or the Trustee are entitled hereunder have been fully paid. 8 4. ARTICLE II REPRESENTATIONS Section 2.01. Representations and Warranties by the Authority. The Authority represents and warrants as follows: (a) The Authority is a body corporate and politic, constituting a public benefit corporation, established and existing under the laws of the State of New York; (b) The Authority has full power and authority to execute and deliver this Participation Agreement, the Indenture and the Tax Regulatory Agreement and to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder; (c) The Authority is not in default under any of the provisions of the laws of the State of New York which would affect its existence or its powers referred to in the preceding paragraph (b); (d) The Authority has determined that its participation in the financing of the Project, as contemplated by this Participation Agreement, is in the public interest; (e) The Authority has duly authorized the execution and delivery of this Participation Agreement, the Indenture and the Tax Regulatory Agreement and the execution and delivery of the other documents incidental to this transaction, and all necessary authorizations therefor or in connection with the performance by the Authority of its obligations hereunder or thereunder have been obtained and are in full force and effect; and (f) The execution and delivery by the Authority of this Participation Agreement, the Indenture and the Tax Regulatory Agreement and the consummation of the transactions herein or therein contemplated will not violate any indenture, mortgage, loan agreement or other contract or instrument to which the Authority is a party or by which it is bound, or to the best of the Authority's knowledge, any judgment, decree, order, statute, rule or regulation applicable to the Authority. Section 2.02. Representations and Warranties by the Company. The Company represents and warrants as follows: (a) The Company is a corporation duly incorporated and in good standing under the laws of the State of New York, is duly 9 5. qualified and authorized to engage in business as a public utility in the State of New York, has power to enter into, execute and deliver this Participation Agreement, the Tax Regulatory Agreement and the Company Note by proper corporate action and has duly authorized the execution and delivery by it of this Participation Agreement, the Tax Regulatory Agreement and the Company Note; (b) The execution and delivery by the Company of this Participation Agreement, the Tax Regulatory Agreement and the Company Note and the consummation of the transactions herein contemplated do not conflict with or constitute a breach of or a default under the Company's Certificate of Incorporation, By-Laws or any indenture, mortgage, loan agreement or other contract or instrument to which the Company is a party or by which it is bound, or to the best of the Company's knowledge, any judgment, decree, order, statute, rule or regulation applicable to the Company; (c) This Participation Agreement, the Tax Regulatory Agreement and the Company Note constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other laws, judicial decisions or principles of equity relating to or affecting the enforcement of creditors' rights or contractual obligations generally; (d) The execution and delivery by the Company of this Participation Agreement and the Company Note in the manner and for the purposes herein set forth have been duly authorized by an order of the Public Service Commission of the State of New York; (e) No additional authorizations for or approvals of the execution and delivery by the Company of this Participation Agreement, the Tax Regulatory Agreement and the Company Note need be obtained by the Company or if any such authorization or approval is necessary it has been obtained; and (f) The representations of the Company set forth in the Tax Regulatory Agreement are hereby incorporated by reference as though fully set forth herein. 10 6. ARTICLE III CONSTRUCTION OF THE PROJECT; ISSUANCE OF BONDS Section 3.01. Construction of the Project. 1. The Company will construct and complete or cause construction and completion of the Project with reasonable dispatch and in accordance with the Company's construction plans therefor. The Project shall belong to and be the property of the Company. In order to effectuate the purposes of this Participation Agreement, the Company will do or cause to be done all things requisite or proper for the construction of the Project and the fulfillment of the obligations of the Company under this Participation Agreement. 2. Notwithstanding any other provision of this Participation Agreement to the contrary, the Company shall not be required to complete the construction of any component of the Project with respect to which funds have not been disbursed from the Project Fund if in the Company's business judgment it is not necessary or advisable to do so, provided that failure to complete the construction of such component will not affect the character or intended purpose of any other component of such Project and provided further that the estimated Cost of Construction of the components of the Project yet to be completed (as estimated by the Company at the time it determines not to complete any component) is at least equal to the amount of moneys remaining in the Project Fund. Notwithstanding any other provision of this Participation Agreement to the contrary, the Company shall not be required to complete the construction of any component of the Project if in the Company's business judgment it is not necessary or advisable to do so and the Company shall have delivered to the Authority an opinion of Bond Counsel to the effect that failure to complete such component of such Project will not adversely affect the qualification of any other component of such Project for financing under the Act or the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 3.02. Sale of Bonds and Deposit of Proceeds; Liability Under Bonds. 1. In order to provide funds for payment of a portion of the Cost of Construction of the Project, the Authority, as soon as practicable after the execution of this Participation Agreement will issue, sell and deliver the Bonds to the initial purchasers thereof, all pursuant to and as provided in the Purchase Contract for the Bonds among the Authority, the Company, Lehman Brothers Inc., Dillon, Read & Co. Inc., M.R. Beal & Company and WR Lazard, Laidlaw & Mead, Inc. and will deposit the 11 7. proceeds of such sale of the Bonds with the Trustee, as follows: (i) in the Bond Fund, a sum equal to the accrued interest, if any, paid by the initial purchasers of the Bonds and (ii) in the Construction Account of the Project Fund, the balance of the proceeds received from such sale. 2. The Bonds shall not be general obligations of the Authority, and shall not constitute an indebtedness of, or a charge against the general credit of, the Authority or give rise to any pecuniary liability of the Authority. The liability of the Authority under the Bonds shall be enforceable only to the extent provided in the Indenture, and the Bonds shall be payable solely from the Company Note Payments, funds drawn under the Letter of Credit and any other funds held by the Trustee under the Indenture and available for such payment. The Bonds shall not be a debt of the State of New York, and the State of New York shall not be liable thereon. Section 3.03. Disbursements from Project Fund and Rebate Fund. 1. The Authority has, in the Indenture, authorized and directed the Trustee to make payments from the Project Fund, in accordance with and subject to the provisions of Section 5.03 of the Indenture, to pay the Cost of Construction of the Project upon receipt from time to time of requisitions signed by an Authorized Company Representative, stating with respect to each payment to be made for the Project the information required by Section 5.03 of the Indenture. The Company will cause such requisitions to be submitted to the Trustee as may be necessary to effect payments out of the Project Fund in accordance with the provisions of the Indenture. Concurrently with the delivery by the Company of each requisition to the Trustee, the Company will deliver to the Authority a copy of such requisition and any attachments thereto. The Authority and the Trustee may rely on the Company as to the completeness and accuracy of all statements in such requisition, and the Company will indemnify and save harmless the Authority and the Trustee from any liability incurred in connection with any requisition so delivered and the payment of funds in reliance thereon. 2. All moneys remaining in the Project Fund after the certificate referred to in Section 5.05 of the Indenture is furnished shall, at the written direction of an Authorized Company Representative, be applied in accordance with Section 5.06 of the Indenture. Section 3.04. Revision of Construction Plans. The Company may revise the construction plans for the Project at any time and from time to time; provided, however, that no such 12 8. revision shall be made prior to the Completion Date with respect to such Project which would render the description of such Project inaccurate in any material respect, except in accordance with the following procedure: (a) Prior to any such revision the Company shall deliver to the Trustee and the Authority (1) a certificate of an Authorized Company Representative, setting forth the text of the change in the description of such Project which would be necessary to reflect accurately the proposed revision in plans and specifications, and certifying that, notwithstanding such revision, such Project will still be designed to serve the purposes which would have been served by such Project in the absence of such revision, and (2) an opinion of Bond Counsel that such revision of such Project description and the expenditure of moneys from the Project Fund under the provisions of the Indenture to pay the Cost of Construction of such Project in accordance with the revised description of such Project will not impair the exclusion of interest on any of the Bonds then outstanding from gross income for Federal income tax purposes. (b) Ten (10) days after the receipt by the Authority and the Trustee of the certificate and opinion referred to in paragraph (a) above, such Project description shall be deemed amended to include such revision for all purposes of this Participation Agreement and the Indenture. Upon the request of either party or the Trustee, the Authority and the Company shall enter into an appropriate instrument reflecting such amendment. Section 3.05. Certification of Completion of Project. When the Project has been completed (except for components that the Company has determined not to complete in accordance with Section 3.01), the Company shall promptly deliver to the Trustee and the Authority a certificate of an Authorized Company Representative to the effect that, as of a specified date, the Project has been completed (except as aforesaid). Such certificate shall specify the components of the Project, if any, the completion of which has been excused pursuant to Section 3.01. The certificate delivered pursuant to this Section 3.05 shall also contain an appropriate direction to the Trustee with respect to any amount in the Project Fund which is to be retained or thereupon disposed of as provided in Section 5.06 of the Indenture. The Trustee may rely as to the accuracy and completeness of all statements in such certificate. Notwithstanding the foregoing, such certificate shall be given and may state that it is given without prejudice to any 13 9. rights against third parties which exist at the date thereof or which may subsequently come into being. Section 3.06. Payment of Cost of Construction of the Project in Event Project Fund Inadequate. If the moneys in the Project Fund available therefor shall not be sufficient to pay the Cost of Construction of the Project in full (whether due to investment losses or otherwise), the Company shall, subject to the provisions of Section 3.01, complete the Project and pay (whether through financing or otherwise) all that portion of the Cost of Construction thereof in excess of the moneys available therefor in the Project Fund. The Authority does not make any warranty, either express or implied, that the moneys which will be paid into the Project Fund will be sufficient to pay the Cost of Construction of the Project. If the Company shall pay any portion of the Cost of Construction of the Project pursuant to the provisions of this Section, except to the extent it may submit requisitions pursuant to Section 5.03 of the Indenture, it shall not be entitled to any reimbursement therefor from the Authority, the Trustee or the owners of any of the Bonds, nor shall it be entitled to any diminution in or postponement of the payments required to be paid by the Company pursuant to this Participation Agreement or the Company Note. Section 3.07. No Interest in Project Conferred. Neither the Authority nor the Trustee shall be entitled to any interest in the Project by reason of the advance of Bond proceeds pursuant to this Participation Agreement. Section 3.08. Operation, Maintenance and Repair. The Authority and the Company recognize that the Project will constitute integrated portions of the electric energy production, transmission, and distribution facilities of the Company and that it is not feasible to administer the Project separately from such facilities. The Company shall operate the Project (with such changes, improvements or additions as the Company may deem desirable) as part of such facilities for the joint useful life of the Project and such facilities and shall maintain and repair the Project in conformity with the Company's normal maintenance and repair programs for such facilities provided that the Company shall have no obligation to operate, maintain or repair any element or item of the Project the operation, maintenance, or repair of which becomes uneconomic to the Company because of damage or destruction or obsolescence (including physical, functional and economic obsolescence), or change in government standards and regulations, or the termination of the operation of the facilities to which the element or item of the Project is an adjunct; and provided further that,in any event, the Company is proceeding in good faith to 14 10. maintain the availability of the Project for use as an authorized project under the Act. Section 3.09. Investment of Moneys in Funds Under the Indenture. Any moneys held as a part of any fund created under the Indenture shall be invested or reinvested by the Trustee as provided in Article VII of the Indenture. Any such investment shall be consistent with the provisions of the Tax Regulatory Agreement. Section 3.10. Agreement not to Exercise Option to Convert to Fixed Rate Absent Specified Rating. The Company agrees not to direct that a Fixed Rate become effective pursuant to Section 2.04(b) of the Indenture unless the Company shall have delivered to the Authority evidence satisfactory to the Authority that upon conversion to a Fixed Rate the Bonds are expected to be rated in at least the third highest rating category of Moody's or S&P (currently "A" in the case of Moody's and "A" in the case of S&P). Section 3.11. Securities Depository. The Company acknowledges that the Authority and the Trustee, at the request of the Company, have arranged for the initial deposit of the Bonds with The Depository Trust Company ("DTC") which will act as Securities Depository in order to effectuate a book-entry-only system and that this system may be discontinued or, if discontinued, reinstituted (with DTC or another Securities Depository) in accordance with the Indenture. The Company agrees to take all actions necessary, and to refrain from taking actions contrary to the effectuation of a book-entry-only system established pursuant to the Indenture and any arrangements among the Authority, the Trustee and any Securities Depository. The Authority shall not enter into any written agreements with a Securities Depository without receipt and acceptance of such agreements by the Company. The Company agrees that, absent subsequent agreement among the Authority, the Trustee, the Company and a Securities Depository, the Bonds shall not be held in a book-entry-only system during any Money Market Municipal Rate Period. 15 11. ARTICLE IV COMPANY NOTE AND PAYMENTS; LETTER OF CREDIT Section 4.01. Execution and Delivery of Company Note to Trustee. 1. Concurrently with the authentication by the Trustee and delivery by the Authority of the Bonds and in order to evidence the obligation of the Company to the Authority to repay the advance of the proceeds of the Bonds, the Authority hereby directs the Company, and the Company hereby agrees, to execute and deliver to the Trustee its Company Note and to duly and punctually pay the principal of, premium, if any, and interest on, the Company Note at the place, the times and in the manner provided therein. The Company Note shall be substantially in the form attached hereto as EXHIBIT C. 2. The obligation of the Company to make any payment of principal of, and premium, if any, and interest on, the Company Note shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit. Section 4.02. Redemption of Bonds. Whenever Bonds are redeemable in whole or in part, the Authority will redeem the same at the written direction of an Authorized Company Representative given in accordance with Section 8.01 of the Indenture. Section 4.03. Obligation for Payment Absolute; Deficiencies. The Company agrees that its obligation to make the Company Note Payments and payments under Section 4.11 at the times and in the amounts provided in the Company Note and this Participation Agreement shall be absolute, irrevocable and unconditional and shall not be subject to any defense (other than payment) or any right of set-off, counterclaim or recoupment for any reason, including, without limitation, the unenforceability (because of judicial decision or otherwise) or the impossibility of performance of the Company Note obligations, or any breach by the Authority of any obligation to the Company, whether under this Participation Agreement or otherwise, or inaccuracy of any representation by the Authority to the Company under this Participation Agreement or in any other instrument, or any indebtedness or liability at any time owing to the Company by the Authority, or any failure to complete the Project, or the destruction by fire or other casualty of the Project or any portion thereof, or the taking of title thereto or the use thereof by the exercise of the power of eminent domain. If for any reason Company Note Payments, together with other moneys held by the Trustee and then available for such purpose (including moneys paid by the Bank under the Letter of Credit), would not be sufficient to make the corresponding payments of principal of, and premium, if any, and 16 12. interest on, the Bonds when such payments are due, the Company will pay the amounts required from time to time to make up any such deficiency. If for any reason payments under Section 4.11, together with other moneys held by the Trustee and the Tender Agent and then available for such purpose (including moneys paid by the Bank under the Letter of Credit), would not be sufficient to make the corresponding payments of the purchase price of the Bonds when such payments are due, the Company will pay the amounts required from time to time to make up any such deficiency. Section 4.04. Administration Fees; Expenses, Etc. In order to defray a portion of the expenses incurred by the Authority in conducting and administering its programs for the acquisition and construction of facilities for the furnishing of electricity, special energy projects and the development of advanced technologies, the Company shall pay to the Authority an initial Administration Fee in the amount of $125,000 on the date of the delivery of the Bonds to the initial purchasers thereof and an annual Administration Fee in the amount of $6,500 on November 1 of each year commencing November 1, 1994, until the Bonds are no longer outstanding. In addition, the Company shall pay to the State of New York with respect to the Bonds a bond issuance charge in the amount of $175,000 on the date of authentication and delivery of the Bonds to the initial purchasers. In addition to such Administration Fees, the Company will pay or reimburse the Authority upon its request for all reasonable expenses, disbursements and advances incurred or made by the Authority (including printing costs and the reasonable fees, expenses and disbursements of its counsel, bond counsel and co-bond counsel) in connection with the Participation Agreement, the Indenture or any transaction or event contemplated by the Participation Agreement, the Tax Regulatory Agreement or the Indenture. Section 4.05. Compensation of Trustee, Paying Agent, Remarketing Agents, Indexing Agent and Tender Agent. The Company agrees: (1) to pay to the Trustee from time to time upon its request reasonable compensation for all services rendered by it in any capacity under the Indenture (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as so otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred by it in any capacity under the Indenture (including the reasonable 17 13. compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; (3) to pay to the Paying Agent from time to time upon its request, reasonable compensation for all services rendered by it as Paying Agent under the Indenture and reimburse it for its reasonable expenses incurred under the Indenture (including reasonable compensation and expenses and disbursements of its agents and counsel), except any such expense as may be attributable to its negligence or bad faith; and (4) to pay to the Remarketing Agents, the Tender Agent and the Indexing Agent their reasonable fees and expenses as and when the same become due, except any such expense as may be attributable to such person's negligence or bad faith. Section 4.06. Project Not Security for Bonds. It is expressly recognized by the parties that neither the Project nor any other property of the Company will constitute any part of the security for the Bonds. Section 4.07. Payment of Taxes and Assessments; No Liens or Charges. The Company will (a) pay, when the same shall become due, all taxes and assessments, including income, profits, property or excise taxes, if any, or other municipal or governmental charges, imposed, levied or assessed by the Federal, state or any municipal government upon the Authority, the Tender Agent or the Trustee in respect of any payments (other than payments made pursuant to Sections 4.04 and 4.05) made or to be made pursuant to this Participation Agreement or the Company Note and (b) pay or cause to be discharged, within sixty (60) days after the same shall accrue, any lien or charge upon any such payment made or to be made under this Participation Agreement, provided that the Company shall not be required to pay any such tax or assessment so long as (i) the Company at its expense contests by appropriate legal proceedings conducted in good faith and with due diligence the amount, validity or application of any such tax, assessment or charge, (ii) such proceedings shall have the effect of suspending the collection thereof from the Authority, the Trustee and the Tender Agent, and (iii) the Company shall indemnify and hold the Authority, the Trustee and the Tender Agent harmless from any losses, costs, charges, expenses (including reasonable attorneys' fees and disbursements), judgments and liabilities arising in respect of such tax, assessment or charge and the nonpayment thereof. 18 14. Section 4.08. Indemnification of Authority, Trustee, Tender Agent, Paying Agent, Remarketing Agents and Indexing Agent. Any obligation of the Authority created by or arising out of this Participation Agreement shall be a limited obligation of the Authority, payable solely from the Company Note Payments, any payments by the Company under Section 4.11, funds drawn under the Letter of Credit and any other funds held by the Trustee under the Indenture and available for such payment, and shall not constitute an indebtedness of or a charge against the general credit of the Authority and shall not constitute or give rise to any pecuniary liability of the Authority; nevertheless, if the Authority shall incur any such pecuniary liability, then in such event the Company shall indemnify and hold the Authority harmless by reason thereof. The Company releases the Authority, the Trustee, any Paying Agent, the Remarketing Agents, the Tender Agent and the Indexing Agent from, agrees that the Authority, the Trustee, the Remarketing Agents, the Tender Agent, any Paying Agent and the Indexing Agent shall not be liable for, and agrees to indemnify and hold the Authority, the Trustee, any Paying Agent, the Remarketing Agents, the Tender Agent and the Indexing Agent harmless from, any liability for any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever arising out of the construction or operation of the Project or the financing thereof. The Company agrees to indemnify and hold the Authority, its members, officers and employees, the Trustee, the Tender Agent, any Paying Agent and the Indexing Agent harmless from any losses, costs, charges, expenses (including reasonable attorneys' fees and disbursements), judgments and liabilities incurred by it or them, as the case may be, in connection with any claims made, any action, suit or proceeding instituted or threatened, in connection with the transactions contemplated by this Participation Agreement or the Indenture so long as, in the case of the Authority, its members, officers and employees, it or they, as the case may be, have acted in good faith to carry out the transactions contemplated by this Participation Agreement, the Remarketing Agreement or the Indenture and, except, in the case of the Trustee, the Tender Agent, any Paying Agent and the Indexing Agent, the Trustee's, the Tender Agent's, the Paying Agent's and the Indexing Agent's willful misconduct or negligence. Section 4.09. Company to Pay Attorneys' Fees and Disbursements. If the Company shall default under any of the provisions of this Participation Agreement and the Authority or the Trustee or both of them shall employ attorneys or incur other expenses for the collection of payments due under this Participation Agreement or for the enforcement of performance or observance of any obligation or agreement on the part of the Company contained in this Participation Agreement, the Company will 19 15. on demand therefor reimburse the reasonable fees of such attorneys and such other reasonable disbursements so incurred. Section 4.10. No Abatement of Administration Fees and Other Charges. It is understood and agreed that so long as any Bonds are outstanding under the Indenture, Administration Fees and other charges payable to the Authority pursuant to this Participation Agreement shall continue to be payable at the times and in the amounts herein specified, whether or not the Project, or any portion thereof, shall have been destroyed by fire or other casualty, or title thereto or the use thereof shall have been taken by the exercise of the power of eminent domain, and that there shall be no abatement of any such Administration Fees and other charges by reason thereof. Section 4.11. Payment to Tender Agent. The Company shall pay, or cause to be paid, to the Tender Agent amounts equal to the amounts to be paid pursuant to Section 2.05 of the Indenture in respect of Bonds tendered for purchase or deemed to be so tendered pursuant to the terms of Section 2.05 of the Indenture, such amounts to be paid by the Company to the Tender Agent on the dates such payments pursuant to Section 2.05 of the Indenture are to be made; provided, however, that the obligation of the Company to make any such payment shall be reduced by the amount of any moneys available for such payment under clauses (i) through (iii) of Section 2.05(h) of the Indenture and provided, further, that the obligation of the Company to make any such payment shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit. Section 4.12. The Letter of Credit. At all times on or prior to the Fixed Rate Conversion Date except during any period when all the Bonds then outstanding are held by or for the account of the Company, a Letter of Credit meeting the requirements of this Section 4.12 shall be in effect and, in the event that an Alternate Credit Facility is to replace an expiring Letter of Credit, the requirements of Section 2.05(j) and Section 6.07 of the Indenture will be fulfilled. A Letter of Credit shall be an obligation of a bank or banks, insurance company or companies, other financial institution or institutions, or any combination of the foregoing, entitling the Trustee to draw up to (a) an amount equal to the principal amount of the Bonds then outstanding to pay (i) the principal of the Bonds when due, or (ii) the portion of the Purchase Price of Bonds corresponding to principal, plus (b) an amount equal to 210 days' accrued interest on the Bonds then outstanding computed at the maximum rate specified in such Letter of Credit, which shall in no event exceed fifteen percent (15%), on the basis of a 360-day year. A Letter of Credit shall expire (1) at its stated expiration date, which shall be no earlier 20 16. than two (2) days after the next succeeding Optional Tender Date or Purchase Date not less than six months from its effective date, (2) when all available amounts have been drawn, (3) one (1) day after the Fixed Rate Conversion Date, (4) on the effective date of any Alternate Credit Facility that replaces the then effective Letter of Credit, (5) the earliest date on which no Bonds are outstanding, whichever shall occur first and (6) twelve (12) days after the Trustee receives notice from the Bank that it is terminating the Letter of Credit and directing the Trustee to cause a mandatory tender and purchase of or to accelerate the Bonds. A Letter of Credit shall provide that when there is a drawing to pay interest on scheduled payment dates, if the Trustee does not receive from the Bank by the close of business on a day specified therein, which shall not be later than the tenth (10th) day following such a drawing in respect of interest, notice by telephone confirmed in writing (or by other means acceptable to the Trustee and the Authority) that the amount available to be drawn has not been reinstated by the amount of the drawing for interest (except on principal of a Bond being paid or purchased and cancelled), the amount available to be drawn will automatically be reinstated by the amount of the drawing on such specified day. 21 17. ARTICLE V SPECIAL COVENANTS Section 5.01. No Warranty as to Suitability of Project. The Authority makes no warranty, either express or implied, with respect to actual or designed capacity of the Project, as to the suitability of the Project for the purposes specified in this Participation Agreement, as to the condition of the Project, or as to the suitability of the Project for the Company's purposes or needs. Section 5.02. Authority's Rights to Inspect Project and Plans and Specifications. The Authority shall have the right at all reasonable times to examine and inspect the Project and, to the extent reasonably available, the plans and specifications therefor and such other information and records relating to the Project as may be reasonably necessary to establish the qualification of the Project for financing under the Act and compliance with this Participation Agreement. Section 5.03. Company Consent to Amendment of Indenture. The Authority shall not enter into any indenture supplemental to or amendatory of the Indenture without the prior consent of the Company as evidenced by a certificate in writing signed by an Authorized Company Representative. Section 5.04. Tax Covenant. Notwithstanding any other provision hereof, the Company covenants and agrees that it will not take or authorize or permit any action to be taken with respect to the Project, or the proceeds of Bonds, including any amounts treated as proceeds of the Bonds for any purpose of Section 103 of the Code, which will result in the loss of the exclusion of interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code (except for any Bond during any period while any such Bond is held by a person referred to in Section 147(a) of the Code). This provision shall control in case of conflict or ambiguity with any other provision of this Participation Agreement. In furtherance of such covenant and agreement, the Authority and the Company have entered into the Tax Regulatory Agreement and the Company hereby agrees to comply with the provisions thereof insofar as the Tax Regulatory Agreement relates to the Bonds. Section 5.05. Company Agrees to Perform Obligations Imposed by Indenture. The Company agrees to perform such obligations as may be required of it by the provisions of the Indenture. 22 18. Section 5.06. Maintenance of Office or Agency of Company. The Company will at all times keep in Hicksville, New York, or another location in the State of New York an office or agency where notices and demands with respect to the Company Note and this Participation Agreement may be served, and will, from time to time, give written notice to the Trustee and the Authority of the location of such office or agency; and, in case the Company shall fail so to do, notices may be served and demands may be made at the principal office of the Trustee. Section 5.07. Further Assurances. The Company will make, execute, acknowledge and deliver, or cause to be made, executed, acknowledged and delivered, to the Trustee any and all such further acts, instruments or assurances as may be reasonably required for effectuating the intention of this Participation Agreement and the Company Note. Section 5.08. Payment of Taxes and Other Charges. The Company will promptly pay and discharge, or cause to be paid and discharged, as the same become due and payable, any and all taxes, rates, levies, assessments, and governmental liens, claims and other charges at any time lawfully imposed or accruing upon or against the Company or upon or against its properties or any part thereof, or upon the income derived therefrom or from the operations of the Company, provided that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any such obligation, tax, rate, levy, assessment, lien, claim or other charge so long as in good faith and by appropriate legal proceedings the validity thereof shall be contested. Section 5.09. Maintenance of Properties. The Company will at all times make or cause to be made such expenditures for repairs, maintenance and renewals, or otherwise, as shall be necessary to maintain its properties in good repair, working order and condition as an operating system or systems to the extent necessary to meet the Company's obligations under the Public Service Law of the State of New York and the Participation Agreement; provided, however, that nothing herein contained shall be construed to prevent the Company from ceasing to operate any of its plants or any other property, if, in the judgment of the Company, it is advisable not to operate the same and the operation thereof shall not be essential to the maintenance and continued operation of the rest of the operating system or systems, and the security under the Indenture afforded by the Company Note will not be substantially impaired by the termination of such operation. It is understood that the Company has agreed pursuant to a settlement with the State of New York, approved by the Company's shareholders on June 28, 1989, not to operate the Shoreham Nuclear Power Station. 23 19. Section 5.10. Insurance. The Company will keep or cause to be kept such parts of its properties as, in the opinion of an Authorized Company Representative (as defined in the Indenture and who shall be a licensed professional engineer), are of an insurable nature, insured against loss or damage by fire or other casualties, the risk of which is customarily insured against by companies similarly situated and operating like properties, to the extent that property of similar character is customarily insured against by such companies, either (a) by reputable insurers or (b) in whole or in part in the form of reserves or of one or more insurance funds created by the Company, whether alone or with other corporations, provided that the plan of each such insurance fund shall have been or shall be approved by the Board of Directors of the Company. Notwithstanding the foregoing, the Company may carry a lesser amount of insurance with respect to Shoreham Nuclear Generating Station to the extent that the Company has received an exemption from the Nuclear Regulatory Commission permitting it to carry such lesser amount. Section 5.11. Proper Books of Record and Account. The Company will at all times keep or cause to be kept proper books of record and account, in which full, true and correct entry will be made of all dealings, business and affairs of the Company, including proper and complete entries to capital or property accounts covering property worn out, obsolete, abandoned or sold, all in accordance with the requirements of any system of accounting or keeping accounts or the rules, regulations or orders prescribed by a regulatory commission with jurisdiction over the rates of the Company giving rise to at least fifty-one percent (51%) of the Company's gross revenues, or if there are no such requirements or rules, regulations or orders, then in compliance with generally accepted accounting principles. Section 5.12. Certificates as to Defaults. The Company shall file with the Trustee, on or before April 30 of each year, a certificate signed by an Authorized Company Representative (as defined in the Indenture) stating that, to the best of his knowledge, information and belief, the Company has kept, observed, performed and fulfilled each and every one of its covenants and obligations contained in this Participation Agreement and in the Company Note and, to the best of his knowledge, information and belief, there does not exist at the date of such certificate any default by the Company under this Participation Agreement or any event of default hereunder or other event which, with notice or the lapse of time specified in Section 6.01, or both, would become an event of default or, if any such default or event of default or other event shall so exist, specifying the same and the nature and status thereof. 24 20. Section 5.13. Company Not to Permit Hindrance or Delay of Payment of Company Note. The Company will not voluntarily do, suffer or permit any act or thing intended to hinder or delay the payment of the indebtedness evidenced by the Company Note. Section 5.14. Corporate Existence, Consolidation, Merger or Sale of Assets. The Company will maintain its corporate existence, will not consolidate with or permit itself to be merged into any other corporation or corporations, or sell, transfer or otherwise dispose of all or substantially all of its properties and assets, except in the manner and upon the terms and conditions set forth in this Section 5.14. Nothing contained in this Participation Agreement shall prevent (and this Participation Agreement shall be construed as permitting and authorizing) any lawful consolidation or merger of the Company with or into any other corporation or corporations lawfully authorized to acquire and operate the properties of the Company, or a series of consolidations or mergers, in which the Company or its successor or successors shall be a party, or any sale of all or substantially all the properties of the Company as an entirety to a corporation lawfully authorized to acquire and operate the same; provided that, upon any consolidation, merger or sale, the corporation formed by such consolidation, or into which such merger may be made, or making such purchase shall execute and deliver to the Trustee an instrument, in form satisfactory to the Trustee, whereby such corporation shall effectually assume the due and punctual payment of the principal of, and premium, if any, and interest on, the Company Note according to its tenor and the due and punctual performance and observance of all covenants and agreements to be performed by the Company pursuant to this Participation Agreement, the Tax Regulatory Agreement and the Company Note. Every such successor corporation shall possess, and may exercise, from time to time, each and every right and power hereunder of the Company, in its name or otherwise; and any act, proceeding, resolution or certificate by any of the terms of this Participation Agreement, the Tax Regulatory Agreement and the Company Note required or provided to be done, taken and performed or made, executed or verified by any board or officer of the Company shall and may be done, taken and performed or made, executed or verified with like force and effect by the corresponding board or officer of any such successor corporation. If consolidation, merger or sale or other transfer is made as permitted by this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, 25 21. merger or sale or other transfer shall be made except in compliance with the provisions of this Section. Section 5.15. Financial Statements of Company. The Company agrees to furnish the Trustee with a copy of its annual report to stockholders for each year, beginning with the year 1994, on or before March 31 of the subsequent year or as soon thereafter as it is reasonably available. The Company further agrees to furnish to the Trustee, and to any owner of the Bonds if requested in writing by such owner, all financial statements which it sends to its shareholders generally. Section 5.16. Compliance with Laws. The Company agrees to comply in all material respects with all applicable laws, rules and regulations and orders of any governmental authority, non-compliance with which would adversely affect the Company's ability to perform its obligations hereunder or under the Tax Regulatory Agreement or the Company Note, except laws, rules, regulations or orders being contested in good faith or laws, rules, regulations or orders which the Company has applied for variances from, or exceptions to. 26 22. ARTICLE VI DEFAULTS BY COMPANY; REMEDIES Section 6.01. Events of Default; Acceleration. In case one or more of the following events of default shall have occurred and be continuing: (a) failure by the Company to pay when due any amount required to be paid under this Participation Agreement or the Company Note, which failure causes a default in the payment when due of the interest on any of the Bonds and continuance of such default for five (5) days; or (b) failure by the Company to pay when due any amount required to be paid under this Participation Agreement or the Company Note, which failure causes a default in the payment when due of the principal of, or premium, if any, on any of the Bonds; or (c) failure by the Company to pay when due any amount required to be paid under Section 4.11, which failure causes a default in the payment when due of any amount payable pursuant to Section 2.05 of the Indenture and continuance of such default for five (5) days; or (d) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company contained in this Participation Agreement (other than failure to pay amounts required to be paid under Sections 4.04, 4.05, 4.08, 4.09 or 4.10) or in the Company Note for a period of ninety (90) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Authority or the Trustee; or (e) an Act of Bankruptcy relating to the Company; or (f) the occurrence and continuance of an "event of default" as defined in the Company Indenture; then, and in any such event, the Trustee, may, and upon the written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding shall, by notice in writing to the Company and provided that the default has not theretofore been cured, declare the Company Note to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything contained in this Participation Agreement or in the Company Note to the contrary notwithstanding. Any amounts collected by the Trustee 27 23. pursuant to action taken under this Section 6.01 shall be applied in accordance with the Indenture. In addition, if at any time the principal of the Bonds shall have been declared to be due and payable by acceleration pursuant to the terms of the Indenture, the Company Note shall thereupon become and be immediately due and payable, subject to such declaration with respect to the Bonds being annulled pursuant to Section 10.01 of the Indenture. The right or obligation of the Trustee to make any such declaration as aforesaid, however, is subject to the condition that if, at any time after declaration, but before all the Bonds shall have matured by their terms, the principal of, premium, if any, and interest on, the Company Note which shall have become due and payable otherwise than by such declaration, and all other sums payable hereunder, except the principal of, and interest on, the Company Note which shall have become due and payable by such declaration, shall have been paid or provision satisfactory to the Trustee shall have been made for such payment, and the reasonable expenses of the Trustee and of the owners of the Bonds shall have been paid, including reasonable attorneys' fees paid or incurred, and all defaults hereunder and under the Bonds or under the Indenture, except as to the payment of principal and interest due and payable solely by reason of such declaration, shall be made good or be secured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall be made therefor, then and in every such case the owners of a majority in aggregate principal amount of the Bonds then outstanding, by written notice to the Authority and to the Trustee, may rescind such declaration and annul such default in its entirety, or, if the Trustee shall have acted in the absence of a written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of the outstanding Bonds, and if there shall not have been theretofore delivered to the Trustee written direction to the contrary by the owners of at least twenty-five percent (25%) in aggregate principal amount of the outstanding Bonds, then any such declaration shall ipso facto be deemed to be rescinded and any such default and its consequences shall ipso facto be deemed to be annulled, but no such rescission and annulment shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon. In case the Trustee shall have proceeded to enforce any right under this Participation Agreement or the Company Note and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Authority and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Authority and the Trustee shall continue as though no such proceedings had been taken. 28 24. Section 6.02. Certain Events of Default; Authority or Trustee May Take Certain Actions. In case the Company shall have failed to comply with its obligations under Article III or under Sections 4.04, 4.08, 4.09, 4.10 or 5.16, which event shall have continued for a period of ninety (90) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Authority or the Trustee, the Authority or the Trustee may take whatever action at law or in equity as may appear necessary or desirable to enforce performance or observance of any obligations or agreements of the Company under said Article or Sections. In case the Company shall have failed to comply with its obligations under Section 4.05, which event shall have continued for a period of ninety (90) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, the Trustee may take whatever action at law or in equity as may appear necessary or desirable to the Trustee to enforce performance or observance of any obligations or agreements of the Company under said section. Section 6.03. Judicial Proceedings by Trustee. Upon the occurrence and continuance of an event of default (as defined in Section 6.01) the Trustee may, and upon the written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding and receipt by the Trustee of indemnity satisfactory to it shall, institute any actions or proceedings at law or in equity for the collection of any amounts then due and unpaid on the Company Note, and may prosecute any such action or proceeding to judgment or final decree, and may collect in the manner provided by law the moneys adjudged or decreed to be payable. 29 25. ARTICLE VII MISCELLANEOUS Section 7.01. Disposition of Amounts After Payment of Bonds. Any amounts determined by the Trustee to be remaining in the funds created under the Indenture after payment in full, or provision for payment in full, of principal of, and premium, if any, and interest on, all of the Bonds, in accordance with the provisions of the Indenture, and payment of all the fees, charges and expenses of the Authority, the Trustee, the Tender Agent, the Indexing Agent, the Remarketing Agents and the Paying Agents in accordance with the Indenture and this Participation Agreement and any amounts required to be paid to the United States of America pursuant to the Tax Regulatory Agreement, shall be paid to the Bank; provided, however, that on or after the Fixed Rate Conversion Date and solely with respect to moneys not resulting from a draw on the Letter of Credit and not constituting remarketing proceeds, such amounts that would be payable to the Bank pursuant to this Section 7.01 shall be paid to the Company if the Bank has been paid in full under the Reimbursement Agreement. Section 7.02. Notices. All notices, certificates, requests or other communications between the Authority, the Company and the Trustee required to be given under this Participation Agreement or under the Indenture (except as otherwise provided therein) shall be sufficiently given and shall be deemed given when delivered or mailed by first class mail, postage prepaid, addressed as follows if to the Authority, at 2 Empire State Plaza, Albany, New York 12223, Attention: President; if to the Company, at 175 East Old Country Road, Hicksville, New York 11801, Attention: Treasurer; and if to the Trustee, at 450 West 33rd Street, 15th Floor, New York, New York 10001 Attention: Corporate Trustee Administration Department and if to the Tender Agent, Remarketing Agents or the Indexing Agent to the addresses set forth for such persons in Section 16.05 of the Indenture. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Authority, the Company or the Trustee shall also be given to the others. The Company, the Authority and the Trustee may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Section 7.03. Successors and Assigns. This Participation Agreement shall inure to the benefit of and shall be binding upon the Authority, the Company, the Bank, the Trustee and their respective successors and assigns. 30 26. Section 7.04. Amendment of Participation Agreement. This Participation Agreement may not be amended except by an instrument in writing signed by the parties and, if such amendment occurs after the issuance of the Bonds, upon compliance with the provisions of Sections 4.01 and 4.02 of the Indenture. Section 7.05. Assignment by Authority. The Authority shall assign its rights under and interest in this Participation Agreement (except the rights and interest of the Authority under Article III and Sections 4.04, 4.08, 4.09, 4.10 and 5.16), subject to the provisions of this Participation Agreement relating to the amendment thereof, to the Trustee pursuant to the Indenture, as security for payment of the principal of, and premium, if any, and interest on, the Bonds. In addition, the Trustee shall have the same power as the Authority to enforce from time to time the rights of the Authority set forth in Article III and Section 5.16, subject to the provisions of this Participation Agreement relating to the amendment hereof. Except as provided in this Section 7.05, the Authority will not sell, assign, transfer, convey or otherwise dispose of its interest in this Participation Agreement during the term of this Participation Agreement. Section 7.06. Participation Agreement Supersedes Any Prior Agreements. This Participation Agreement supersedes any other prior agreements or understandings, written or oral, between the parties with respect to the transactions contemplated hereby. Section 7.07. Counterparts. This Participation Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but such counterparts shall together constitute but one and the same Participation Agreement. Section 7.08. Severability. If any clause, provision or section of this Participation Agreement is held illegal, invalid or unenforceable by any court or administrative body, such Participation Agreement shall be construed and enforced as if such illegal or invalid or unenforceable clause, provision or section had not been contained in this Participation Agreement. In case any agreement or obligation contained in this Participation Agreement shall be held to be in violation of law, then such agreement or obligation shall be deemed to be the agreement or obligation of the Authority or the Company, as the case may be, to the full extent permitted by law. 31 SECTION 7.09. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION OF THIS PARTICIPATION AGREEMENT. IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed as of the day and year first written above. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By /s/ FRANCIS J. MURRAY, JR. -------------------------------- FRANCIS J. MURRAY, JR. (SEAL) Chair ATTEST: /s/ HOWARD A. JACK - ------------------ HOWARD A. JACK Secretary LONG ISLAND LIGHTING COMPANY By -------------------------------- (SEAL) Treasurer ATTEST: - --------------------- Assistant Secretary 32 SECTION 7.09. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION OF THIS PARTICIPATION AGREEMENT. IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed as of the day and year first written above. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By -------------------------------- (SEAL) Chair ATTEST: - ------------------ Secretary LONG ISLAND LIGHTING COMPANY By /s/ ANTHONY NOZZOLILLO -------------------------------- ANTHONY NOZZOLILLO (SEAL) Treasurer ATTEST: /s/ HERBERT M. LEIMAN - --------------------- HERBERT M. LEIMAN Assistant Secretary 33 EXHIBIT A (To Participation Agreement dated as of November 1, 1993, between New York State Energy Research and Development Authority and Long Island Lighting Company) DESCRIPTION OF ELECTRIC FACILITIES The Project will consist of the following facilities which are to be acquired, constructed and installed by Long Island Lighting Company (the "Utility") as part of the Utility's electric system: 1. Production Facilities; 2. Transmission Facilities including interconnections and subtransmission; 3. Distribution Facilities, including stations, lines, transformers and meters; 4. Certain Common Facilities. All such facilities are as further described in the Tax Regulatory Agreement between the Authority and the Company dated the date of the initial delivery of the Bonds. The Project shall also include (i) such instrumentation, controls, structures and all other facilities, equipment, devices and the like necessary to support the facilities herein described, (ii) such necessary land improvements, and (iii) subject to Section 3.04 of the Participation Agreement, such additional or substituted facilities for the furnishing of electric energy which, because of changes in technology, environmental standard, cost or the like, the Utility determines shall be added or substituted for said facilities. 34 EXHIBIT B (To Participation Agreement dated as of November 1, 1993, between New York State Energy Research and Development Authority and Long Island Lighting Company) DESCRIPTION OF OTHER FACILITIES Any portion of the Electric Facilities described in Exhibit A as shall have been placed in service more than one year prior to the date of the original issuance and delivery of the Bonds. 35 EXHIBIT C (To Participation Agreement dated as of November 1, 1993, between New York State Energy Research and Development Authority and Long Island Lighting Company) LONG ISLAND LIGHTING COMPANY $50,000,000 PROMISSORY NOTE FOR ELECTRIC FACILITIES REVENUE BONDS (LONG ISLAND LIGHTING COMPANY PROJECT), 1993 Series A Long Island Lighting Company (the "Corporation"), a New York corporation, for value received, hereby promises to pay, on or before the dates set forth below, the amounts set forth below, to Chemical Bank, New York, New York, as trustee or its successor or successors as trustee (the "Trustee") under the Indenture of Trust relating to the above-referenced Bonds dated as of November 1, 1993, between the New York State Energy Research and Development Authority (the "Authority"), a body corporate and politic, constituting a public benefit corporation, established and existing under and by virtue of the laws of the State of New York, and the Trustee. Such Indenture of Trust, as it may be amended or supplemented from time to time, is herein called the "Indenture." Unless otherwise defined herein, the terms used in this promissory note (the "Company Note") which are defined in Section 1.01 of the Indenture shall have the meanings, respectively, herein which such terms are given in said Section 1.01 of the Indenture. This Company Note is issued pursuant to the Participation Agreement in order to evidence the obligation of the Company to the Authority to repay the advance of the proceeds of the Bonds. In accordance with the Participation Agreement, the Authority has authorized and directed the Company to issue this Company Note payable to the order of the Trustee as security for the payment of principal of, premium, if any, and interest on, the Bonds. The rights and interest of the Authority under the Participation Agreement (except the rights and interest of the Authority under Article III and Sections 4.04, 4.08, 4.09 and 4.10 and 5.16 thereof), subject to the provisions of the Participation Agreement relating to the amendment thereof, have been assigned to the Trustee pursuant to the Indenture. In addition, the Authority has granted the Trustee the same power as the Authority to enforce from time to time the rights of the Authority set forth in said Article III and Section 5.16, subject to the provisions of the Participation Agreement relating to the amendment thereof. All of 36 C-2 the terms, conditions and provisions of the Participation Agreement are, by this reference thereto, incorporated herein as part of this Company Note. This Company Note shall be payable as to principal, premium, if any, and interest as follows: (a) On or before each Interest Payment Date, commencing December 1, 1993, a sum which together with other moneys then available for such purpose in the Bond Fund will enable the Trustee to pay the interest on the Bonds coming due on such date; (b) On or before any redemption date for the Bonds (other than a redemption date pursuant to Section 8.05 of the Indenture), a sum which together with other moneys then available for such purpose in the Bond Fund will enable the Trustee to pay the principal of, premium, if any, and interest on the Bonds which are to be redeemed on such date; and (c) On or before November 1, 2023, a sum which together with other moneys then available for such purpose in the Bond Fund will enable the Trustee to pay the outstanding principal amount of the Bonds; provided that, if the Bonds are redeemed pursuant to Section 8.05 of the Indenture, the amounts that would otherwise have been payable on this Company Note if not for such redemption, shall continue to be payable at the times and in the amounts set forth above as if such redemption had not occurred; and provided further that if the Bonds are redeemed pursuant to Section 8.05 of the Indenture the Company shall have the right at any time thereafter to prepay this Company Note by paying the amount due on this Company Note at the time of such prepayment together with unpaid interest accrued thereon to the date of such prepayment. The obligation of the Company to make any payment of principal of, and premium, if any, and interest on, this Company Note shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit. All payments of principal of, and premium, if any, and interest on, this Company Note shall be made in immediately available funds to the Trustee at its corporate trust office, 450 West 33rd Street, 15th Floor, New York, New York 10001, Attention: Corporate Trustee Administration Department, Wire Transfer Number: 967-0-22461, or to such different address or wire transfer number as the Trustee may from time to time designate, on or before each date on which such principal, premium, if any, or interest is due in such coin or currency of the United States of America as at 37 C-3 the time of payment shall be legal tender for the payment of public and private debts. The Company has agreed in the Participation Agreement that if for any reason Company Note Payments, together with other moneys held by the Trustee and then available for such purpose (including moneys paid by the Bank under the Letter of Credit), would not be sufficient to make the corresponding payments of principal of, and premium, if any, and interest on, the Bonds when such payments are due, the Company will pay the amounts required from time to time to make up any such deficiency. In the event that payment has been made in respect of the principal of and premium, if any, and interest on, all of the Bonds, or provision therefor has been made in accordance with Article XIV of the Indenture, then this Company Note shall be deemed paid in full and shall be cancelled and returned to the Company; provided that this Company Note shall not be deemed paid in full if the Bonds are redeemed pursuant to Section 8.05 of the Indenture. No reference herein to the Participation Agreement shall impair the obligation of the Company to pay the principal of and premium, if any, and interest on this Company Note at the time and place and in the amounts herein prescribed, which obligation is absolute, irrevocable and unconditional and is not subject to any defense (other than payment) or any right of set-off, counterclaim or recoupment for any reason, including, without limitation, any breach by the Authority of any obligation to the Company, whether under the Participation Agreement or otherwise, or inaccuracy of any representation by the Authority to the Company under the Participation Agreement, or any indebtedness or liability at any time owing to the Company by the Authority or any failure to complete the Project or the destruction by fire or other casualty of the Project or any portion thereof, or the taking of title thereto or the use thereof by the exercise of the power of eminent domain. In case of an event of default (as defined in Section 6.01 of the Participation Agreement), the principal of and interest to the date of payment of this Company Note may be declared immediately due and payable as provided in the Participation Agreement. In addition, if at any time the principal of the Bonds shall have been declared to be due and payable by acceleration pursuant to the terms of the Indenture, this Company Note shall thereupon become and be immediately due and payable, subject to such declaration with respect to the Bonds being annulled pursuant to Section 10.01 of the Indenture. 38 C-4 This Company Note may not be amended except by an instrument in writing signed by the Company, by the Authority and by the Trustee, on behalf of the owners of the Bonds, in the manner and subject to the conditions provided in Section 4.03 of the Indenture. This Company Note may not be transferred by the Trustee except to effect an assignment to a successor Trustee under the Indenture or pursuant to Section 8.05 of the Indenture. THIS COMPANY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Presentment, demand, protest and notice of dishonor are hereby expressly waived. IN WITNESS WHEREOF, the Company has caused this Company Note to be duly executed and delivered as of November __, 1993. LONG ISLAND LIGHTING COMPANY (SEAL) By: ----------------------------- Treasurer ATTEST: - ------------------------ Assistant Secretary 39 Exhibit 10(u) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDENTURE OF TRUST BETWEEN NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY AND Chemical Bank, as Trustee Dated as of November 1, 1993 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -relating to- Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series A 40 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; LIABILITY UNDER BONDS; INDENTURE TO CONSTITUTE CONTRACT Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 1.02. Rules of construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 1.03. Liability under Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE II DESCRIPTION; AUTHORIZATION; MANNER OF EXECUTION; AUTHENTICATION; REGISTRATION AND TRANSFER OF BONDS Section 2.01. Issuance of Bonds; Designation of Bonds; Certain Particulars and Form of Bonds . . 45 Section 2.02. Additional Particulars of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 2.03. Interest Rates on Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 2.04. Conversion of Interest Rate on Bonds . . . . . . . . . . . . . . . . . . . . . . . 54 Section 2.05. Optional and Mandatory Tender of Bonds for Purchase . . . . . . . . . . . . . . . . 59 Section 2.06. Remarketing of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 2.07. Delivery of Purchased Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 2.08. Mutilated, Lost, Stolen or Destroyed Bonds . . . . . . . . . . . . . . . . . . . . 70 Section 2.09. Temporary Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 2.10. Execution of Bonds; Effect of Change of Officers . . . . . . . . . . . . . . . . . 71 Section 2.11. Registration of Bonds; Transfers; Securities Depository . . . . . . . . . . . . . . 71 Section 2.12. Persons Treated as Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 2.13. Exchange of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 2.14. Payment For and Limitations on Exchanges and Transfers . . . . . . . . . . . . . . 75 Section 2.15. Endorsement of Certificate of Authentication on Bonds . . . . . . . . . . . . . . . 75 Section 2.16. Cancellation of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 2.17. Redemption of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
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Page ---- ARTICLE III SECURITY FOR BONDS; ISSUANCE OF BONDS Section 3.01. Pledge and Assignment Effected by Indenture; Bonds Equally and Ratably Secured . . 77 Section 3.02. Issuance of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE IV PARTICIPATION AGREEMENT AND COMPANY NOTE Section 4.01. Amendments to Participation Agreement not Requiring Consent of Bondowners . . . . . 79 Section 4.02. Amendments to Participation Agreement Requiring Consent of Bondowners . . . . . . . 79 Section 4.03. Amendments to Company Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 4.04. Amendments to Tax Regulatory Agreement . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE V PROJECT FUND; REBATE FUND Section 5.01. Creation and Custody of Project Fund . . . . . . . . . . . . . . . . . . . . . . . 81 Section 5.02. Application of Moneys in the Project Fund . . . . . . . . . . . . . . . . . . . . . 81 Section 5.03. Construction Account Requisitions . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 5.04. Retention of Requisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 5.05. Certification of Completion of the Project . . . . . . . . . . . . . . . . . . . . 83 Section 5.06. Disposition of Balance Remaining in Project Fund . . . . . . . . . . . . . . . . . 83 Section 5.07. Creation and Custody of Rebate Fund . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 5.08. Application of Moneys in the Rebate Fund . . . . . . . . . . . . . . . . . . . . . 83
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Page ---- ARTICLE VI BOND FUND; LETTER OF CREDIT Section 6.01. Creation and Custody of the Bond Fund . . . . . . . . . . . . . . . . . . . . . . . 85 Section 6.02. Payments into the Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Section 6.03. Application of Moneys in the Bond Fund . . . . . . . . . . . . . . . . . . . . . . 86 Section 6.04. Non-presentment of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 6.05. (Intentionally Deleted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Section 6.06. Trustee to Notify Authority and Company of Funds in Bond Fund . . . . . . . . . . . 88 Section 6.07. Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
ARTICLE VII SECURITY FOR AND INVESTMENT OF MONEYS Section 7.01. Moneys Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Section 7.02. Uninvested Moneys Held by the Trustee. . . . . . . . . . . . . . . . . . . . . . . 91 Section 7.03. Investment of, and Payment of Interest on, Moneys . . . . . . . . . . . . . . . . . 91 Section 7.04. Disposition of Amounts After Payment of Bonds . . . . . . . . . . . . . . . . . . . 93 Section 7.05. Compliance with Tax Regulatory Agreement in the Event of Partial Redemption of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
ARTICLE VIII REDEMPTION OF BONDS Section 8.01. Bonds to be Redeemed Only in Manner Provided in Article VIII . . . . . . . . . . . 95 Section 8.02. Redemption of Less Than all Bonds . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 8.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 8.04. Rights of Owners of Bonds Called for Redemption Limited to Redemption Price and Accrued Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 8.05. Redemption at Demand of the State . . . . . . . . . . . . . . . . . . . . . . . . . 97
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Page ARTICLE IX ---- PARTICULAR COVENANTS Section 9.01. Payment of Principal of and Interest and Redemption Premium of Bonds . . . . . . . 99 Section 9.02. Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 9.03. Further Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 9.04. Inspection of Project Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 9.05. No Extension of Time of Payment of Interest . . . . . . . . . . . . . . . . . . . . 99 Section 9.06. Trustee's, Paying Agent's, Indexing Agent's, Tender Agent's and Remarketing Agents's Fees, Charges and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 100 Section 9.07. Agreement of the State of New York . . . . . . . . . . . . . . . . . . . . . . . . 100
ARTICLE X DEFAULTS AND REMEDIES Section 10.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Section 10.02. Judicial Proceedings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Section 10.03. Effect of Discontinuance or Abandonment of Proceedings . . . . . . . . . . . . . . 104 Section 10.04. Power of Bondowners to Direct Proceedings . . . . . . . . . . . . . . . . . . . . . 104 Section 10.05. Limitation on Actions by Bondowners . . . . . . . . . . . . . . . . . . . . . . . . 104 Section 10.06. Trustee's Right to Enforce Rights in Respect of Bonds in Own Name and Without Possession of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Section 10.07. No Remedy herein Conferred upon or Reserved Exclusive . . . . . . . . . . . . . . . 105 Section 10.08. No Delay or Omission to be Deemed Waiver of Default . . . . . . . . . . . . . . . . 105 Section 10.09. Application of Moneys Received by Trustee Pursuant to Article X . . . . . . . . . . 106 Section 10.10. Entirety of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Section 10.11. Notice of Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
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Page ---- ARTICLE XI CONCERNING THE TRUSTEE AND PAYING AGENT Section 11.01. Appointment of Trustee; Paying Agents . . . . . . . . . . . . . . . . . . . . . . . 109 Section 11.02. No Responsibility for Correctness of Statements in Indenture . . . . . . . . . . . 109 Section 11.03. No Responsibility for Default of Agents Selected with Due Care, nor for Own Acts Save Willful Misconduct or Negligence . . . . . . . . . . . . . . . . . . . . . . . 109 Section 11.04. No Duty to Take Enforcement Action Unless so Requested by Owners of 25% of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Section 11.05. Right to Rely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Section 11.06. Right to Own and Deal in Bonds and Engage in Other Transactions with Authority and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Section 11.07. Construction of Provisions of Indenture by Trustee . . . . . . . . . . . . . . . . 111 Section 11.08. Right to Resign Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Section 11.09. Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Section 11.10. Appointment of Successor Trustee by Bondowners or Authority . . . . . . . . . . . . 112 Section 11.11. Qualifications of Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . 113 Section 11.12. Court Appointment of Successor Trustee . . . . . . . . . . . . . . . . . . . . . . 113 Section 11.13. Acceptance of Appointment by, and Transfer of Trust Estate to, Successor Trustee . 113 Section 11.14. Successor Trustee by Merger or Consolidation . . . . . . . . . . . . . . . . . . . 113 Section 11.15. Exercise of Rights and Powers During Event of Default . . . . . . . . . . . . . . . 114 Section 11.16. Trustee may Intervene in Judicial Proceedings Involving Authority or the Company . 114 Section 11.17. Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Section 11.18. Appointment of Co-Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
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Page ---- ARTICLE XII EXECUTION OF INSTRUMENTS BY BONDOWNERS AND PROOF OF OWNERSHIP OF BONDS Section 12.01. Execution of Instruments; Proof of Ownership of Bonds . . . . . . . . . . . . . . . 117
ARTICLE XIII INDENTURES SUPPLEMENTAL HERETO Section 13.01. Supplemental Indentures not Requiring Consent of Bondowners . . . . . . . . . . . . 118 Section 13.02. Supplemental Indentures Requiring Consent of Bondowners . . . . . . . . . . . . . . 119 Section 13.03. Company and Bank Consent to Amendment of Indenture . . . . . . . . . . . . . . . . 120
ARTICLE XIV DEFEASANCE Section 14.01. Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
ARTICLE XV REMARKETING AGENTS; REMARKETING OF BONDS; INDEXING AGENT; TENDER AGENT Section 15.01. Appointment and Duties of Remarketing Agents . . . . . . . . . . . . . . . . . . . 125 Section 15.02. Qualifications of a Remarketing Agent . . . . . . . . . . . . . . . . . . . . . . . 125 Section 15.03. Appointment and Duties of Indexing Agents . . . . . . . . . . . . . . . . . . . . . 126 Section 15.04. Qualifications of Indexing Agents . . . . . . . . . . . . . . . . . . . . . . . . . 127 Section 15.05. Dealings With the Authority and the Company . . . . . . . . . . . . . . . . . . . . 127 Section 15.06. Tender Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Section 15.07. Qualifications of Tender Agent; Resignation; Removal . . . . . . . . . . . . . . . 128
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ARTICLE XVI MISCELLANEOUS Section 16.01. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Section 16.02. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Section 16.03. No Individual Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Section 16.04. Payment Due on Saturdays, Sundays and Holidays . . . . . . . . . . . . . . . . . . 130 Section 16.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 SECTION 16.06. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Section 16.07. Effective Date; Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Section 16.08. References to the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Section 16.09. Date for Identification Purposes Only . . . . . . . . . . . . . . . . . . . . . . . 132
(vii) 47 THIS INDENTURE OF TRUST, made and dated as of the first day of November, 1993, by and between New York State Energy Research and Development Authority (the "Authority"), a body corporate and politic, constituting a public benefit corporation, and Chemical Bank (the "Trustee"), a banking corporation organized under the laws of the State of New York, with its principal corporate trust office located in New York, New York, as trustee, W I T N E S S E T H T H A T: WHEREAS, pursuant to special act of the Legislature of the State of New York (Title 9 of Article 8 of the Public Authorities Law of New York, as from time to time amended and supplemented, herein called the "Act"), the Authority has been established as a body corporate and politic, constituting a public benefit corporation; and WHEREAS, pursuant to the Act, the Authority is empowered to contract with any power company to participate in the construction of facilities to be used for the furnishing of electric energy to the extent required by the public interest in development, health, recreation, safety, conservation of natural resources and aesthetics; and WHEREAS, pursuant to the Act, the Authority has also been empowered to extend credit and make loans from bond and note proceeds to any Person for the construction, acquisition and installation of, or for the reimbursement to any Person for costs in connection with, any special energy project, including, but not limited to, any land, works, system, building or other improvement, and all real and personal properties of any nature or any interest in any of them which are suitable for or related to the furnishing, generation or production of energy; and WHEREAS, the Authority is also authorized under the Act to borrow money and issue its negotiable bonds and notes to provide sufficient moneys for achieving its corporate purposes; and WHEREAS, the Authority is also authorized under the Act to enter into any contracts and to execute all instruments necessary or convenient for the exercise of its corporate powers and the fulfillment of its corporate purposes; and WHEREAS, contemporaneously with the execution hereof, Long Island Lighting Company (the "Company") and the Authority have entered into a Participation Agreement of even date herewith (herein referred to as the "Participation Agreement"), providing for the acquisition, construction and installation of certain facilities (the "Project") for the furnishing of electric energy within the Company's service area; and 48 2. WHEREAS, the Participation Agreement provides that the Authority will issue its bonds and make the proceeds of such bonds available to the Company to finance the cost of the Project; and WHEREAS, pursuant to Resolution No. 801 adopted January 25, 1993, the Authority has determined to issue $50,000,000 aggregate principal amount of revenue bonds initially bearing the designation set forth on the title page of the Indenture of Trust (the "Bonds") for the purpose of financing the cost of the Project; and WHEREAS, in order to provide an inducement to the Authority to issue the Bonds, the Company has entered into a Letter of Credit and Reimbursement Agreement relating to the Bonds dated as of November 1, 1993, with The Toronto-Dominion Bank, Houston Agency, (the "Bank") and certain other parties, pursuant to which the Bank has agreed to issue an irrevocable letter of credit in favor of the Trustee, which letter of credit expires by its terms on November 17, 1996, unless extended or unless earlier terminated in accordance with its terms, to provide for the payment of such amounts as are specified therein with respect to the principal of, premium, if any, and interest on, the Bonds and certain other payments with respect to the Bonds; and WHEREAS, all acts, conditions and things necessary or required by the Constitution and statutes of the State of New York or otherwise, to exist, happen, and be performed as prerequisites to the execution and delivery of the Indenture, do exist, have happened, and have been performed; and WHEREAS, the Authority has determined that the Bonds issuable hereunder and the certificate of authentication by the Trustee to be endorsed on such Bonds shall be, respectively, substantially in the following forms with such variations, omissions and insertions as are required or permitted by the Indenture: 49 3. [Form of Bonds] [MONEY MARKET MUNICIPAL RATE LEGEND Last Day of Money Market Interest Rate Municipal Rate Period ----- ----- Interest due at end of Money Market Number of Municipal Rate Period Days ----- -----]* NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY Electric Facilities Revenue Bond (Long Island Lighting Company Project) 1993 Series A
No. NYAR-1 $50,000,000* Maturity Date Original Issue Date CUSIP - ------------- ------------------- ----- November 1, 2023 November 17, 1993 649841 BV4 Registered Owner: Cede & Co. Principal Amount: Fifty Million Dollars
NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY (the "Authority"), a body corporate and politic, constituting a public benefit corporation, organized and existing under and by virtue of the laws of the State of New York, for value received, hereby promises to pay solely from the sources hereinafter provided, to the Registered Owner specified above, or registered assigns, on the Maturity Date specified above, unless redeemed prior thereto as hereinafter provided, upon the presentation and surrender hereof, the Principal Amount specified above and to pay solely from such sources interest on said Principal Amount from the date hereof at the rates and at the times provided herein, until said Principal Amount is paid. This bond shall be subject to mandatory purchase by the Tender Agent as hereinafter described. The principal of and premium, if any, on this bond are payable at - --------------------- *Such legend to appear only on face of Bonds bearing interest at a Money Market Municipal Rate. 50 4. the corporate trust office of Chemical Bank, New York, New York, the Trustee hereinafter mentioned and as paying agent. The interest on this bond, when due and payable, shall be paid to the Registered Owner hereof (or of any bond or bonds previously outstanding in exchange, transfer or substitution for which this bond was issued) as of the close of business on the Record Date (hereinafter referred to) for each interest payment date by check, mailed to such Person at such Person's address appearing as of the close of business on such Record Date on the Bond Register (hereinafter referred to). On and prior to the date a Fixed Rate (as hereinafter defined) becomes effective as hereinafter provided, in the event that less than all of the Bonds are held under a book-entry-only system, any owner of not less than $1,000,000 (or $100,000 during any Money Market Municipal Rate Period) aggregate principal amount of Bonds not held under a book-entry-only system may request that interest on the Bonds be paid by wire transfer within the continental United States; provided, however, that during a Money Market Municipal Rate Period, interest on a Bond is payable only upon presentation and surrender thereof to the Tender Agent upon purchase thereof pursuant to the Indenture, and if such presentation and surrender is made by 12:00 noon (New York City time) such payment shall be by wire transfer. Interest not so paid shall be paid in accordance with the provisions of Article X of the Indenture (as hereinafter defined). All such payments shall be made in such coin or currency of the United States of America, which at the respective times of payment, are legal tender for payment of public and private debts. This bond is one of a duly authorized issue of bonds of the Authority designated as "Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series A" (the "Bonds"), issued in the aggregate principal amount of $50,000,000 pursuant to the Constitution and laws of the State of New York, particularly the New York State Energy Research and Development Authority Act, Title 9 of Article 8 of the Public Authorities Law of the State of New York, as amended (the "Act"), and a resolution adopted by the Authority on January 25, 1993. The Bonds are issued and secured under and pursuant to an Indenture of Trust dated as of November 1, 1993, between the Authority and Chemical Bank, as Trustee (the "Indenture"). The Bonds are issued for the purpose of financing a portion of the cost of acquisition, construction and installation of certain facilities of Long Island Lighting Company (the "Company") to be used for the local furnishing of electric energy (the "Project") pursuant to a Participation Agreement dated as of November 1, 1993, between the Authority and the Company (hereinafter, as it may be amended or supplemented from time to time, called the "Participation Agreement"). All terms used but not defined herein are used as defined in the Indenture. 51 5. *1. Copies of the Indenture are on file at the corporate trust office of Chemical Bank, New York, New York, as Trustee under the Indenture or its successor as Trustee (the "Trustee"), and reference is made to the Indenture for the provisions relating, among other things, to the terms and security of the Bonds, the rights and remedies of the owners of the Bonds, and the terms and conditions upon which Bonds are issued thereunder. *2. The Bonds are not general obligations of the Authority, and shall not constitute an indebtedness of or a charge against the general credit of the Authority or give rise to any pecuniary liability of the Authority. The liability of the Authority under the Bonds shall be enforceable only to the extent provided in the Indenture, and the Bonds shall be payable solely from payments to be made by the Company to the Trustee and any other funds held by the Trustee under the Indenture (including, but not limited to, funds drawn under the Letter of Credit) and available for such payment. In order to provide security for the payment of the principal of and premium, if any, and interest on all the Bonds in accordance with their terms and the terms of the Indenture, the Authority has in the Participation Agreement directed the Company to execute and deliver its Company Note to the Trustee as evidence of the obligation of the Company to the Authority to repay the advance of the proceeds of the Bonds by the Authority and the Authority has under the Indenture pledged and assigned all its right, title and interest in and to the payments under such Company Note to the Trustee for the benefit of the owners from time to time of the Bonds. The Bonds are further secured by a pledge and assignment of (i) the rights and interest of the Authority under the Participation Agreement (except the rights and interest of the Authority under Article III and Sections 4.04, 4.08, 4.09, 4.10 and 5.16 thereof and subject to the provisions of the Participation Agreement relating to the amendment thereof), (ii) the rights and interest of the Authority under the Tax Regulatory Agreement, dated the date of the original issuance of the Bonds, between the Authority and the Company (subject to a reservation by the Authority of the right to independently enforce the obligations of the Company thereunder and to the provisions of the Tax Regulatory Agreement relating to the amendment thereof) (iii) the proceeds of sale of the Bonds and (iv) all funds held by the Trustee under the Indenture and available for the payment of the Bonds under the terms of the Indenture (expressly not including in such funds, the Rebate Fund) and the income earned by the investment of such funds held under the Indenture. In addition, the Authority has granted the Trustee the same power as the Authority to enforce from time to time the rights of the Authority set forth in Article III and Section 5.16 of the Participation Agreement, subject to the provisions of the Participation Agreement relating to the amendment thereof. 52 6. *3. Interest Rate. Interest on the Bonds will initially be payable at a Weekly Rate of two and thirty-five one hundredths per centum (2.35%) per annum from the initial delivery date to and including November 23, 1993 (the "First Interest Period"). Subsequent to such period and prior to the Fixed Rate Conversion Date, interest on this Bond will be paid at the lowest of (a) a Weekly Rate, a Money Market Municipal Rate, a Semi-Annual Rate or a Medium-Term Rate as from time to time selected and determined in accordance with the Indenture, (b) 15% and (c) the maximum interest rate specified in the Letter of Credit with respect to coverage for the payment of interest or the interest component of Purchase Price; thereafter, interest will be paid at the Fixed Rate, determined in accordance with the Indenture, which shall not exceed 18%. Each such rate will be set by the Remarketing Agents in accordance with the applicable standards provided in the Indenture; provided that each such rate will not be greater than 110% of the rate index for such rate (the "Rate Index"). The Rate Index will be selected by an Indexing Agent for such rate, appointed pursuant to the Indenture. If such rate is not established by the Remarketing Agents, no Remarketing Agent shall be serving or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law, then such rate will be 100% of the related Rate Index. Interest will continue to be payable at a Weekly Rate determined in accordance with the Indenture, unless and until a different Interest Rate Determination Method is selected in accordance with the Indenture. The Company may change the Interest Rate Determination Method from time to time in accordance with the Indenture; provided, however, that if the Company changes the Interest Rate Determination Method to a Fixed Rate, it may not thereafter change the Interest Rate Determination Method and the Fixed Rate shall be the rate of interest on the Bonds from the Fixed Rate Conversion Date to the Maturity Date. The Company may direct the Trustee to change the Interest Rate Determination Method applicable to all or a portion of the Bonds. Except as specifically provided otherwise in the Indenture, the conditions and procedures for such change in the Interest Rate Determination Method for a portion of the Bonds shall be the same as the conditions and procedures for a change in the Interest Rate Determination Method for the entire series of Bonds. If the Company directs the Trustee to change the Interest Rate Determination Method from one Rate to another for less than all of the Bonds then outstanding, the Trustee shall select Bonds to be converted by lot or by such other method as the Trustee shall deem appropriate. In the event the Company wishes to convert less than all the Bonds then outstanding, the Company shall notify the Trustee of such decision not less than 40 days or more than 60 days before the effective date of the proposed conversion. On the Conversion Date the portion of the Bonds which are being converted shall be redesignated in such a way as to identify a separate 53 7. Subseries and thereby to avoid confusion of such Subseries with any other Subseries. The Company may also determine to similarly redesignate the portion of the Bonds which are not being converted on the Conversion Date. The holders of Bonds which are being redesignated may be required to deliver such Bonds to the Trustee in order to receive a new Bond of the applicable designation, in the same principal amount. In the event holders are not required to surrender such Bonds, the Trustee shall appropriately designate any Bonds subsequently issued in exchange therefor. If less than all of the Bonds are to be converted, all references herein to the Bonds shall be deemed to refer to the Bonds of each Subseries separately. *Interest on this Bond will accrue and will be payable as provided in the Indenture. Except as otherwise provided in the Indenture, the Interest Payment Dates are: (i) during any Weekly Rate Period, the first Business Day of each calendar month; (ii) each Conversion Date; (iii) during any Semi-Annual Rate Period or Medium-Term Rate Period, the first day of each of two months which are six months apart, as specified in a certificate of an Authorized Officer delivered to the Trustee prior to the Conversions to a Semi-Annual Rate Period or Medium-Term Rate Period, provided, however, if the last such day occurring in any Semi-Annual Rate Period is not a Business Day then the first Business Day thereafter shall be the Interest Payment Date, provided, further, however, if any Interest Payment Date in a Semi-Annual Rate Period, determined as set forth above, would cause such Semi-Annual Rate Period to extend for a period in excess of 182 days, the Interest Payment Date for such Semi-Annual Rate Period shall be the last Business Day occurring within such Semi-Annual Rate Period that does not cause such Semi-Annual Rate Period to exceed 182 days in duration; (iv) during the Fixed Rate Period, each May 1 and November 1; (v) during each Money Market Municipal Rate Period, the first Business Day after any Calculation Period; and (vi) the Maturity Date. The first Interest Payment Date shall be December 1, 1993. If prior to the conversion to a Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, an Officer's Certificate shall be delivered to the Trustee specifying different Interest Payment Dates for such Rate Period together with an Opinion of Bond Counsel to the effect that such adjustment will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes, then the Interest Payment Dates for such Rate Period shall be so adjusted; provided, however, that no such adjustment shall result in the establishment of Interest Payment Dates between which more than six months would pass. *The Record Dates with respect to the various Interest Payment Dates are: (i) during any Weekly Rate Period or Money 54 8. Market Municipal Rate Period, the day next preceding such Interest Payment Date, regardless of whether such day is a Business Day; and (ii) during any Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, the Trustee's close of business on the fifteenth day of the calendar month next preceding such Interest Payment Date, regardless of whether such day is a Business Day. *During any Weekly Rate Period or Money Market Municipal Rate Period, interest on the Bonds will be computed on the basis of a 365 or 366-day year, as the case may be, for the actual number of days elapsed. During any Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, interest on the Bonds will be computed on the basis of a 360-day year of twelve 30-day months. *4. Letter of Credit. The Bonds are initially supported by a letter of credit issued by The Toronto-Dominion Bank, Houston Agency (such bank or any issuer of any alternate credit facility as described herein being hereinafter referred to as the "Bank"), in favor of the Trustee. This letter of credit expires on November 17, 1996, unless extended in accordance with its terms, or on the earlier occurrence of events specified in it. The initial letter of credit or any alternate credit facility meeting the requirements of Section 6.07 of the Indenture and Section 4.12 of the Participation Agreement during the time it is in effect is hereinafter called the "Letter of Credit." The Letter of Credit shall be in effect at all times prior to the Fixed Rate Conversion Date, except any period during which all of the outstanding Bonds are owned by the Company. The Letter of Credit shall entitle the Trustee to draw up to (a) an amount equal to the principal amount of the Bonds then outstanding to pay the principal amount of the Bonds (or the portion of the Purchase Price of the Bonds corresponding to principal); plus (b) an amount equal to 210 days' accrued interest on the Bonds at a maximum rate specified therein, which shall in no event exceed 15%, to pay interest on the Bonds. Such maximum rate for the initial letter of credit is 15%. If the Bonds shall be redeemable at a premium during a period during which a Letter of Credit is in effect, no redemption may be made unless the Letter of Credit or other Available Moneys are available to pay such premium. *Except as otherwise provided herein, the Bonds shall become subject to mandatory tender for purchase (see "Mandatory Tender for Purchase" below) on the twentieth calendar day next preceding the scheduled expiration date of the Letter of Credit. Within five calendar days after the Bonds become subject to such mandatory tender for purchase, the Trustee shall notify the owners of the Bonds by first class mail of the expiration of the Letter of Credit and the name of the issuer of the successor Letter of Credit, if applicable. 55 9. *5. Tender of Bonds for Purchase. *Optional Tender. During any Weekly Rate Period or any Semi-Annual Rate Period the owners of the Bonds shall have the right to tender any Bond (or portion thereof in an authorized denomination) to the Tender Agent for purchase on any Optional Tender Date prior to the Conversion Date, but only upon: (1) giving or delivery to the Tender Agent at its principal office, during the times specified below, of a telephonic or facsimile confirmed in writing notice which states (i) the aggregate principal amount of the Bond to be purchased and (ii) that such Bond (or portion thereof in an authorized denomination) shall be purchased on such Optional Tender Date pursuant to the Indenture; and (2) delivery of such Bond (with an appropriate instrument of transfer duly executed in blank) to the Tender Agent at its principal office at or prior to 12:00 noon, New York City time, on such Optional Tender Date; provided, however, that no Bond (or portion thereof in an authorized denomination) shall be purchased unless the Bond so delivered to the Tender Agent shall conform in all respects to the description thereof in the aforesaid notice. During any Weekly Rate Period, irrevocable notice must be given on a Business Day not later than the close of business on the seventh calendar day prior to the Optional Tender Date; and during any Semi-Annual Rate Period irrevocable notice must be given not earlier than the thirtieth calendar day and not later than the close of business on the fifteenth calendar day next preceding the Optional Tender Date. *Any election of a Bondowner to tender a Bond (or portion thereof as aforesaid) for purchase on the Optional Tender Date in accordance with the Indenture shall be irrevocable and shall be binding on the Bondowner making such election and on any transferee of such Bondowner. *Mandatory Tender for Purchase. All Bonds are subject to mandatory tender and purchase, with no right of owners to retain Bonds, as more fully provided in the Indenture on each Conversion Date and each Medium-Term Adjustment Date. *Any Bond bearing a Money Market Municipal Rate shall be subject to mandatory tender for purchase in accordance with the Indenture on the Business Day immediately following each Calculation Period for such Bond at a price equal to the principal amount thereof and owners of any Bond bearing interest at a Money 56 10. Market Municipal Rate shall have no right to elect to retain such Bond subsequent to such Business Day. *Each Bond shall be subject to mandatory tender and purchase on each Mandatory Purchase Date established pursuant to Section 2.05(e) of the Indenture. *Upon the Bonds becoming subject to mandatory tender for purchase on a Mandatory Purchase Date, the Trustee shall give telephonic notice to the Remarketing Agents, the Authority and the Tender Agent and give notice by mail to the Bondowners in accordance with Section 2.05(e)(2) of the Indenture. *Failure to mail the notice described in Section 2.05(e)(2) of the Indenture or any defect therein, shall not extend the period for tendering any of the Bonds for purchase, and the Trustee shall not be liable to any Bondowner by reason of its failure to mail such notice or any defect therein. *The Bonds shall be tendered for purchase as provided in Section 2.05(e) of the Indenture. *All Bonds (or portion thereof in an authorized denomination) which are not delivered to the Tender Agent shall be deemed to have been properly tendered to the Tender Agent (such Bond being hereinafter referred to as an "Untendered Bond"), and, to the extent that there shall be on deposit with the Tender Agent on the applicable Purchase Date, an amount sufficient to pay the Purchase Price thereof, such Untendered Bond shall cease to constitute or represent a right to payment of principal or interest thereon and shall constitute and represent only the right to the payment of Purchase Price payable on such date. The foregoing shall not limit the entitlement of any Bondowner on any Record Date to receipt of interest due on such date unless such interest is paid as part of the Purchase Price. *Purchase of Tendered Bonds. On each Optional Tender Date and Purchase Date there shall be purchased (but solely from funds received by the Tender Agent in accordance with the terms of the Indenture) the Bond or Bonds (or portions thereof in authorized denominations) tendered (or deemed to have been tendered) to the Tender Agent for purchase in accordance with Section 2.05 of the Indenture at the applicable Purchase Price. Funds for the payment of the Purchase Price of such Bond or Bonds (or portions thereof in authorized denominations) shall be paid by the Tender Agent solely from the sources and in the order of priority specified in Section 2.05(h) of the Indenture. Bonds (or portions thereof in authorized denominations) purchased as provided above shall be delivered as provided in Section 2.07 of the Indenture. 57 11. *The owners of the Bonds shall not have the right or be required, as the case may be, to tender any Bond or Bonds (or portions thereof in authorized denominations) for purchase on any Optional Tender Date or the Purchase Date, if on any such date an Event of Default under Section 10.01(f) or (g) of the Indenture shall have occurred and be continuing thereunder with respect to the Bonds. *All Bonds shall be subject to mandatory tender and purchase, with no right of owners to retain Bonds, upon a date established by the Trustee after receipt by the Trustee of a written notice from the Bank of the occurrence and continuance of an event that would constitute an Event of Default pursuant to Section 10.01(f) or (g) of the Indenture except that the Bank shall have directed mandatory tender and purchase pursuant to Section 2.05(j) of the Indenture rather than acceleration of the Bonds. *6. Redemptions. *Optional Redemption. At any time during a Weekly Rate Period or Money Market Municipal Rate Period, the Bonds will be subject to redemption, by the Authority at the direction of the Company, in whole on any Business Day or in part on any Interest Payment Date at a redemption price equal to the principal amount thereof plus accrued interest, if any, to the redemption date. During a Semi-Annual Rate Period or during a Medium-Term Rate Period equal to one calendar year (or, in the case of the First Interest Period, of less than one calendar year), each Bond is subject to redemption, by the Authority at the direction of the Company, in whole or in part on the last Business Day of such Rate Period in effect on the applicable redemption date, at a redemption price equal to the principal amount of the Bond or Bonds to be redeemed plus accrued and unpaid interest thereon to the redemption date. During a Medium-Term Rate Period of greater than one calendar year but less than or equal to three calendar years, each Bond will be subject to optional redemption by the Authority at the direction of the Company on the dates and at the redemption prices set forth in the following table plus accrued and unpaid interest to the redemption date: 58 12.
Redemption Date Redemption Prices --------------- ----------------- Earliest Optional Redemption Date 100.5% through the last day prior to the First Anniversary of the Earliest Optional Redemption Date First Anniversary of the Earliest 100 Optional Redemption Date, if applicable, and thereafter
As used in the immediately preceding table "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is one year after the commencement of any such Medium-Term Rate Period. During a Medium-Term Rate Period of greater than three calendar years but less than or equal to five calendar years, each Bond will be subject to optional redemption by the Authority at the direction of the Company on the dates and at the redemption prices set forth in the following table plus accrued and unpaid interest to the redemption date:
Redemption Date Redemption Prices --------------- ----------------- Earliest Optional Redemption Date 101% through the last day prior to the First Anniversary of the Earliest Optional Redemption Date First Anniversary of the Earliest 100.5 Optional Redemption Date through the last day prior to the Second Anniversary of the Earliest Optional Redemption Date Second Anniversary of the Earliest 100 Optional Redemption Date and thereafter
As used in the preceding table "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is two years after the commencement of any such Medium-Term Rate Period. During a Medium-Term Rate Period of greater than five but less than or equal to ten calendar years, the Bonds will be subject to optional redemption by the Authority at the direction of the Company on the dates and at the redemption prices set forth in the following table plus accrued and unpaid interest to the redemption date: 59 13.
Redemption Date Redemption Prices --------------- ----------------- Earliest Optional Redemption 101.5% Date through the last day prior to the First Anniversary of the Earliest Optional Redemption Date First Anniversary of the Earliest 101 Optional Redemption Date through the last day prior to the Second Anniversary of the Earliest Optional Redemption Date Second Anniversary of the Earliest 100.5 Optional Redemption Date through the last day prior to the Third Anniversary of the Earliest Optional Redemption Date Third Anniversary of the Earliest 100 Optional Redemption Date and thereafter
As used in the immediately preceding table "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is four years after the commencement of any such Medium-Term Rate Period. *During a Medium-Term Rate Period of greater than ten calendar years, the Bonds will be subject to optional redemption by the Authority at the direction of the Company on the dates and at the redemption prices set forth in the next succeeding table; provided that, with respect to such a Medium-Term Rate Period, "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is eight years after the Conversion Date or Medium-Term Adjustment Date. *After the Fixed Rate Conversion Date, the Bonds will be subject to optional redemption by the Authority at the direction of the Company on or after the Earliest Optional Redemption Date (as defined below), in whole on any Business Day or in part on any Interest Payment Date, during the periods and at the respective redemption prices (expressed as a percentage of principal amount) set forth in the following table plus accrued and unpaid interest to the redemption date: 60 14.
Redemption Date Redemption Prices --------------- ----------------- Earliest Optional Redemption 102% Date through the last day prior to the First Anniversary of the Earliest Optional Redemption Date First Anniversary of the 101 Earliest Optional Redemption Date through the last day prior to the Second Anniversary of the Earliest Optional Redemption Date Second Anniversary of the 100 Earliest Optional Redemption Date and thereafter
*As used in the preceding table, "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is ten years after the Fixed Rate Conversion Date. *Subject to the provisions of the Indenture, if prior to a Medium-Term Rate Conversion Date or the Fixed Rate Conversion Date the Remarketing Agents certify to the Trustee, the Authority and the Company in writing that any of the foregoing redemption schedules are not consistent with then prevailing market conditions, with the approval of the Authority and the Company, the foregoing Earliest Optional Redemption Dates or premiums may be revised in accordance with the best professional judgment of the Remarketing Agents to reflect then prevailing market conditions; provided, that the Company causes to be delivered to the Trustee an Opinion of Bond Counsel stating to the effect that such revision is permitted by the Indenture and will not cause the interest on the Bonds to be includible in gross income for federal income tax purposes. *Mandatory Redemption Upon State Furnishing Funds. The Bonds are subject to redemption as a whole, at a redemption price equal to the applicable optional redemption price described herein or, if no such optional redemption price shall be applicable, 105% of the principal amount thereof during the Fixed Rate Period or 100% of the principal amount thereof prior to the Fixed Rate Conversion Date, together with unpaid interest accrued thereon to the date fixed for redemption, on any Interest Payment Date not less than twenty years after the date of the original issuance of 61 15. the Bonds if the State of New York furnishes funds therefor, all as more fully described in the Indenture. *Extraordinary Optional Redemption. The Bonds may be redeemed at the option of the Authority exercised at the direction of the Company, as a whole or in part at any time, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date fixed for redemption, upon the occurrence of any of the following events: (i) All or substantially all of the Project shall have been damaged or destroyed or title to, or the temporary use of, all or a substantial portion of the Project shall have been taken under the exercise of the power of eminent domain by any governmental authority, or Person, firm or corporation acting under governmental authority, as in each case renders the Project unsatisfactory to the Company for its intended use; (ii) Unreasonable burdens or excessive liabilities shall have been imposed upon the Authority or the Company with respect to all or substantially all of the Project, including without limitation the imposition of federal, state or other ad valorem property, income or other taxes other than taxes in effect on the date of original issuance of the Bonds levied upon privately owned property used for the same general purpose as the Project; or (iii) Any court or regulatory or administrative body shall enter or adopt, or fail to enter or adopt, a judgment, order, approval, decree, rule or regulation, as a result of which the Company elects to cease operation of all or substantially all of the Project. *Special Optional Redemptions. The Bonds will also be subject to redemption at the option of the Authority exercised at the direction of the Company, in whole at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to the redemption date if the Company reasonably concludes and certifies to the Trustee that the business, properties, condition (financial or otherwise), operations or business prospects of the Company will be materially and adversely affected unless the Company takes or omits to take a specified action and that the Company has been advised in writing by Bond Counsel that either (x) the specified action or omission would adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds afforded by Section 103 of the Code, or (y) that the matter is subject to such doubt that such Bond Counsel is unable to advise the Company that the specified action or omission 62 16. would not adversely affect such exclusion. Such conclusion and certification shall be evidenced by delivery to the Trustee of a written certificate of an Authorized Company Representative to the effect that the Company has reached such conclusion, together with a copy of such advice of Bond Counsel. *During any Medium-Term Rate or the Fixed Rate Period, the Bonds will also be subject to redemption at the option of the Authority exercised at the direction of the Company at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to the redemption date if the Company reasonably concludes and certifies to the Trustee that the business, properties, condition (financial or otherwise), operations or business prospects of the Company will be materially and adversely affected unless the Company takes or omits to take a specified action and that the specified action or omission would cause the use of the Project to be such that, pursuant to Section 150 of the Code, the Company would not be entitled to deduct the interest on the Bonds for purposes of determining the Company's federal taxable income, for a period of not less than ninety consecutive or nonconsecutive days during a twelve-month period. Such conclusion and certification shall be evidenced by delivery to the Trustee of a written certificate of an Authorized Company Representative to the effect that the Company has reached such conclusion, together with a copy of written advice of Bond Counsel. In the event that the Bonds become subject to redemption as provided in this paragraph, the Bonds will be redeemed in whole unless redemption of a portion of the Bonds outstanding would, in the opinion of Bond Counsel, have the result that interest payable on the Bonds remaining outstanding after such redemption would be deductible for purposes of determining the federal taxable income of the Company, and, in such event, the Bonds shall be redeemed (in the principal amount equal to the current minimum authorized denomination or an integral multiple thereof) from time to time by lot or in such other manner as the Trustee shall in its discretion deem proper in order to assure each owner of Bonds a fair opportunity to have such owner's Bond or Bonds or portions thereof selected, in such amount as is necessary to accomplish that result. *Mandatory Redemption on Determination of Taxability. The Bonds will be redeemed in whole (or in part as provided below), at a redemption price equal to the principal amount thereof plus accrued and unpaid interest accrued thereon to the redemption date, on the first day of a month selected by the Authority at the direction of the Company (such direction also being delivered to the Trustee) within 180 days after the Company receives written notice from a Bondowner or former Bondowner or the Trustee of a final determination by the Internal Revenue Service or a court of competent jurisdiction that, as a result of a failure by the 63 17. Company to perform any of its agreements in the Participation Agreement or the inaccuracy, the failure to perform or breach of any of the representations, warranties, covenants or agreements of the Company in the Tax Regulatory Agreement or any requisition submitted pursuant to the Indenture, the interest paid or to be paid on any Bond (except to a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Internal Revenue Code of 1986, as amended) is or was included in the gross income of the Bond's owner for federal income tax purposes. No such determination will be considered final unless the Bondowner or former Bondowner involved in the determination gives the Company, the Authority and the Trustee prompt written notice of the commencement of the proceedings resulting in the determination and offers the Company, subject to the Company's agreeing to pay all expenses of the proceeding and to indemnify the owner against all liabilities that might result from it, including additional income tax liabilities as a result of interest accruing on the Bonds following commencement of such proceedings, the opportunity to control the defense of the proceeding and either the Company does not agree within 30 days to pay the expenses, indemnify the owner and control the defense or the Company exhausts or chooses not to exhaust available procedures to contest or obtain review of the result of the proceedings. Fewer than all the Bonds may be redeemed if, in the opinion of Bond Counsel, redemption of fewer than all would result in the interest payable on the Bonds remaining outstanding being not included in the gross income for federal income tax purposes of any owner other than a "substantial user" of the Project or a "related person." If fewer than all of the Bonds are redeemed, the Trustee will select the Bonds to be redeemed as provided in the Indenture. IF THE LIEN OF THE INDENTURE IS DISCHARGED AS DESCRIBED IN SECTION 10 BELOW PRIOR TO THE OCCURRENCE OF A FINAL DETERMINATION OF TAXABILITY AS DESCRIBED ABOVE, THE BONDS WILL NOT BE REDEEMED AS DESCRIBED IN THIS PARAGRAPH. *Notice of Redemption. At least 30 days before each redemption, the Trustee will mail a notice of redemption by first-class mail to each Bondowner at the owner's registered address. Failure to give any required notice of redemption as to any particular Bonds will not affect the validity of the call for redemption of any Bonds in respect of which no such failure occurs. Any notice mailed as provided in this paragraph will be conclusively presumed to have been given whether or not actually received by the addressee. *Effect of Notice of Redemption. When notice of redemption is required and given, Bonds called for redemption become due and payable on the redemption date at the applicable redemption price, except as otherwise provided herein; in such case 64 18. when funds are deposited with the Trustee sufficient for redemption or for the purchase of Bonds otherwise subject to redemption, interest on the Bonds to be redeemed or purchased ceases to accrue as of the date of redemption or purchase whether or not such Bond is delivered to the Trustee on such date. *7. Denominations, Transfer, Exchange. The Bonds are issued in registered form without coupons in denominations of $100,000 or any integral multiple of $100,000, except that during any Semi-Annual Rate Period, any Medium-Term Rate Period or the Fixed Rate Period, Bonds may be authenticated and delivered in denominations of $5,000 or any integral multiple of $5,000. Notwithstanding the foregoing, prior to the commencement of any Semi-Annual Rate Period or Medium-Term Rate Period or the Fixed Rate Period, the Authority at the request of the Company may direct the Trustee to authenticate Bonds only in denominations of $100,000 or any integral multiple of $100,000 during such Rate Period in accordance with the Indenture. An owner may register the transfer of or exchange Bonds in accordance with the Indenture. The Trustee may require an owner, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. After the Fixed Rate Conversion Date, the Trustee need not register the transfer of or exchange any Bond for the period beginning 15 days before mailing a notice of redemption of such Bond and ending on the redemption date. *The Depository Trust Company, New York, New York ("DTC") initially will act as Securities Depository for the Bonds. The ownership of one fully registered Bond in the aggregate principal amount of the Bonds will be registered in the name of Cede & Co., as nominee of DTC. Such Bond will be held in trust until its redemption or until such time as DTC or its nominee is no longer the registered owner of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bondowners or registered owners of the Bonds, shall mean Cede & Co. and shall not mean the beneficial owners of the Bonds. In the event that the book-entry-only system through DTC (or a successor securities depository) is discontinued as provided in the Indenture and the beneficial owners become registered owners of the Bonds, the provisions applicable to such registered owners, as set forth herein and in the Indenture, will apply. In the event that a book-entry-only system is reinstituted after discontinuance, Registered Owners will not be able to register the transfer of or tender their Bonds without first registering such Bonds in the book-entry-only system. *8. Persons Deemed Owners. The Registered Owner of this Bond may be treated by the Authority, the Company, the Trustee, the 65 19. Tender Agent and the Paying Agents as the owner of this Bond for all purposes. *9. Unclaimed Money. On or after the Fixed Rate Conversion Date and solely with respect to moneys not resulting from a draw on the Letter of Credit and not constituting remarketing proceeds, if money for the payment of principal, premium, interest or Purchase Price remains unclaimed for two years, the Trustee will, upon request of the Company, pay the money to or for the account of the Company. After that, owners entitled to the money must look only to the Company and not to the Trustee or the Bank for payment unless an applicable abandoned property law designates another person. *10. Discharge Before Redemption or Maturity. If at any time there shall have been delivered to the Trustee for cancellation all the Bonds (other than any Bonds which have been mutilated, lost, stolen or destroyed and which shall have been replaced or paid as provided in the Indenture, except for any such Bonds as are shown by proof satisfactory to the Trustee to be held by bona fide owners), or with respect to all the Bonds not theretofore delivered to the Trustee for cancellation, the whole amount of the principal and the interest and the premium, if any, due and payable on such Bonds then outstanding shall be paid or deemed to be paid as set forth in the Indenture, and provision shall also be made for paying all other sums payable thereunder, including the Authority's, the Indexing Agent's, Remarketing Agents', Paying Agent's, Trustee's and Tender Agent's fees and expenses, then the Bonds shall be deemed paid and the Trustee, in such case, on demand of the Authority or the Company, shall acknowledge the discharge of the Authority's obligations under the Indenture with respect to such Bonds and under the Bonds and deliver to the Company the Company Note and deliver to the Bank the Letter of Credit, and shall execute such documents as may be reasonably required by the Authority and the Company to evidence such discharge, all as more fully set forth in Article XIV of the Indenture. If the Company at any time deposits with the Trustee money or Investment Obligations sufficient to pay at redemption or maturity principal of and interest on or the Purchase Price of the outstanding Bonds, and if the Company also pays all other sums then payable by the Company under the Indenture, the Indenture (except for the Rebate Fund established pursuant to the Indenture) will be discharged. After discharge, Bondowners may look only to the deposited money and securities for payment. Investment Obligations are securities backed by the full faith and credit of the United States or securities evidencing ownership interest in such full-faith-and-credit securities. 66 20. *11. Amendment, Supplement, Waiver. Subject to certain exceptions, the Indenture, the Participation Agreement or the Bonds may be amended or supplemented with the consent of the owners of not less than two-thirds in aggregate principal amount of the Bonds, and any past default or noncompliance with any provision may be waived with the consent of the owners of a majority in aggregate principal amount of the Bonds. Without the consent of any Bondowner, the Authority may amend or supplement the Indenture, the Participation Agreement or the Bonds as described in the Indenture in order to, among other things, cure any ambiguity, omission, defect or inconsistency, provide for uncertificated Bonds in addition to or in place of certificated Bonds, to the extent permitted by law, or make any change that does not materially adversely affect the rights of any Bondowner. *12. Defaults and Remedies. The Indenture provides that the occurrences of certain events constitute Events of Default. An Event of Default and its consequences may be waived as provided in the Indenture. Bondowners may not enforce the Indenture or the Bonds except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Bonds unless it receives indemnity satisfactory to it. Subject to certain limitations, owners of a majority in principal amount of the Bonds may direct the Trustee in its exercise of any trust or power. *13. Abbreviations. Customary abbreviations may be used in the name of a Bondowner or an assignee, such as TEN COM (= tenants in common), TEN ENT (= Tenants by the entireties), JT WROS (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). *14. Remarketing Agents; Indexing Agent; Tender Agent. The Authority has appointed Lehman Brothers Inc. and Dillon, Read & Co. Inc., as the initial Remarketing Agents under the Indenture. The Authority may from time to time, at the request of the Company, remove or replace one or more of the Remarketing Agents. The Authority has appointed Kenny Information Systems Inc. as Indexing Agent under the Indenture. The Authority may from time to time, at the request of the Company, remove the Indexing Agent and appoint a different nationally recognized municipal securities evaluation service to serve as Indexing Agent. The Authority has appointed Chemical Bank as Tender Agent under the Indenture. The Authority may from time to time, at the request of the Company, remove or replace the Tender Agent. This Bond shall not be entitled to any benefit under the Indenture or be valid or become obligatory for any purpose until 67 21. this Bond shall have been authenticated by the execution by the Trustee or the Tender Agent of the Certificate of Authentication hereon. No covenant or agreement contained in this Bond or the Indenture shall be deemed to be a covenant or agreement of any member or employee of the Authority in his or her individual capacity, and neither the members of the Authority nor any officer thereof executing this Bond shall be liable personally on this Bond or be subject to any personal liability or accountability by reason of the issuance of this Bond. The Bonds are not a debt of the State of New York and the State of New York shall not be liable thereon. It is hereby certified and recited that all conditions, acts and things required by law and the Indenture to exist, to have happened and to have been performed precedent to and for the issuance of this Bond, exist, have happened and have been performed, and that the issuance of this Bond and the issue of which it forms a part are within every debt and other limit prescribed by the laws of the State of New York. 68 22. IN WITNESS WHEREOF, the Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its Chair, Vice-Chair, President or Treasurer and its seal or a facsimile thereof to be impressed, imprinted or otherwise reproduced hereon and attested by the manual or facsimile signature of its Secretary or an Assistant Secretary, as of the date set forth below. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By ---------------------------- Chair Attest: - --------------------- Secretary Dated: [Form of Trustee's or Tender Agent's Authentication on Bonds] CERTIFICATE OF AUTHENTICATION This Bond is one of the Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series A, described in the within-mentioned Indenture. Chemical Bank Chemical Bank as Trustee as Tender Agent By By ------------------------ ------------------------ 69 23. The Authority may, in its discretion, cause any or all of the paragraphs preceded by the symbol "*" to be printed on the reverse of the Bonds, in which event the face of the Bonds shall state the following: THE TERMS AND PROVISIONS OF THIS BOND ARE CONTINUED ON THE REVERSE SIDE HEREOF AND SUCH CONTINUED TERMS AND CONDITIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. In the event that some but not all of such paragraphs are printed on the reverse of the Bonds, the numbering of such paragraphs may be revised accordingly. The language contained in the preceding paragraph and the paragraphs preceded by the symbol "*" may be deleted for Bonds issued in temporary form or delivered to a Securities Depository for book-entry-only registration and the language to be contained on the reverse side of definitive Bonds and Bonds not in book-entry-only form may be incorporated by reference, in which event the Bonds shall state the following after the second paragraph of the Bonds: REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH IN THE FORM OF BONDS IN THE INDENTURE, WHICH PROVISIONS COMPRISE THE PARAGRAPHS IDENTIFIED BY THE INDENTURE AS APPEARING ON THE REVERSE OF THE BONDS AND SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. [END OF BOND FORM] 70 24. WHEREAS, the Trustee has accepted the trusts created by the Indenture and in evidence thereof has joined in the execution hereof; GRANTING CLAUSE NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in consideration of the premises, of the acceptance by the Trustee of the trusts hereby created, and of the purchase and acceptance of the Bonds by the owners thereof, and also for and in consideration of the sum of One Dollar ($1.00) to the Authority in hand paid by the Trustee at or before the execution and delivery of the Indenture, the receipt of which is hereby acknowledged, and for the purpose of fixing and declaring the terms and conditions upon which the Bonds are to be issued, authenticated, delivered, secured and accepted by all Persons who shall from time to time be or become owners thereof, and in order to secure the payment of all the Bonds at any time issued and outstanding hereunder and the interest and the redemption premiums, if any, thereon according to their tenor, purport and effect, and in order to secure the performance and observance of all the covenants, agreements and conditions therein or herein contained, the Authority has executed and delivered the Indenture, has caused the Company to deliver to the Trustee the Company Note executed by the Company pursuant to the Participation Agreement and the Company has caused the Bank (hereinafter referred to) to deliver the Letter of Credit (hereinafter referred to) to the Trustee, and the Authority does hereby assign and pledge to the Trustee, for the benefit of such Bondowners, as security for the payment of the principal of and premium, if any, and interest on the Bonds in accordance with their terms and the provisions of the Indenture, subject only to the provisions of the Indenture, permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, (i) the rights and interest of the Authority under the Participation Agreement (except the rights and interest of the Authority under Article III and Sections 4.04, 4.08, 4.09, 4.10 and 5.16 of the Participation Agreement and subject to the provisions of the Participation Agreement relating to the amendment thereof), (ii) the rights and interest of the Authority under the Tax Regulatory Agreement (as defined herein), subject to a reservation by the Authority of a right to independently enforce the obligations of the Company thereunder and to the provisions of the Tax Regulatory Agreement relating to the amendment thereof, (iii) the proceeds of sale of the Bonds and (iv) all funds held by the Trustee under the Indenture and available for the payment of Bonds under the terms of the Indenture (expressly not including in such Funds the Rebate Fund) and the income earned by the investment of such funds held under the Indenture; in addition, the Authority hereby grants the Trustee the same power as the Authority to enforce from time to 71 25. time the rights of the Authority set forth in Article III and Section 5.16 of the Participation Agreement, subject to the provisions of the Participation Agreement relating to the amendment thereof. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Bonds from time to time issued and secured hereunder are to be issued, authenticated and delivered, and all said property, rights and interest, including, without limitation, the amounts hereby assigned and pledged, are to be dealt with and disposed of subject to the terms of the Indenture, and the Authority agrees with the Trustee and with the respective owners, from time to time, of said Bonds or any part thereof as follows: 72 26. ARTICLE I DEFINITIONS; LIABILITY UNDER BONDS; INDENTURE TO CONSTITUTE CONTRACT Section 1.01. Definitions. The terms defined in this Section 1.01 shall for all purposes of the Indenture have the meanings herein specified, unless the context clearly otherwise requires: Act shall mean the New York State Energy Research and Development Authority Act, Title 9 of Article 8 of the Public Authorities Law of the State of New York, as from time to time amended and supplemented. Act of Bankruptcy shall mean the filing of a petition commencing a case by or against the Company or any of its Affiliates or the Authority under the United States Bankruptcy Code, Title 11, United States Code, as the same may be amended from time to time, or any successor law, or the filing of a petition or the seeking of relief by or against the Company or the Authority under any state bankruptcy or insolvency law. Administration Fees shall mean the amounts payable by the Company to the Authority pursuant to Section 4.04 of the Participation Agreement to defray a portion of the expenses incurred by the Authority in conducting and administering its special energy project programs and the amount payable to the State of New York as a bond issuance charge in connection with the Bonds. Affiliate of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Alternate Credit Facility shall mean any instrument satisfactory to the Authority, such as a letter of credit, committed line of credit, insurance policy, surety bond or standby bond purchase agreement, or any combination of the foregoing, and issued by a bank or banks, insurance company or companies, other financial institution or institutions, or any combination of the foregoing, which Alternate Credit Facility provides for the payment of (i) the purchase price equal to the principal of and accrued interest on Bonds delivered to the Remarketing Agents or any 73 27. depository or other party pursuant to the provisions hereof or of a Remarketing Agreement and discount, if any, incurred in remarketing such Bonds, and/or (ii) principal of and interest on all Bonds coming due and payable during the term thereof, and is issued in substitution for and having, in all material respects, the same terms as the Letter of Credit in accordance with, and pursuant to, Section 4.12 of the Participation Agreement. Authority shall mean New York State Energy Research and Development Authority, the public benefit corporation created by the Act, and its successors and assigns. Authorized Company Representative shall mean any officer or other employee of the Company at the time designated to act on behalf of the Company by written certificate furnished to the Authority and the Trustee containing the specimen signature of such person and signed on behalf of the Company by its President or a Vice President and its Treasurer, Assistant Treasurer, Secretary or an Assistant Secretary. authorized denomination means (a) during any Weekly Rate Period or any Money Market Municipal Rate Period, $100,000 or any larger integral multiple of $100,000, and (b) during any Semi-Annual Rate Period, any Medium-Term Rate Period or the Fixed Rate Period, $5,000 or any integral multiple thereof. Notwithstanding the foregoing, at the time of any conversion to a Semi-Annual Rate Period, Medium-Term Rate Period or the Fixed Rate Period, the Authority at the request of the Company may direct the Trustee to authenticate and deliver Bonds only in denominations of $100,000 or any larger integral multiple of $100,000 during such Rate Period. Authorized Officer means the Chair, Vice-Chair, President, Treasurer, Assistant Treasurer or Secretary of the Authority. Available Moneys shall mean (a) with respect to any date for the payment of principal, premium, interest or Purchase Price on the Bonds occurring during the term of the Letter of Credit, moneys which have been on deposit with the Trustee, the Tender Agent or the Paying Agent in the Bond Fund or in a separate and segregated account for the purpose of purchasing or redeeming Bonds for at least 123 days during and prior to which no Act of Bankruptcy, as evidenced by a certificate of the Company and the Authority respectively, shall have occurred unless the proceeding arising from such Act of Bankruptcy shall have been dismissed and such dismissal shall be final and not subject to appeal, and the proceeds from the investment thereof, and (b) with respect to any date for the payment of principal, interest or premium, if any, on the Bonds not occurring during the term of the Letter of Credit, 74 28. any moneys furnished to the Trustee and the proceeds from the investment thereof. Bank means The Toronto-Dominion Bank, Houston Agency, the issuer of the initial Letter of Credit, in its capacity as issuer of the Letter of Credit, the issuer of any Alternate Credit Facility and each of their successors in such capacity. Bond or Bonds shall mean any bond or bonds or all the bonds, as the case may be, of the Authority executed, authenticated and delivered under the Indenture. Bond Counsel shall mean an attorney or firm or firms of attorneys, satisfactory to the Authority and the Trustee, experienced in laws relating to tax exemption of interest on bonds of states and their political subdivisions. Bond Fund shall mean the Bond Fund created in Section 6.01. Bond Register shall have the meanings specified in Section 2.11. Bond Year shall mean each one-year period (or shorter period from the issue date) that ends at the close of business each November 1. Business Day means any day other than (1) Saturday or Sunday, (2) a day of the year on which banks located in (i) The City of New York, New York, (ii) the city in which the Corporate Trust Office of the Trustee is located are authorized or obligated by law or executive order to remain closed, or (3) any other day not defined as a "business day" under the Letter of Credit. Calculation Period shall mean during any Money Market Municipal Rate Period, any period or periods from and including a Business Day to and including any day not more than 364 (during any year other than a "leap year") or 365 (during any "leap year") days, as the case may be, thereafter which is a day immediately preceding a Business Day established by the Remarketing Agents pursuant to Section 2.03(d). Code shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder or officially proposed to be promulgated thereunder. Company shall mean Long Island Lighting Company, or any corporation which is the surviving, resulting or transferee 75 29. corporation in any merger, consolidation or transfer of assets permitted under the Participation Agreement. Company Indenture shall mean collectively, (i) the Indenture of Mortgage and Deed of Trust, dated as of September 1, 1951, from the Company to IBJ Schroder Bank and Trust Company (formerly J. Henry Schroder Bank & Trust Company) as trustee, as amended and supplemented and (ii) the General and Refunding Indenture dated as of June 1, 1975, from the Company to United States Bank & Trust Company of New York (as successor trustee), as amended and supplemented. Company Note shall mean the promissory note of the Company executed and delivered to the Trustee as provided in Section 4.01 of the Participation Agreement. Company Note Payments shall mean the amounts payable by the Company under the Company Note. completed or completion, when used with reference to the Project as of a stated date, shall mean that the Project has been constructed substantially in accordance with the description thereof (notwithstanding that substantial additions or modifications thereto are planned, and notwithstanding that additional licensing or testing may be required with respect to the Project), and that the Company does not intend to submit any further requisitions pursuant to Section 3.03 of the Participation Agreement with respect to the Project. Completion Date shall mean the date specified by an Authorized Company Representative pursuant to Section 3.05 of the Participation Agreement. Component Issuers means issuers of securities, the interest on which is excluded from gross income for federal income tax purposes, selected by the Indexing Agent in accordance with the Indenture. Computation Period shall have the meaning ascribed to such term in the Tax Regulatory Agreement. construction, when used with respect to the Project, shall include, without limitation, the construction, acquisition and installation of the Project. Conversion Date means each day on which the Interest Rate Determination Method applicable to the Bonds shall be converted from one Interest Rate Determination Method to a different Interest Rate Determination Method or each day on which the interest rate on 76 30. the Bonds shall be converted from a Medium-Term Rate applicable for a Medium-Term Rate Period of one duration to a Medium-Term Rate applicable for a Medium-Term Rate Period of a different duration, as the case may be, in accordance with Section 2.04. With respect to notices, time periods and requirements in connection with the proceedings for such conversion, "Conversion Date" means the day on which it is proposed that such conversion occur. Conversion Notice shall have the meaning set forth in Section 2.04(a)(1). Corporate Trust Office, when used in connection with the Trustee, shall mean the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 450 West 33rd Street, 15th Floor, New York, New York 10001, Attention: Corporate Trustee Administration Department and when used in connection with the Tender Agent shall mean its principal office located at 55 Water Street, Room 234, North Building, New York, New York 10041, Attention: Corporate Tellers. Cost of Construction shall mean all costs incurred by the Company at any time prior to or after delivery of the Bonds for or in connection with the construction of the Project and shall include, but not be limited to, (a) obligations of the Company incurred for labor, services, materials and other expenses and to contractors, builders and materialmen in connection with the construction of the Project; (b) the cost of acquiring necessary land or rights in land and any costs incidental thereto; (c) the cost of contract bonds and of insurance of all kinds that may be required or necessary prior to the Completion Date which is not paid by the contractor or contractors or otherwise provided for; (d) expenses of the Company (including overhead charges) in connection with the preparation of plans and specifications for the Project (including any architectural, engineering or other professional fees or the cost of any preliminary investigations for the Project), and for supervising construction, as well as for the performance of all other duties required by or appropriate to the construction of the Project; (e) the fees, compensation and expenses (including reasonable counsel fees) of the Trustee, the Tender Agent, any Paying Agent, the Bank, the Indexing Agent and the Remarketing Agents incurred prior to the Completion Date of the Project and the legal, accounting, financial (including compensation to underwriters), printing, bond rating and other fees and expenses incurred in connection with the issuance, purchase and sale of the Bonds or any other obligations issued or incurred by the Authority pursuant to an agreement with the Company in connection with the Project, including, but not limited to, the Administration Fees or any other fees of the Authority; (f) taxes, 77 31. assessments and other charges, if any, payable in connection with the construction and owning of the Project prior to the Completion Date; (g) interest due and payable on the Bonds or any other obligations issued or incurred by the Authority pursuant to an agreement with the Company or by the Company in connection with the Project from the date of issuance thereof to the Completion Date of the Project; (h) the costs of testing the Project and obtaining any required permit, consent, license or approval for the Project, to the extent such costs shall have been incurred prior to the Completion Date; (i) any amount payable to the United States of America in connection with the Bonds pursuant to Section 148(f) of the Code; and (j) any sums required to reimburse the Company for advances and payments made by it at any time prior to or after delivery of the Bonds for any of the above items, or for any other cost incurred or work done by the Company with respect to the Project. Debt Service Account shall mean the account in the Bond Fund so designated and created pursuant to Section 6.01. description, when used with reference to the Project, shall mean the description of the Project set forth in Exhibits A and B to the Participation Agreement, as such description may be amended in accordance with the Participation Agreement. Determination Date shall mean the first day of each Calculation Period. Electric Facilities shall mean facilities of the Company for the furnishing of electric energy which are required by the public interest in development, health, recreation, safety, conservation of natural resources or aesthetics or which constitute "special energy projects" within the meaning of the Act and which constitute facilities for the local furnishing of electric energy or other "exempt facilities" within the meaning of Section 142(a)(8) of the Code. Event of Default shall mean any event of default specified in Section 10.01. First Interest Period means the period described as such in Section 2.03(a). Fixed Rate means the Fixed Rate established in accordance with Section 2.03(f). Fixed Rate Period means the period from and including the Fixed Rate Conversion Date to and including the date of maturity of the Bonds. 78 32. Fixed Rate Conversion Date means the Conversion Date on which the interest rate on the Bonds shall be converted to the Fixed Rate. Fixed Rate Index means the average of the yield evaluations (on the basis of full coupon securities trading at par with a term approximately equal to the Fixed Rate Period) of securities (whether or not actually issued), the interest on which is not included in gross income for federal income tax purposes, of not fewer than twenty component issues, which shall be issues of bonds selected by the Indexing Agent and which have a rating by a Rating Agency in the same rating category as the bonds of the Authority secured by unsecured promissory notes of the Company are rated at the time by such rating agency (or if the Bonds are to be supported by some form of credit enhancement, which have a rating by a Rating Agency in the same rating category as the Bonds of the Authority supported by such credit enhancement are rated at the time by such Rating Agency) or, if no such bonds are so rated, shall be debt which, in the judgment of the Indexing Agent, is of credit quality comparable to that of such bonds, computed by the Indexing Agent on the day described in Section 2.03(f). In the event that the Indexing Agent fails to compute the Fixed Rate Index and no other qualified municipal securities evaluation service can be appointed Indexing Agent by the Authority, the Fixed Rate Index shall be determined by the Remarketing Agents and shall be 90% of the average yield shown for the most recent calendar month for United States Treasury Notes or Bonds having the same number of years to maturity as the number of 12-month periods (or months if the Fixed Rate Period is less than one year) in the Fixed Rate Period, as published in the Federal Reserve Bulletin in the last issue before the Computation Date. If that issue does not contain such a yield, the Fixed Rate Index will be determined by linear interpolation between the yields shown in that issue for United States Treasury Notes and Bonds having the next shorter and next longer number of years (or months) to maturity. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority may designate a new method of setting the Fixed Rate Index in the event any of the above-described methods are unavailable, impracticable or unrealistic in the market place. Indenture shall mean the Indenture of Trust, as from time to time amended or supplemented in accordance with the terms hereof. 79 33. Indexing Agent shall mean the indexing agent appointed in accordance with Section 15.03, and its successor or successors appointed pursuant to the provisions of the Indenture. Interest Payment Date means (i) during any Weekly Rate Period, the first Business Day of each calendar month; (ii) each Conversion Date; (iii) during any Semi-Annual Rate Period or Medium-Term Rate Period the first day of each of two months which are six months apart, as specified in a certificate of an Authorized Officer delivered to the Trustee prior to the Conversions to a Semi-Annual Rate Period or Medium-Term Rate Period, provided, however, if the last such day occurring in any Semi-Annual Rate Period is not a Business Day then the first Business Day thereafter shall be the Interest Payment Date, provided, further, however, if any Interest Payment Date in a Semi-Annual Rate Period, determined as set forth above, would cause such Semi-Annual Rate Period to extend for a period in excess of 182 days, the Interest Payment Date for such Semi-Annual Rate Period shall be the last Business Day occurring within such Semi-Annual Rate Period that does not cause such Semi-Annual Rate Period to exceed 182 days in duration; (iv) during the Fixed Rate Period, each May 1 and November 1; (v) during each Money Market Municipal Rate Period, the first Business Day after any Calculation Period; and (vi) the Maturity Date. The first Interest Payment Date shall be December 1, 1993. If prior to the conversion to a Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, an Officer's Certificate shall be delivered to the Trustee specifying different Interest Payment Dates for such Rate Period together with an Opinion of Bond Counsel to the effect that such adjustment will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes, then the Interest Payment Dates for such Rate Period shall be so adjusted; provided, however, that no such adjustment shall result in the establishment of Interest Payment Dates between which more than six months would pass. Interest Period means the period from and including any Interest Payment Date to and including the day next preceding the following Interest Payment Date. Interest Rate Determination Method means any of the methods of determining the interest rate on the Bonds described in Section 2.03. Issue Date means the date on which the Bonds are delivered to the purchaser or purchasers thereof upon original issuance. 80 34. Investment Obligations shall have the meaning assigned to that term in Section 14.01.2. Letter of Credit shall mean that irrevocable letter of credit issued and delivered to the Trustee pursuant to, and in the form of Exhibit A to, the Reimbursement Agreement (including any extensions of such letter of credit) and, upon the issuance and delivery of an Alternate Credit Facility, "Letter of Credit" shall mean such Alternate Credit Facility. Letter of Credit Account shall mean the account in the Bond Fund so designated and created pursuant to Section 6.01. Mandatory Purchase Date means a date on which the Bonds are required to be purchased in accordance with Section 2.05(e). Maturity Date shall mean November 1, 2023. Medium-Term Adjustment Date means the first day of each Medium-Term Rate Period that does not occur on a Conversion Date and as of which a new interest rate is established pursuant to Section 2.03(e). Medium-Term Rate means the interest rate on the Bonds established from time to time under Section 2.03(e). Medium-Term Rate Index means the average of the yield evaluations at par, determined by the Indexing Agent, of securities (whether or not actually issued), having a term approximately equal to the Medium-Term Rate Period or which are subject to optional or mandatory tender by the owner thereof at the end of a term approximately equal to the Medium-Term Rate Period, the interest on which is not included in gross income for federal income tax purposes, of at least twenty Component Issuers selected by the Indexing Agent, computed by the Indexing Agent as of the Business Day preceding each date on which the Medium-Term Rate is determined by the Remarketing Agents. When the Bonds are rated by a Rating Agency or shall be subject to the benefits of a Letter of Credit and the Bank has issued letters of credit to support other debt obligations rated by a Rating Agency in one of its two highest long-term debt rating categories, each Component Issuer must have outstanding securities rated by a Rating Agency in one of its two highest long-term debt rating categories. If the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by a Rating Agency in a rating category that is lower than its two highest long-term debt rating categories (and the Bonds or other debt obligations supported by letters of credit issued by the Bank are not rated in one of the two highest such categories by the other Rating Agency), each Component Issuer must 81 35. have outstanding securities rated by a Rating Agency in the same long-term debt rating category as the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by that Rating Agency. The Indexing Agent may change the Component Issuers from time to time in its discretion, subject to the foregoing requirements. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority may designate a new method of setting the Medium-Term Rate Index in the event any of the above-described methods are unavailable, impracticable or unrealistic in the market place. Medium-Term Rate Period means Medium-Term Rate Period as defined in Section 2.03(e). Money Market Municipal Rate shall mean an interest rate established pursuant to Section 2.03(d). Money Market Municipal Rate Index shall mean with respect to the first day of each Calculation Period during a Money Market Municipal Rate Period, the average of yield evaluations at par, determined by the Indexing Agent, of securities (whether or not actually issued) all of which shall have a term as near as practicable to such Calculation Period or which are subject to optional or mandatory tender by the owner thereof at the end of a term as near as practicable to such Calculation Period, the interest on which is not included in gross income for federal income tax purposes, of no fewer than twenty Component Issuers selected by the Indexing Agent, including issuers of commercial paper, project notes, bond anticipation notes and tax anticipation notes, computed by the Indexing Agent on and as of such day. If the Bonds are rated by a Rating Agency or are subject to the benefits of a Letter of Credit and the issuer of such Letter of Credit has issued letters of credit to support other debt obligations rated by a Rating Agency in its highest note or commercial paper rating category or one of its two highest long-term debt rating categories, each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its highest note or commercial paper rating category or (b) not have outstanding notes or commercial paper rated by a Rating Agency but have outstanding securities rated by a Rating Agency in one of its two highest long-term debt rating categories. If the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by a Rating Agency in a rating category that is lower than its highest note or commercial paper rating category or its two highest long-term debt rating categories (and the Bonds or other debt obligations supported by letters of credit issued by the 82 36. Bank are not rated in one of such categories by the other Rating Agency), each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its note or commercial paper rating category which is the same or correlative, in the Indexing Agent's judgment, to the note or commercial paper rating category or the long-term debt rating category of the Bonds or the other debt obligations supported by letters of credit issued by the Bank or (b) have outstanding securities rated by a Rating Agency in the same long-term debt rating category as the Bonds or the other debt obligations supported by letters of credit issued by the Bank are rated by that Rating Agency and not have any outstanding notes or commercial paper rated by such Rating Agency. The Indexing Agent may change the Component Issuers from time to time in its discretion, subject to the foregoing requirements. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that, under then-existing statutes and court decisions, such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority, with the consent of the Company, may designate a new method of setting the Money Market Municipal Rate Index in the event any of the above-described methods are determined by the Authority to be unavailable, impracticable or unrealistic in the market place. Money Market Municipal Rate Period means Money Market Municipal Rate Period as defined in Section 2.03(d). Money Market Municipal Rate Period Record Date shall mean, with respect to each Interest Payment Date during a Money Market Municipal Rate Period, the Business Day next preceding such Interest Payment Date. Moody's shall mean Moody's Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company, by written notice to the Trustee, the Company, the Remarketing Agents and the Indexing Agent. Officer's Certificate shall mean a certificate signed by an Authorized Officer. Opinion of Bond Counsel shall mean a written opinion of Bond Counsel. 83 37. Optional Retention Date means each day which is one Business Day prior to each Mandatory Purchase Date established pursuant to Section 2.05(e). Nothing in the Indenture shall be deemed to provide any Bondowner the right contrary to Section 2.05(e)(4) to retain Bonds subject to mandatory purchase under Section 2.05(e). Optional Retention Notice Date means the fifth Business Day prior to a Mandatory Purchase Date. Optional Tender Date means (i) during any Weekly Rate Period, any Business Day; provided that such Business Day is at least seven days after notice of such tender is delivered in accordance with Section 2.05(a), and (ii) during any Semi-Annual Rate Period, each Interest Payment Date; provided that notice of such tender has been given in accordance with Section 2.05(b). Other Facilities shall mean the facilities described in Exhibit B to the Participation Agreement. outstanding, when used with reference to Bonds, shall mean, as of any particular date, the aggregate of all Bonds authenticated and delivered under the Indenture, except (a) Bonds cancelled by the Trustee or delivered to the Trustee for cancellation at or prior to such date; (b) Bonds for the payment or redemption of which Available Moneys in the necessary amount have been theretofore deposited with the Trustee or any Paying Agent for the owners of such Bonds, provided that if such Bonds are to be redeemed, notice of such redemption has been duly given pursuant to the Indenture or provision therefor satisfactory to the Trustee has been made; (c) Bonds paid or deemed to be paid as provided in Section 14.01; (d) Bonds in lieu of or in substitution for which other Bonds shall have been authenticated and delivered pursuant to the Indenture, unless proof satisfactory to the Trustee shall be presented that any such Bond shall be held by a bona fide purchaser (as such term is defined in the Uniform Commercial Code of the State of New York); and (e) Bonds deemed to be tendered for purchase pursuant to Section 2.03(h) and not delivered to the Trustee (but not Bonds issued in replacement thereof and 84 38. remarketed or delivered in respect thereof pursuant to Section 2.07); provided, however, that in determining whether the owners of the requisite principal amount of Bonds outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Bonds held by the Tender Agent or held by or for the account of the Company shall be disregarded and deemed not to be outstanding, except, that in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Bonds which a Responsible Officer of the Trustee knows to be so held shall be so disregarded. Bonds so held which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Bonds and that the pledgee is not the Company and that the pledgee is not holding for the account of the Company. Owner or Bondowner or, when used with respect to an owner of Bonds, owner shall mean the Registered Owner of any Bond. Participation Agreement shall mean the Participation Agreement dated as of November 1, 1993, between the Authority and the Company, as amended and supplemented by Supplemental Participation Agreements from time to time. Paying Agent shall mean any paying agent or co-paying agent for the Bonds (and may include the Trustee) and its successor or successors appointed pursuant to the provisions of the Indenture. Person shall mean an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. Project shall mean the Electric Facilities described in Exhibit A to the Participation Agreement and the Other Facilities. Project Fund shall mean the Project Fund created in Section 5.01. Purchase Date means any Mandatory Purchase Date, Conversion Date, Medium-Term Adjustment Date or any date on which Bonds are subject to mandatory tender for purchase pursuant to Section 2.05(g) or Section 2.05(j). 85 39. Purchase Price means an amount equal to 100% of the principal amount of any Bond tendered or deemed tendered to the Tender Agent for purchase pursuant to Section 2.05 (or an amount equal to any applicable optional redemption price on such date if such Bonds are to be purchased on a Conversion Date occurring during a Medium-Term Rate Period in accordance with Section 2.04), plus accrued and unpaid interest thereon to the date of purchase; provided, however, if the date of such purchase occurs after the Record Date applicable to the interest accrued on such Bond from the last occurring Interest Payment Date, then the Purchase Price shall not include accrued and unpaid interest, which shall be paid to the owner of record on the applicable Record Date. Rate means the Weekly Rate, Money Market Municipal Rate, Semi-Annual Rate, Medium-Term Rate or Fixed Rate. Rate Index means the Weekly Rate Index, the Semi-Annual Rate Index, the Medium-Term Rate Index, the Money Market Municipal Rate Index or the Fixed Rate Index. Rate Period means any Weekly Rate Period, Semi-Annual Rate Period, Medium-Term Rate Period, Money Market Municipal Rate Period or Fixed Rate Period. Rating Agency means Moody's or S&P. Rating Category shall mean one of the generic rating categories of a Rating Agency, without regard to any refinement or gradation of such rating category by a numerical modifier, plus or minus sign, or otherwise. Rebate Amount shall have the meaning ascribed to such term in the Tax Regulatory Agreement. Rebate Fund shall mean the Rebate Fund created in Section 5.07. Record Date means with respect to each Interest Payment Date (i) during any Weekly Rate Period or Money Market Municipal Rate Period, the Business Day next preceding such Interest Payment Date, and (ii) during any Semi-Annual Rate Period or Medium-Term Rate Period or Fixed Rate Period, the Trustee's close of business on the fifteenth day of the calendar month next preceding such Interest Payment Date. Registered Owner shall mean the Person or Persons in whose name or names the particular Bond shall be registered on the Bond Register. 86 40. Reimbursement Agreement means the Letter of Credit and Reimbursement Agreement dated as of November 1, 1993, between the Company, and The Toronto-Dominion Bank, Houston Agency, and any and all modifications, alterations, amendments and supplements thereto and, upon the issuance and delivery of an Alternate Credit Facility, "Reimbursement Agreement" shall mean the letter of credit and reimbursement agreement (or other document performing a similar function) relating to such Alternate Credit Facility. Remarketing Agents means the remarketing agent or agents appointed in accordance with Section 15.01, and any successor or successors appointed pursuant to the provisions of the Indenture. Remarketing Agreement shall mean the Remarketing Agreement with respect to a particular Interest Rate Determination Method then in effect between the Company and the Remarketing Agents. Responsible Officer, when used with respect to the Trustee, means an officer of the Trustee assigned to the Corporate Trustee Administration Department of the Trustee to whom any matter is referred because of his or her knowledge of and familiarity with the particular subject. S&P shall mean Standard & Poor's Corporation, a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company, by notice to the Trustee, the Company, the Remarketing Agents and the Indexing Agent. Securities Depository means a Bondowner acting as a central securities depository as provided in Section 2.11(b). Semi-Annual Adjustment Date means Semi-Annual Adjustment Date as defined in Section 2.03(c). Semi-Annual Rate means the interest rate on the Bonds established from time to time pursuant to Section 2.03(c). Semi-Annual Rate Index means the average of six-month yield evaluations at par, determined by the Indexing Agent, of securities (whether or not actually issued), the interest on which is not included in gross income for federal income tax purposes, of at least twenty Component Issuers selected by the Indexing Agent, including issuers of commercial paper, project notes, bond 87 41. anticipation notes and tax anticipation notes, computed by the Indexing Agent as of the Business Day next preceding each date on which the Semi-Annual Rate is determined by the Remarketing Agents. When the Bonds are rated by a Rating Agency or shall be subject to the benefits of a Letter of Credit and the Bank has issued letters of credit to support other debt obligations rated by a Rating Agency in its highest note or commercial paper rating category or one of its two highest long-term debt rating categories, each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its highest note or commercial paper rating category or (b) not have outstanding notes or commercial paper rated by a Rating Agency but have outstanding securities rated by a Rating Agency in one of its two highest long-term debt rating categories. If the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by a Rating Agency in a rating category that is lower than its highest note or commercial paper rating category or its two highest long-term debt rating categories (and the Bonds or other debt obligations supported by letters of credit issued by the Bank are not rated in one of such categories by the other Rating Agency), each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its note or commercial paper rating category which is the same or correlative, in the Indexing Agent's judgment, to the note or commercial paper rating category or the long-term debt rating category of the Bonds or other debt obligations supported by letters of credit issued by the Bank or (b) have outstanding securities rated by a Rating Agency in the same long-term debt rating category as the Bonds or the other debt obligations supported by letters of credit issued by the Bank are rated by that Rating Agency and not have any outstanding notes or commercial paper rated by such Rating Agency. The Indexing Agent may change the Component Issuers from time to time in its discretion, subject to the foregoing requirements. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority may designate a new method of setting the Semi-Annual Rate Index in the event any of the above-described methods are unavailable, impracticable or unrealistic in the market place. Semi-Annual Rate Period means Semi-Annual Rate Period as defined in Section 2.03(c). Subseries means any Subseries of Bonds established pursuant to Section 2.01 and references to the Bonds of any Subseries shall include all Bonds at any particular point in time designated as the Bonds of such Subseries in accordance with the provisions of the Indenture. 88 42. Supplemental Indenture shall mean any indenture supplementary or amendatory to the Indenture now or hereafter duly executed and delivered in accordance with the provisions hereof. Supplemental Participation Agreement shall mean an agreement supplementing or amending the Participation Agreement. Tax Regulatory Agreement shall mean the Tax Regulatory Agreement dated the date of the original issuance of the Bonds between the Authority and the Company and any and all modifications, alterations, amendments and supplements thereto. Tender Agent shall mean Chemical Bank, a banking corporation organized under the laws of the State of New York, having its principal office in The City of New York, New York, and its successor or successors as Tender Agent under the Indenture. Trustee shall mean Chemical Bank, a banking corporation organized under the laws of the State of New York, having its principal corporate trust office in New York, New York, in its capacity as trustee under the Indenture, and its successor or successors as trustee under the Indenture. Untendered Bond means any Untendered Bond as defined in Section 2.05(f). Weekly Rate means the interest rate on the Bonds established pursuant to Section 2.03(b). Weekly Rate Index means the average of 30-day yield evaluations at par, determined by the Indexing Agent, of securities (whether or not actually issued), the interest on which is not included in gross income for federal income tax purposes, of at least twenty Component Issuers selected by the Indexing Agent, including issuers of commercial paper, project notes, bond anticipation notes and tax anticipation notes, computed by the Indexing Agent as of the Business Day next preceding each day a Weekly Rate is determined by the Remarketing Agents. When the Bonds are rated by a Rating Agency or shall be subject to the benefits of a letter of credit and the Bank has issued letters of credit to support other debt obligations rated by a Rating Agency in its highest note or commercial paper rating category or one of its two highest long-term debt rating categories, each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its highest note or commercial paper rating category or (b) not have outstanding notes or commercial paper rated by a Rating Agency but have outstanding securities rated by a Rating Agency in one of its two highest long-term debt rating categories. If the Bonds or other debt obligations supported by letters of 89 43. credit issued by the Bank are rated by a Rating Agency in a rating category that is lower than its highest note or commercial paper rating category or its two highest long-term debt rating categories (and the Bonds or other debt obligations supported by letters of credit issued by the Bank are not rated in one of such categories by the other Rating Agency), each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its note or commercial paper rating category which is the same or correlative, in the Indexing Agent's judgment, to the note or commercial paper rating category or the long-term debt rating category of the Bonds or other debt obligations supported by letters of credit issued by the Bank or (b) have outstanding securities rated by a Rating Agency in the same long-term debt rating category as the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by that Rating Agency and not have any outstanding notes or commercial paper rated by such Rating Agency. The Indexing Agent may change the Component Issuers from time to time in its discretion, subject to the foregoing requirements. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that, under then existing statutes and court decisions, such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority may designate a new method of setting the Weekly Rate Index in the event any of the above-described methods are unavailable, impracticable or unrealistic in the market place. Weekly Rate Period means Weekly Rate Period as defined in Section 2.03(b). Section 1.02. Rules of construction. Unless the context clearly indicates to the contrary, the following rules shall apply to the construction of the Indenture: (a) Words importing the singular number shall include the plural number and vice versa. (b) Words importing the redemption or calling for redemption of Bonds shall not be deemed to refer to or connote the payment of Bonds at their stated maturity or upon the acceleration of the principal thereof by the Trustee under Article X. (c) All references herein to particular articles or sections are references to articles or sections of the Indenture. (d) The captions and headings herein are solely for convenience of reference and shall not constitute a part 90 44. of the Indenture nor shall they affect its meaning, construction or effect. (e) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in the Indenture refer to the Indenture in its entirety and not the particular article or section of the Indenture in which they appear, and the term "hereafter" means after, and the term "heretofore" means before, the date of the Indenture. (f) All references to Medium-Term Rate Period of "similar duration" refer to Medium-Term Rate Periods of equal duration as measured in months taking into account any portion of a month as the entire month. Section 1.03. Liability under Bonds. The Bonds shall not be general obligations of the Authority, and shall not constitute an indebtedness of or a charge against the general credit of the Authority or give rise to any pecuniary liability of the Authority. The liability of the Authority under the Bonds shall be enforceable only to the extent provided in the Indenture, and the Bonds shall be payable solely from the Company Note Payments and any other funds held by the Trustee under the Indenture and available for such payment (including, but not limited to any funds drawn under the Letter of Credit). The Bonds shall not be a debt of the State of New York and the State of New York shall not be liable thereon. 91 45. ARTICLE II DESCRIPTION; AUTHORIZATION; MANNER OF EXECUTION; AUTHENTICATION; REGISTRATION AND TRANSFER OF BONDS Section 2.01. Issuance of Bonds; Designation of Bonds; Certain Particulars and Form of Bonds. The Bonds shall be issued in one series in the aggregate principal amount of $50,000,000 and shall be designated as "Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series A." In order to distinguish between Bonds which are subject to different Interest Rate Determination Methods, Bonds may be designated and redesignated (as herein provided) in such a way as to identify several Subseries. Such Subseries may be designated as Subseries A-1, Subseries A-2, and so forth. Each Bond shall bear upon the face thereof such designation or redesignation, if any. The Bonds shall be issuable in the form of registered bonds without coupons in authorized denominations except as provided in Section 2.08 with respect to lost, stolen, destroyed or undelivered Bonds. The Bonds shall be numbered consecutively from NYAR-1 upwards bearing numbers not then contemporaneously outstanding (in order of issuance) according to the records of the Trustee. If the Bonds are redesignated to identify several Subseries, the Bonds shall be numbered in accordance with their Subseries designation, i.e. NYA1R-1, NYA2R-2, and so forth. Bonds shall be substantially in the form set forth in the recitals to the Indenture, with such appropriate variations, omissions and insertions as are permitted or required by the Indenture and may have endorsed thereon such legends or text as may be necessary or appropriate to conform with the Indenture or to any applicable rules and regulations of any governmental authority or any usage or requirement of law with respect thereto. Section 2.02. Additional Particulars of Bonds. The Bonds initially shall be dated the Issue Date but, thereafter, each Bond shall be dated the date of its authentication. Each Bond shall bear interest from the last Interest Payment Date on which interest on such Bond has been paid or, if no interest has been paid, from the Issue Date. The Bonds will mature (subject to the right of prior redemption at the prices and dates and upon the terms and conditions hereinafter set forth) on the Maturity Date. Only such Bonds as shall have endorsed thereon a certificate of authentication substantially in the form set forth in the Form of Bond duly executed by the Trustee or the Tender Agent shall be entitled to any right or benefit under the Indenture. No Bond shall be valid or obligatory for any purpose 92 46. unless and until such certificate of authentication shall have been duly executed by the Trustee or the Tender Agent, and such executed certificate of the Trustee or the Tender Agent upon any such Bonds shall be conclusive evidence that such Bond has been authenticated and delivered under the Indenture. The certificate of authentication of the Trustee or the Tender Agent on any Bond shall be deemed to have been executed by it, respectively, if signed with an authorized signature of the Trustee or the Tender Agent, but it shall not be necessary that the same party or the same person sign the certificate of authentication on all of the Bonds issued hereunder. The principal and the Purchase Price of and the redemption premium, if any, and the interest on the Bonds shall be payable in lawful money of the United States of America. The principal and the Purchase Price of and the redemption premium, if any, on all Bonds shall be payable at the principal office of the Paying Agent upon the presentation and surrender of the Bonds as the same become due and payable. The interest on the Bonds shall be paid by check or draft drawn upon the Paying Agent and mailed to the persons in whose names the Bonds are registered on the registration books maintained by the Trustee at the close of business on the Record Date next preceding each Interest Payment Date; provided, that in the event that less than all of the Bonds are held under a book-entry-only system any Registered Owner of a Bond or Bonds not held under a book-entry-only system in an aggregate principal amount of not less than $1,000,000 (or $100,000 during any Money Market Municipal Rate Period) may, by prior written instructions filed with the Paying Agent (which instructions shall remain in effect until revoked by subsequent written instructions), request that interest payments for any period prior to the Fixed Rate Conversion Date be made by wire transfer or other means acceptable to the Paying Agent to an address in the continental United States; and provided, further, that during a Money Market Municipal Rate Period, interest on a Bond is payable only upon presentation and surrender thereof to the Tender Agent upon purchase thereof pursuant to the Indenture, and if such presentation and surrender is made by 12:00 noon (New York City time) such payment shall be by wire transfer. If any payment of interest or principal or redemption premium on the Bonds is due on a date which is not a Business Day, payment shall be made on the next succeeding Business Day with the same force and effect as if made on the date which is fixed for such payment, and no interest shall accrue on such amount for the period after such due date. 93 47. Section 2.03. Interest Rates on Bonds. [2.03] (a) Generally; Initial Rates. Interest accrued on the Bonds shall be paid on each Interest Payment Date. The interest rate on the Bonds will be determined as provided in this Section, provided, that in any event (i) no Weekly Rate, Money Market Municipal Rate, Semi-Annual Rate or Medium-Term Rate shall exceed the lesser of: (a) fifteen per centum (15%) per annum and (b) the maximum interest rate specified in the Letter of Credit with respect to coverage for the payment of interest or the interest component of Purchase Price and (ii) the Fixed Rate shall not exceed eighteen per centum (18%) per annum and, provided, further, no rate as so determined shall exceed the maximum rate permitted by applicable law. Interest on the Bonds will initially be payable at a Weekly Rate of two and thirty-five one-hundredths per centum (2.35%) per annum for the period from November 17, 1993, to and including November 23, 1993 (the "First Interest Period"). Thereafter, unless and until the Interest Rate Determination Method is changed as described in Section 2.04, the Bonds will bear interest at a Weekly Rate. The Company may direct the Remarketing Agents to change the Interest Rate Determination Method applicable to all or a portion of the Bonds, except that no Bonds may be converted to bear interest at a Fixed Rate unless all Bonds are converted to bear interest at a Fixed Rate. Except as specifically provided otherwise herein, the conditions and procedures for such change in the Interest Rate Determination Method for a portion of the Bonds shall be the same as the conditions and procedures for a change in the Interest Rate Determination Method for the entire series of Bonds. If less than all of the Bonds are to be converted, the Bonds which are being converted shall, pursuant to Section 2.01, be redesignated in such a way as to identify a separate Subseries, and, in such event, all references herein to the Bonds shall be deemed to refer to the Bonds of each Subseries separately. During any Weekly Rate Period or Money Market Municipal Rate Period, interest on the Bonds will be computed on the basis of a 365 or 366-day year, as the case may be, for the actual number of days elapsed. During any Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, interest on the Bonds will be computed on the basis of a 360-day year of twelve 30-day months. [2.03] (b) Weekly Rate. During any period commencing on the date that the Interest Rate Determination Method is converted to a mode where the Bonds bear interest at a Weekly Rate pursuant to Section 2.04 to, but not including, the next Conversion Date (a "Weekly Rate Period"), the Bonds will bear interest at the Weekly Rate. With respect to any Weekly Rate Period, the Remarketing 94 48. Agents will set a rate (a "Weekly Rate") by 12:00 noon New York City time: (i) on the first Business Day before any Conversion Date immediately after which the Bonds will bear interest at a Weekly Rate for the period commencing on the Conversion Date through and including the next Tuesday that is at least six days from such Conversion Date and (ii) on each Wednesday thereafter (or the first Business Day before such Wednesday, if such Wednesday is not a Business Day) for the seven day period from such Wednesday through and including the next Tuesday. Each Weekly Rate shall be the rate of interest which, if borne by the Bonds, would, in the judgment of the Remarketing Agents, having due regard to the prevailing financial market conditions for tax-exempt revenue bonds or other tax-exempt securities of the same general nature as the Bonds or tax-exempt securities which are competitive as to credit and maturity (or period for tender) with the credit and maturity (or period for tender) of the Bonds, be the interest rate necessary, but would not exceed the interest rate necessary, to enable the Remarketing Agents to remarket the Bonds at a price of par (plus accrued interest, if any) on such Wednesday; provided that the Weekly Rate shall not be greater than 110% of the Weekly Rate Index. If for any reason the Weekly Rate for any Weekly Rate Period is not established as aforesaid by the Remarketing Agents, no Remarketing Agent shall be serving as such hereunder or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law with respect to any day, then the Weekly Rate for such Weekly Rate Period shall be 100% of the Weekly Rate Index on the date such interest rate was (or would have been) determined as provided above. The Indexing Agent shall establish the Weekly Rate Index on the Business Day next preceding each day on which a Weekly Rate is determined by the Remarketing Agents. Notwithstanding the foregoing, in the event that the Remarketing Agents, in their judgment, shall determine that the Weekly Rate Index so established is sufficiently non-representative of current market conditions that the Bonds may not be remarketed at par if the Weekly Rate is set at a rate not greater than 110% of the applicable Weekly Rate Index, the Remarketing Agents may establish a new Weekly Rate Index in accordance with the procedures and standards set forth in this paragraph and in the preceding paragraph and for purposes of the Weekly Rate Index so established, all references to Indexing Agent in the Indenture shall be deemed to refer to the Remarketing Agents; provided that the Remarketing Agents shall select securities (whether or not actually issued) having a term equal to the Weekly Rate Period or which are subject to optional or mandatory tender by the owner thereof at the end of a term equal to the Weekly Rate Period. 95 49. [2.03] (c) Semi-Annual Rate. During any period commencing on the date that the Interest Rate Determination Method is converted to a mode where the Bonds bear interest at a Semi-Annual Rate pursuant to Section 2.04 to, but not including, the next Conversion Date (a "Semi-Annual Rate Period"), the Bonds will bear interest at the Semi-Annual Rate. With respect to any Semi-Annual Rate Period, the Remarketing Agents will set a rate (a "Semi-Annual Rate") not later than 5:00 p.m. New York City time: (i) on or before the first Business Day before any Conversion Date immediately after which the Bonds will bear interest at a Semi-Annual Rate for the period commencing on the Conversion Date through but not including the next Interest Payment Date (each such date occurring during a Semi-Annual Rate Period being referred to herein as a "Semi-Annual Adjustment Date") and (ii) on or before the first Business Day before each Semi-Annual Adjustment Date for the period commencing on such Semi-Annual Adjustment Date through but not including the next Semi-Annual Adjustment Date. Each Semi-Annual Rate shall be the rate of interest which, if borne by the Bonds, would, in the judgment of the Remarketing Agents, having due regard for the prevailing financial market conditions for tax-exempt revenue bonds or other tax-exempt securities of the same general nature as the Bonds or tax-exempt securities which are competitive as to credit and maturity (or period for tender) with the credit and maturity (or period for tender) of the Bonds, be the interest rate necessary, but would not exceed the interest rate necessary to enable the Remarketing Agents to remarket the Bonds at a price of par (plus accrued interest, if any) on the next succeeding Interest Payment Date (or, if any such day is not a Business Day, on the next succeeding Business Day); provided that the Semi-Annual Rate shall not be greater than 110% of the Semi-Annual Rate Index. If for any reason the Semi-Annual Rate for any Semi-Annual Rate Period is not established as aforesaid by the Remarketing Agents, no Remarketing Agent shall be serving as such hereunder or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law with respect to any Semi-Annual Period, then the Semi-Annual Rate for such Semi-Annual Rate Period shall be 100% of the Semi-Annual Rate Index on the date such interest rate was (or would have been) determined as provided above. The Indexing Agent shall establish the Semi-Annual Rate Index during the Semi-Annual Rate Period on the Business Day next preceding each day on which a Semi-Annual Rate is determined by the Remarketing Agents. [2.03] (d) Money Market Municipal Rates. During any period commencing on the date that the Interest Rate Determination Method is converted to a mode where the Bonds bear interest at Money Market Municipal Rates pursuant to Section 2.04 to, but not 96 50. including, the next Conversion Date (a "Money Market Municipal Rate Period"), the Bonds will bear interest at the various Money Market Municipal Rates for the various Calculation Periods established herein. During any Money Market Municipal Rate Period, any Bond may have a different Calculation Period and a different Money Market Municipal Rate from any other Bond, all as established by the Remarketing Agents as provided below. [2.03 (d)] (i) Establishment of Calculation Periods. During any Money Market Municipal Rate Period, at or prior to 12:00 noon New York City time on any Conversion Date immediately after which the Bonds will bear interest at the Money Market Municipal Rate and each day immediately after the end of a Calculation Period, the Remarketing Agents shall establish Calculation Periods with respect to Bonds for which no Calculation Period is currently in effect. In determining Calculation Periods, the Remarketing Agents shall take the following factors into account: (1) existing short-term taxable and tax-exempt market rates and indices of such short-term rates, (2) the existing market supply and demand for short-term tax-exempt securities, (3) existing yield curves for short-term and long-term tax-exempt securities or obligations having a credit rating that is comparable to the Bonds, (4) general economic conditions, (5) economic and financial factors present in the securities industry that may affect or that may be relevant to the Bonds and (6) any information available to the Remarketing Agents pertaining to the Bank or the Company regarding any events or anticipated events which could have a direct impact on the marketability of or interest rates on the Bonds. The Remarketing Agents shall select the Calculation Periods and the applicable Money Market Municipal Rates that, together with all other Calculation Periods and related Money Market Municipal Rates, in the sole judgment of the Remarketing Agents, will result in the lowest overall borrowing cost on the Bonds or are otherwise in the best financial interests of the Company, as determined in consultation with the Company. Any Calculation Period established hereunder may not extend beyond any Conversion Date, the second Business Day next preceding the scheduled expiration date of the Letter of Credit or the day prior to the maturity date of the Bonds, and the maximum length of the Calculation Period shall not exceed the number of days of interest coverage under the Letter of Credit minus 30 days of interest coverage. [2.03 (d)] (ii) Setting of Rates. On the first day of each Calculation Period, the Remarketing Agents shall set rates ("Money Market Municipal Rates") by 12:00 noon New York City time for each Calculation Period. With respect to Bonds 97 51. for each Calculation Period, the Money Market Municipal Rate shall be the rate of interest which, if borne by such Bonds, would, in the judgment of the Remarketing Agents, having due regard to the prevailing financial market conditions for tax-exempt revenue bonds or other tax-exempt securities which are competitive as to credit and maturity (or period of tender) with the credit and maturity (or period of tender) of such Bond, be the interest rate necessary, but would not exceed the interest rate necessary, to enable the Remarketing Agents to remarket such Bond at a price of par on the date such rate is set; provided that the Money Market Municipal Rates shall not be greater than 110% of the Money Market Municipal Rate Index. The Authority, at the request of the Company, may place such limitations upon the establishment of Calculation Periods pursuant to the preceding paragraph (i) as may be set forth in a written direction from the Authority, which direction must be received by the Trustee and the Remarketing Agents prior to 10:00 a.m. (New York City time) on the day prior to any Determination Date to be effective on such date, but only if the Trustee receives an Opinion of Bond Counsel to the effect that such action is authorized by the Indenture, is permitted under the Act, and will not have an adverse effect on the exclusion of interest on the Bonds from gross income for federal income tax purposes. The Indexing Agent shall establish the Money Market Municipal Rate Index. [2.03] (e) Medium-Term Rate. During any period (a "Medium-Term Rate Period") commencing on the date that the Interest Rate Determination Method is converted to a method where the Bonds bear interest at a Medium-Term Rate pursuant to Section 2.04 to, but not including the earliest to occur of, the next Conversion Date or the next Medium-Term Adjustment Date and any period commencing on a Medium-Term Adjustment Date, to but not including, the earliest to occur of the next Conversion Date or the next Medium-Term Adjustment Date, the Bonds shall bear interest at the Medium-Term Rate. [2.03(e)] (i) Selection of Period. The length of each Medium-Term Rate Period shall be selected by the Company with the intention of yielding the lowest overall interest expense on the Bonds over the term of such Medium-Term Rate Period, taking into account (1) general economic conditions and economic and market conditions relevant to the Bonds and (2) such other facts, circumstances and conditions as the Company determines to be relevant. The Company shall select a Medium-Term Rate Period so that: (1) such period ends on the day preceding an Interest Payment Date, (2) the Medium-Term 98 52. Period (other than the First Interest Period) is at least one year in duration, and (3) such period will end not later than two Business Days prior to the expiration of the Letter of Credit then in effect. In addition, if the Company is converting from a Weekly Rate Period, a Money Market Municipal Rate Period or a Semi-Annual Rate Period, the Company shall not select a Medium-Term Period that ends after the Interest Payment Date immediately preceding final maturity of the Bonds unless it has provided an Opinion of Bond Counsel that, under then existing statutes and court decisions, such conversion of interest on the Bonds will not cause interest on the Bonds to be included in gross income for federal income tax purposes. The Company shall give written notice of the term of any Medium-Term Rate Period to the Trustee, the Tender Agent, the Authority, the Indexing Agent and the Remarketing Agents not later than 35 days prior to the commencement of any Medium-Term Rate Period. In the event that no specific term of a Medium-Term Rate Period shall have been so specified by the Company, the term of a subsequent Medium-Term Rate Period shall be the same as the term of the Medium-Term Rate Period immediately preceding it. [2.03(e)] (ii) Setting of Rate. With respect to any Medium-Term Rate Period, the Remarketing Agents will set a rate no later than 10:00 a.m. New York City time on or before the first Business Day before any Conversion Date immediately after which the Bonds will bear interest at a Medium-Term Rate and the first Business Day before any Medium- Term Adjustment Date for the applicable Medium-Term Rate Period. Each Medium-Term Rate shall be the rate of interest which, if borne by the Bonds, would, in the judgment of the Remarketing Agents, having due regard for prevailing market conditions for tax-exempt revenue bonds or other tax-exempt securities which are competitive as to credit and maturity, with the credit and maturity of the Bonds, be the interest rate necessary, but would not exceed the interest rate necessary, to enable the Remarketing Agents to remarket the Bond(s) or portion(s) thereof as aforesaid tendered (or deemed to have been tendered) for purchase at a price of par (plus accrued interest, if any) on the first day of such Medium-Term Period; provided that the Medium-Term Rate shall not be greater than 110% of the Medium-Term Rate Index. If for any reason the applicable Medium-Term Rate is not established as aforesaid by the Remarketing Agents, no Remarketing Agent shall be serving as such hereunder or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law with respect to any Medium- 99 53. Term Rate Period, the interest rate to be borne by all Bonds outstanding under the Indenture from the first day of the applicable Medium-Term Rate Period to the last day of the applicable Medium-Term Rate Period shall be equal to 100% of the Medium-Term Rate Index calculated for such Medium-Term Rate Period. The Indexing Agent shall establish the Medium-Term Rate Index on the Business Day next preceding each day on which a Medium-Term Rate is determined by the Remarketing Agents. [2.03] (f) Fixed Rate. During the period commencing on the date that the Interest Rate Determination Method is converted to a method where the Bonds bear interest at the Fixed Rate pursuant to Section 2.04 to (subject to the right of prior redemption at the prices and dates and upon the terms and conditions hereinafter set forth) the Maturity Date of the Bonds (the "Fixed Rate Period"), the Bonds shall bear interest at the Fixed Rate. With respect to the Fixed Rate Period, the Remarketing Agents will set a rate (the "Fixed Rate") not later than 10:00 a.m. New York City time one Business Day prior to any Fixed Rate Conversion Date. The Fixed Rate shall be the interest rate which, if borne by the Bonds, would, in the judgment of the Remarketing Agents having due regard for prevailing financial market conditions for tax-exempt revenue bonds or other tax-exempt securities which are competitive as to credit and maturity with the credit and maturity of the Bonds, be the interest rate necessary, but would not exceed the interest rate necessary, to enable the Remarketing Agents to remarket the Bonds(s) or portion(s) thereof as aforesaid tendered (or deemed to have been tendered) for purchase at a price of par (plus accrued interest, if any) on the Fixed Rate Conversion Date, provided that the Fixed Rate shall not be greater than 110% of the Fixed Rate Index. If for any reason the applicable Fixed Rate is not established as aforesaid by the Remarketing Agents, no Remarketing Agent shall be serving as such hereunder or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law, the interest rate to be borne by all Bonds outstanding under the Indenture from the Fixed Rate Conversion Date to the date of payment in full of the Bonds shall be equal to 100% of the Fixed Rate Index as of such Computation Date. The Indexing Agent shall establish the Fixed Rate Index on or before the Business Day next preceding the Fixed Rate Conversion Date. 100 54. [2.03] (g) Notice of Rates. Promptly following the determination of any Weekly Rate, Semi-Annual Rate, Medium-Term Rate, Money Market Municipal Rate or Fixed Rate, the Remarketing Agents shall give notice to the Trustee, the Authority, the Company and the Tender Agent in writing and, promptly thereafter, except in the case of the Semi-Annual Rate and Weekly Rate, the Trustee shall give each Bondowner notice of the new rate. [2.03] (h) [Intentionally Omitted.] [2.03] (i) Absence of Remarketing Agents. If no Remarketing Agent shall be serving hereunder at the time of the determination of the Weekly Rate, Semi-Annual Rate, Medium-Term Rate, the Fixed Rate or the Money Market Municipal Rate, the Rate shall be the Weekly Rate Index, Semi-Annual Rate Index, Medium-Term Rate Index, the Fixed Rate Index or Money Market Manual Rate Index, as the case may be, then in effect until a new Remarketing Agent is selected by the Company to make such Rate determination. Any determination of the Weekly Rate, Semi-Annual Rate, the Medium-Term Rate, the Fixed Rate or the Money Market Municipal Rate by the Remarketing Agents, or pursuant to the preceding sentence, shall be conclusive and binding upon the Authority, the Company, the Tender Agent, the Trustee, the Paying Agent, the Remarketing Agents and the Bondowners. [2.03] (j) No Liability. In determining the interest rate that the Bonds shall bear as provided in this Section, the Remarketing Agents and, as aforesaid, the Trustee shall have no liability to the Authority, the Company, the Tender Agent, the Trustee, the Paying Agent or any Bondowner except for its willful misconduct. [2.03] (k) Legend Authorized. Any Bond issued upon registration of transfer or exchange on or after any Fixed Rate Conversion Date shall contain a prominent legend on the face thereof, to be specified by the Authority and placed thereon by the Trustee, to the effect that the Letter of Credit has expired, that the Bonds are no longer entitled to the benefit of any Letter of Credit, that the Bonds are not subject to mandatory purchase by the Tender Agent and that the interest rate on the Bonds has been converted to another Interest Rate Determination Method, in which case such method shall be specified. Section 2.04. Conversion of Interest Rate on Bonds. (a)(1) During any Rate Period other than the Fixed Rate Period, at any time, subject to the conditions set forth below, the Company may direct a change in the Interest Rate Determination Method from one Rate to another by so directing the Trustee in writing (such being hereinafter referred to as a "Conversion Notice") with copies 101 55. to the Remarketing Agents, the Tender Agent, the Authority, the Indexing Agent and, during the term of the Letter of Credit, the Bank, delivered at least thirty (30) days (where the Bonds bear interest at a Weekly Rate, Money Market Rate or Semi-Annual Rate) or thirty-five (35) days (where the Bonds bear interest at a Medium-Term Rate) but, in either case, not more than sixty (60) days prior to the Conversion Date, accompanied by an Opinion of Bond Counsel stating that, under then existing statutes and court decisions, such conversion of interest on the Bonds to the other Rate will not cause the interest on the Bonds to be included in gross income for federal income tax purposes. The Company's notice must specify (i) the Conversion Date, (ii) the new Interest Rate Determination Method to take effect, (iii) if the new Interest Rate Determination Method is a Medium-Term Rate Period, the length of the Medium-Term Rate Period, (iv) if the new Interest Rate Determination Method is a Money Market Municipal Rate Period, the maximum length of Calculation Periods, and (v) if the new Interest Rate Determination Method is to apply to less than all of the Bonds then outstanding, the aggregate principal amount of Bonds to which the new Interest Rate Determination Method is to apply. If the Company directs the Trustee to change the Interest Rate Determination Method from one Rate to another for less than all of the Bonds then outstanding, the Trustee shall select Bonds to be converted by lot or by such other method as the Trustee may select. In the event the Company wishes to convert less than all the Bonds then outstanding, the Company shall notify the Trustee of such decision not less than 40 days or more than 60 days before the effective date of the proposed conversion. On the Conversion Date the portion of the Bonds which are being converted shall be redesignated in such a way as to identify a separate Subseries and thereby to avoid confusion of such Subseries with any other Subseries. The Company may also determine to similarly redesignate the portion of the Bonds which are not being converted on the Conversion Date. The holders of Bonds which are being redesignated may be required to deliver such Bonds to the Trustee in order to receive a new Bond of the applicable designation, in the same principal amount. In the event holders are not required to surrender such Bonds, the Trustee shall appropriately designate any Bonds subsequently issued in exchange therefor. The Trustee shall not be liable to any Bondholder for the method selected and employed by the Trustee or by the Company's selection of a partial redemption. [2.04(a)] (2) Any change in the Interest Rate Determination Method must comply with the following to the extent applicable: 102 56. (i) Except in the case of a change in the Interest Rate Determination Method from a Medium-Term Rate Period to another Rate Period, all Conversion Dates shall occur on Business Days. (ii) If the Semi-Annual Rate or a Medium-Term Rate is then in effect, the Conversion Date shall be an Interest Payment Date (or if the Semi-Annual Rate is then in effect the immediately succeeding Business Day, if such Interest Payment Date is not a Business Day) or any Business Day on which the Bonds are subject to optional redemption. (iii) If a Medium-Term Rate is then in effect, the Conversion Date shall occur only during the period during which the Bonds are subject to optional redemption at a redemption price of 100% of the principal amount thereof unless the Letter of Credit then in effect provides for payment of Purchase Price equal to such redemption price above par or Available Moneys have been provided in an amount sufficient, together with any amounts available under the Letter of Credit, to pay such Purchase Price in full; provided, that if the Bonds are subject to optional redemption at a redemption price above par, the Purchase Price on the Conversion Date shall include the optional redemption premium. (iv) No conversion of the interest rate on the Bonds shall occur under this Section if at the time of such conversion an Event of Default shall have occurred hereunder and be continuing with respect to the Bonds. (v) No Rate Period other than the Fixed Rate Period shall extend to a date later than the first Business Day next preceding the scheduled expiration of the Letter of Credit in effect at the beginning of such Rate Period. (vi) If the Rate Period in effect after the conversion is a Money Market Municipal Rate Period, the maximum length of the Calculation Period shall not exceed the number of days of interest coverage under the Letter of Credit minus 30 days of interest coverage. [2.04(a)] (3) Any change in the Interest Rate Determination Method shall not be effective unless by 10:00 a.m., New York City time, on the Conversion Date the Company delivers a supplemental Opinion of Bond Counsel to the Trustee stating that under the laws existing on the Conversion Date the conversion to the other Rate will not cause the interest on the Bonds to be included in gross income for federal income tax purposes. 103 57. [2.04(a)] (4) Notwithstanding any other provision of the Indenture, after the Interest Rate Determination Method is changed to the Fixed Rate, such method may not thereafter be changed and such Fixed Rate shall be the rate of interest on the Bonds from the Fixed Rate Conversion Date until the Maturity Date. (b) Upon receipt of a Conversion Notice from the Company, the Trustee shall no later than twenty-five (25) days (if the Bonds then bear interest at a Weekly Rate, Money Market Rate or Semi-Annual Rate) or thirty (30) days (if the Bonds then bear interest at a Medium-Term Rate) prior to the Conversion Date give notice by mail to the Bondowners, which notice shall state in substance: [2.04(b)] (1) that the interest rate on the Bonds shall be converted to a Weekly Rate, a Semi-Annual Rate, a Medium-Term Rate, a Money Market Municipal Rate or the Fixed Rate, as the case may be; [2.04(b)] (2) the Conversion Date; [2.04(b)] (3) if applicable, that the Company has delivered to the Trustee an Opinion of Bond Counsel stating that under the statutes and court decisions existing on the date of the Conversion Notice, the conversion of the interest rate on the Bonds to the applicable rate will not cause the interest on the Bonds to be included in gross income for federal income tax purposes; [2.04(b)] (4) if applicable, that the interest rate on the Bonds shall not be converted unless the Company delivers to the Trustee on the applicable Conversion Date a supplemental Opinion of Bond Counsel stating that under the statutes and court decisions existing on the Conversion Date, (A) the conversion of the interest rate on the Bonds will not cause the interest on the Bonds to be included in gross income for federal income tax purposes; and (B) the rate to be in effect after the conversion does not exceed the maximum rate permitted by the Indenture and by applicable law; provided, however, that if the Company fails to deliver such supplemental Opinion of Bond Counsel on such date, the interest rate on the Bonds shall not be converted on the applicable Conversion Date, and all Bonds tendered (or deemed to have been tendered) for purchase shall not be purchased on the applicable Conversion Date as provided herein and the Bonds shall continue to bear interest in accordance with the Interest Rate Determination Method in effect prior to the proposed Conversion Date; 104 58. [2.04(b)] (5) that all Bonds (or portions thereof in authorized denominations) tendered (or deemed to have been tendered) for purchase by the owners thereof shall be purchased on the applicable Conversion Date at the Purchase Price; [2.04(b)] (6) that, to the extent that there shall be on deposit with the Tender Agent, the Paying Agent or the Trustee on or before the applicable Conversion Date an amount of money sufficient to pay the Purchase Price thereof, all Bonds, whether or not actually delivered for purchase on such date, shall be deemed to have been properly tendered for purchase and shall cease to constitute or represent a right on behalf of the owner thereof to the payment of principal and/or interest thereon and shall represent and constitute only the right to payment of the Purchase Price thereof, without interest accruing thereon, on deposit with the Tender Agent, the Paying Agent or the Trustee; [2.04(b)] (7) the name of the Tender Agent and the address of the principal office of the Tender Agent; [2.04(b)] (8) that, if the conversion is to a Fixed Rate, the Letter of Credit will expire no later than the close of business on the first Business Day following the applicable Fixed Rate Conversion Date; [2.04(b)] (9) that, in the case of conversion to the Fixed Rate, the rating assigned by the Rating Agency then rating the Bonds, if any, to the Bonds, either may be or is expected to be lowered or eliminated as a result of such conversion; [2.04(b)] (10) that, if the conversion is to the Fixed Rate, from and after the Fixed Rate Conversion Date, the Bonds will no longer be subject to purchase as provided in Section 2.05 or, if the conversion is to a Medium-Term Rate, the Bonds will not be subject to tender until the expiration of the applicable Rate Period; and [2.04(b)] (11) that, if the conversion is to a Medium-Term Rate Period of greater than three years duration, the short term rating, if any, assigned by any Rating Agency to the Bonds will be withdrawn as a result of such conversion. [2.04] (c) If the Company fails to deliver to the Trustee by 10:00 a.m. New York City time on the Conversion Date, the supplemental Opinion of Bond Counsel as and if required by subsection (a) of this Section, the interest rate on the Bonds 105 59. shall not be converted to the Weekly Rate, Semi-Annual Rate, Medium-Term Rate, Money Market Municipal Rate or Fixed Rate on the Conversion Date, as the case may be, and Bonds tendered (or deemed to have been tendered) for purchase on the Conversion Date shall not be purchased on the Conversion Date and the Bonds shall continue to bear interest at the rate determined in accordance with the Interest Rate Determination Method in effect prior to the proposed Conversion Date. In such event, all rights of the Authority, the Trustee and the Company hereunder shall continue as if no such proceedings for the conversion of the interest rate on the Bonds had been taken and the Bonds shall be available for remarketing under Section 2.06. The Trustee shall promptly notify the Authority and the Bondowners by mail (and shall promptly notify the Tender Agent, the Paying Agent, the Bank and the Remarketing Agents by telephone) in the event that the interest rate on the Bonds is not converted on the Conversion Date as provided herein. [2.04] (d) Failure to mail the notice described in subsection (a) or (b), or any defect therein, shall not affect the validity of any interest rate or change in the Interest Rate Determination Method on any of the Bonds or extend the period for tendering any of the Bonds for purchase, and the Trustee shall not be liable to any Bondowner by reason of its failure to mail such notice or any defect therein. [2.04] (e) The Letter of Credit shall not be available to pay the principal or Purchase Price of or interest on any Bonds after the earlier of the first Business Day following the Fixed Rate Conversion Date or the date a drawing is made under the Letter of Credit in connection therewith. The Letter of Credit shall be returned to the Bank for cancellation promptly upon the expiration thereof on or after such Fixed Rate Conversion Date. Section 2.05. Optional and Mandatory Tender of Bonds for Purchase. (a) During any Weekly Rate Period, the owners of the Bonds shall have the right to tender any Bond (or portion thereof in an authorized denomination) to the Tender Agent for purchase on any Optional Tender Date, but only upon: (1) giving or delivery to the Tender Agent at its principal office, on a Business Day, not later than the seventh calendar day prior to the Optional Tender Date, of a written or telephonic notice, confirmed in writing, which states (i) the number and aggregate principal amount of each Bond to be purchased and (ii) that such Bond (or portion thereof in an authorized denomination) shall be purchased on such Optional Tender Date pursuant to the Indenture; and 106 60. (2) delivery of such Bond (with an appropriate instrument of transfer duly executed in blank) to the Tender Agent at its principal office at or prior to 12:00 noon, New York City time, on such Optional Tender Date; provided, however, that no Bond (or portion thereof in an authorized denomination) shall be purchased unless the Bond so delivered to the Tender Agent shall conform in all respects to the description thereof in the aforesaid notice. Any election of a Bondowner to tender a Bond (or portion thereof as aforesaid) for purchase on the Optional Tender Date in accordance with this subsection (a) shall be irrevocable and shall be binding on the Bondowner making such election and on any transferee of such Bondowner and any Bond with respect to which such an election has been made which is not properly delivered by the owner thereof to the Tender Agent shall be deemed to have been properly tendered to the Tender Agent, and, to the extent that there shall be on deposit with the Tender Agent on or before the Optional Tender Date, an amount sufficient to pay the Purchase Price thereof, such Bond shall cease to constitute or represent a right to payment of principal or interest thereon and shall constitute and represent only the right to payment of the Purchase Price payable on such date. [2.05] (b) During any Semi-Annual Rate Period, the owners of the Bonds shall have the right to tender any Bond (or portion thereof in an authorized denomination) to the Tender Agent for purchase on any Optional Tender Date prior to a Conversion Date, but only upon: (1) giving or delivery to the Tender Agent at its principal office, not earlier than the thirtieth calendar day and not later than the fifteenth calendar day next preceding such Optional Tender Date of a written or telephonic notice confirmed in writing which states (i) the number and aggregate principal amount of each Bond to be purchased and (ii) that such Bond (or portion thereof in an authorized denomination) shall be purchased on such Optional Tender Date pursuant to the Indenture; and (2) the delivery of such Bond (with an appropriate instrument of transfer duly executed in blank) to the Tender Agent at its principal office at or prior to 12:00 noon, New York City time, on such Optional Tender Date; provided, however, that no Bond (or portion thereof in an authorized denomination) shall be purchased unless the Bond so delivered to the Tender Agent shall conform in all respects to the description thereof in the aforesaid notice. 107 61. Any election of a Bondowner to tender a Bond (or portion thereof as aforesaid) for purchase on the Optional Tender Date in accordance with this subsection (b) shall be irrevocable and shall be binding on the Bondowner making such election and on any transferee of such Bondowner and any Bond with respect to which such an election has been made which is not properly delivered by the owner thereof to the Tender Agent shall be deemed to have been properly tendered to the Tender Agent, and, to the extent, that there shall be on deposit with the Tender Agent on or before the Optional Tender Date, an amount sufficient to pay the Purchase Price thereof, such Bond shall cease to constitute or represent a right to payment of principal or interest thereon and shall constitute and represent only the right to payment of the Purchase Price payable on such date. [2.05] (c) The Tender Agent shall give the Trustee, the Company, the Remarketing Agents, the Paying Agent and the Bank prompt notice by telephone confirmed promptly in writing of the receipt of any notice in accordance with clause (1) of subsection (a) or (b) above. During any Semi-Annual Rate Period, the Trustee shall give notice by mail to Bondowners not more than forty-five or less than thirty calendar days before each Optional Tender Date, which notice shall state in substance: (i) the next Optional Tender Date, and (ii) that the Bonds are subject to tender at the option of the owner thereof in the manner set forth in subsection (b) of this section. [2.05] (d) All Bonds are subject to mandatory tender and purchase on each Conversion Date and each Medium-Term Adjustment Date. [2.05] (e) All Bonds shall be subject to mandatory tender and purchase on each Mandatory Purchase Date unless the owner exercises his or her right to retain the Bonds (in certain circumstances) pursuant to this subsection (e) as hereinafter provided: [2.05(e)] (1) The owners of the Bonds shall tender all Bonds (with appropriate instruments of transfer duly executed in blank) to the Tender Agent at its principal office for purchase on the applicable Mandatory Purchase Date, which date shall be established pursuant to clause (iii) of paragraph (2) of this subsection (e), at the Purchase Price due on such Mandatory Purchase Date. A Mandatory Purchase Date shall be established for the Bonds if: (A) The Company fails to deliver to the Trustee on or prior to the thirty-seventh calendar day next preceding 108 62. the effective date of an Alternate Credit Facility (including, without limitation, any Alternate Credit Facility issued as contemplated by (B) below) (i) such Alternate Credit Facility, (ii) an Opinion of Bond Counsel as described in Section 6.07.2(b) and (iii) if applicable, written evidence as described in Section 6.07.2(c); or (B) The Company fails to deliver to the Trustee on or prior to the thirty-seventh calendar day next preceding the scheduled expiration date of the Letter of Credit then in effect either (i) written evidence that the Letter of Credit then in effect will be extended or renewed for a period of at least one year beyond such expiration date and will end not sooner than the second Business Day following the Interest Payment Date for such Interest Period or (ii) the items set forth in Section 6.07.2(a), (b) and, if applicable, (c). [2.05(e)] (2) Upon the Bonds becoming subject to mandatory tender for purchase as provided in clause (1) above, the Trustee shall within five (5) calendar days give telephonic notice to the Remarketing Agents, the Authority and the Tender Agent and give notice by mail to the Bondowners, which notice shall state in substance: (i) the name of the bank issuing the Alternate Credit Facility, if any, and the effective date thereof; (ii) the Optional Retention Date, if applicable; (iii) the Mandatory Purchase Date, which in the case of (1)(A) above shall be the effective date of the Alternate Credit Facility, or, if no Alternate Credit Facility is delivered to the Trustee, the twentieth calendar day next preceding the scheduled expiration date of the Letter of Credit and in the case of (1)(B) above shall be a date that is two Business Days prior to such expiration date; (iv) in the case of (1)(A) above, that in connection with the issuance of the Alternate Credit Facility, the Trustee has not received a letter from the Rating Agency then rating the Bonds stating that such Rating Agency has reviewed the terms of the Alternate Credit Facility and the bank issuing the same and that issuance of the Alternate Credit Facility for the benefit of the Bondowners will not result in a lowering of the rating then assigned by such Rating Agency to the Bonds; 109 63. (v) in the case of (1)(B) above, that the Letter of Credit will expire no later than the close of business on the second Business Day following the Mandatory Purchase Date; (vi) if the Bonds are then rated, that the rating assigned by the Rating Agency to the Bonds may be lowered or eliminated as a result of the issuance of the Alternate Credit Facility, in the case of (1)(A) above, or as a result of the expiration of the Letter of Credit, in the case of (1)(B) above; (vii) that all Bonds (or portions thereof in authorized denominations) tendered shall be purchased on the Mandatory Purchase Date at the applicable Purchase Price; (viii) that, to the extent that there shall be on deposit with the Tender Agent, the Paying Agent or the Trustee on or before the Mandatory Purchase Date an amount of money sufficient to pay the Purchase Price thereof, all Bonds, whether or not actually delivered for purchase on such date, (or portions thereof in authorized denominations) not delivered to the Tender Agent on the Optional Retention Date shall be deemed to have been properly tendered for purchase and shall cease to constitute or represent a right on behalf of the owner thereof to the payment of principal and/or interest thereon and shall represent and constitute only the right to payment of the Purchase Price thereof, without interest accruing thereon, on deposit with the Tender Agent, the Paying Agent or the Trustee; provided that Bonds (or portions thereof in authorized denominations) the owner of which shall have elected to retain and not to tender in accordance with clause (4) below shall not be deemed to have been tendered for purchase and shall constitute and continue to represent the right of the owner thereof to payment of principal and interest, if any, thereon in accordance with the terms of such Bond; and (ix) the name of the Tender Agent and the address of the principal office of the Tender Agent. [2.05(e)] (3) Failure to mail the notice described in clause (2) or any defect therein, shall not extend the period for tendering any of the Bonds for purchase, and the Trustee shall not be liable to any Bondowner by reason of its failure to mail such notice or any defect therein. [2.05(e)] (4) The Bonds shall be tendered for purchase as provided in this subsection (e), except for any Bond or Bonds (or portions thereof in authorized denominations) the owner of which shall deliver to the Tender Agent at its principal office no later than the applicable Optional Retention Notice Date, a written notice, substantially in the form of EXHIBIT B to the Indenture, 110 64. appropriately completed; provided that such owners shall have the right to retain only those Bonds to be secured by a Letter of Credit meeting the requirements of Section 4.12 of the Participation Agreement following the Mandatory Purchase Date and any Bonds not meeting those requirements shall be deemed tendered and shall be subject to subsection (f) of this Section notwithstanding any election to retain such Bonds. [2.05] (f) Any election by a Bondowner to retain any Bond (or portion thereof in an authorized denomination) and not to tender such Bond (or portion thereof in an authorized denomination) for purchase on an Optional Retention Date in accordance with subsection (e), shall be irrevocable and shall be binding on the Bondowner making such election and on any transferee of such Bondowner. If a Bondowner fails to give notice of such an election with respect to any Bond (or portion thereof in an authorized denomination) on the applicable Optional Retention Notice Date and thereafter fails to deliver such Bond to the Tender Agent on or before the applicable Optional Retention Date, such Bond (or portion thereof in an authorized denomination) which is not delivered to the Tender Agent shall be deemed to have been properly tendered to the Tender Agent (such Bond being hereinafter referred to as an "Untendered Bond"), and, to the extent that there shall be on deposit with the Tender Agent on or before the Purchase Date, an amount sufficient to pay the Purchase Price thereof, such Untendered Bond shall cease to constitute or represent a right to payment of principal or interest thereon and shall constitute and represent only the right to the payment of Purchase Price payable on such date. The foregoing shall not limit the entitlement of any Bondowner on any Record Date to receipt of interest due on such date unless such interest is paid as part of Purchase Price. The Tender Agent will inform the Remarketing Agents and the Trustee by telephone promptly after the applicable Optional Retention Notice Date of the principal amount of Bonds which will be tendered or deemed to have been tendered on the applicable Optional Retention Date. [2.05] (g) During any Money Market Municipal Rate Period, each Bond shall be subject to mandatory tender for purchase on the Business Day immediately following each Calculation Period, at a price equal to the principal amount thereof. Owners of such Bonds shall have no right to elect to retain such Bonds. [2.05] (h) On each Optional Tender Date and Purchase Date, there shall be purchased (but solely from funds received by the Tender Agent in accordance with the terms hereof) the Bond or Bonds (or portions thereof in authorized denominations) tendered (or deemed to have been tendered) to the Tender Agent for purchase in accordance with this Section at the applicable Purchase Price. 111 65. Funds for the payment of the Purchase Price of such Bond or Bonds (or portions thereof in authorized denominations) shall be paid by the Tender Agent solely from the following sources and in the following order of priority: (i) moneys drawn under the Letter of Credit by the Trustee pursuant to Section 6.07.1; (ii) proceeds of the remarketing of such Bond or Bonds (or portions thereof in authorized denominations) pursuant to Section 2.06 which have been transferred to the Tender Agent pursuant to said Section; and (iii) any other moneys furnished by the Company for purchase of Bonds. The Trustee shall draw moneys under the Letter of Credit for the payment of Purchase Price to the extent that moneys are obtainable thereunder, and moneys described under clauses (ii) and (iii) above shall be used for payment of Purchase Price only to the extent that sufficient moneys are not obtainable under the Letter of Credit. To the extent that moneys drawn under the Letter of Credit have been used for payment of Purchase Price, moneys described under clause (ii) above may be paid to the Bank upon reinstatement of the related amount under the Letter of Credit. Bonds (or portions thereof in authorized denominations) purchased as provided above shall be delivered as provided in Section 2.07. The Tender Agent shall hold any such moneys, uninvested, in trust for the purposes set forth in the Indenture. [2.05] (i) The owners of the Bonds shall not have the right or be required, as the case may be, to tender any Bond or Bonds (or portions thereof in authorized denominations) for purchase on any Optional Tender Date or the Optional Retention Date, if on any such date an Event of Default under Section 10.01(f) or (g) shall have occurred and be continuing hereunder with respect to the Bonds. [2.05] (j) All Bonds shall be subject to mandatory tender and purchase, with no right of owners to retain Bonds, upon a date established by the Trustee after receipt by the Trustee and the Tender Agent of a written notice from the Bank of the occurrence and continuance of an event that would constitute an Event of Default pursuant to Section 10.01(f) or (g) except that the Bank shall have directed mandatory tender and purchase pursuant to this provision rather than acceleration of the Bonds; provided, however, that in the case of any event that would constitute an Event of Default pursuant to Section 10.01(g) such notice must have been 112 66. received on or before the tenth calendar day after a drawing under the Letter of Credit in respect of interest on the Bonds. Upon receipt of such notice, the Trustee (i) within two Business Days shall give notice thereof to the Authority, the Company, the Tender Agent, the Remarketing Agents, and the Bank, (ii) within two Business Days shall select a date (occurring on or before the tenth day next succeeding the Trustee's receipt of such notice, which date shall be a Business Day) for the mandatory tender and purchase of the Bonds, and (iii) within three Business Days shall give notice by mail to all Bondowners, which shall include the circumstances leading to mandatory tender and purchase, the absence of any right to retain Bonds, the date set therefor and directions for the tender and purchase of such Bonds; provided, however, that the expiry of the Letter of Credit shall be automatically extended until such date as all Bonds are tendered by the owners thereof (or deemed tendered hereunder) and a Redemption/Mandatory Purchase Drawing (as defined in the Letter of Credit) has been made under the Letter of Credit. On the date selected by the Trustee, all Bonds shall be tendered by the owners thereof in exchange for the Purchase Price thereof. Any Bonds not tendered by the owners thereof shall be deemed tendered and interest shall cease to accrue on such Bonds. [2.05] (k) In the event that any Bond is subject at any time to tender and purchase pursuant to more than one provision of the Indenture, provisions relating to the timing of notices of options to retain Bonds and options to tender Bonds and the irrevocability of certain actions and notices shall be interpreted as though only one such tender and purchase provision applied to such Bond to the extent that such interpretation will prevent a conflict between such provisions. For purposes of the foregoing sentence, a mandatory tender provision without a right of owners to retain Bonds shall take precedence over all other tender provisions, and a mandatory tender provision shall take precedence over any optional tender provision. [2.05] (l) If an agreement with a Securities Depository as described in Section 2.11 hereof is then in effect, tenders of Bonds shall be governed by the procedures of such Securities Depository as may be set forth in or described in an agreement between the Authority and such Securities Depository. The Depository Trust Company ("DTC") shall act as Securities Depository for the Bonds upon the initial issuance of the Bonds. So long as the Bonds are held in the DTC book-entry-only system, tenders of Bonds shall be governed by the DTC procedures described in the DTC Letter of Representations, which is hereby incorporated by reference. 113 67. Section 2.06. Remarketing of Bonds. (a) Upon receipt of any notice given pursuant to Section 2.05 that any Bonds will be or are required to be tendered for purchase in accordance with Section 2.05, the Remarketing Agents shall use their best efforts to remarket such Bonds (or portions thereof in authorized denominations) on any Optional Tender Date or Purchase Date at the Purchase Price. By 2:00 p.m., New York City time, on the Business Day prior to each Optional Tender Date or Purchase Date, the Remarketing Agents shall give notice by telecopy or telephone (confirmed in writing) of the principal amount of such Bonds (or portions thereof in authorized denominations) and the registration information concerning the new Bondowners, for which they have arranged a remarketing and for which the Remarketing Agents hold remarketing proceeds on hand, to the Trustee, the Tender Agent, the Paying Agent and the Bank and, by 12:00 noon, New York City time, on each Optional Tender Date or Purchase Date shall transfer to the Tender Agent the proceeds of the remarketing of such Bonds for delivery to the Bank upon verification that sufficient amounts relating to such Bonds have been paid under the Letter of Credit and upon reinstatement of the related amount under the Letter of Credit. [2.06] (b) In remarketing any Bonds tendered for purchase pursuant to the Indenture, the Remarketing Agents shall determine, in accordance with Section 2.03, the Semi-Annual Rate, the Weekly Rate, the Medium-Term Rate, the Money Market Municipal Rate or the Fixed Rate, as the case may be, on the Bonds. [2.06] (c) The Remarketing Agents shall not remarket any Bonds pursuant to this Section if they have received written notice from the Trustee that an Event of Default (other than an Event of Default set forth in Section 6.01(d) of the Participation Agreement) shall have occurred and be continuing hereunder with respect to the Bonds. [2.06] (d) The Remarketing Agents shall not knowingly remarket any Bonds to the Company or any of its Affiliates or to the Authority pursuant to this Section prior to the expiration or earlier termination of the Letter of Credit unless, prior to such remarketing, the Trustee and the Remarketing Agents shall have received an unqualified Opinion of Bond Counsel experienced in bankruptcy matters and satisfactory to the Trustee and to Moody's, if Moody's shall then be rating the Bonds, to the effect that such remarketing would not result in a preferential payment pursuant to the provisions of Section 547 of the United States Bankruptcy Code, 11 U.S.C. Section Section 101, et seq. [2.06] (e) The Remarketing Agents may remarket any Bonds tendered for purchase as provided in Section 2.05(e) only if (1) the Company delivers to the Trustee a Letter of Credit and the requirements of Section 4.12 of the Participation Agreement have 114 68. been met or (2) the Company changes the Interest Rate Determination Method to the Fixed Rate in accordance with Section 2.04. The Remarketing Agents may remarket any Bonds tendered for purchase as provided in Section 2.05(j) only if the Trustee and Remarketing Agents have received notice from the Bank that the event referred to in the written notice from the Bank delivered under Section 2.05(j) has been cured or waived and the Letter of Credit has been reinstated in full. [2.06] (f) The Remarketing Agents, with respect to any Bond for which a redemption date has been established and which the Remarketing Agents are attempting to remarket, shall provide to any purchaser notice of the applicable redemption terms at the time of or before purchase by such purchaser. [2.06] (g) The Tender Agent, with respect to any Bond for which the Tender Agent or Trustee has received notification from the Remarketing Agent that it has found a purchaser or purchasers to whom the Remarketing Agent can remarket Bonds tendered for purchase, shall so notify the Bank in writing. Section 2.07. Delivery of Purchased Bonds. (a) Bonds (or portions thereof in authorized denominations) purchased pursuant to Section 2.05 (other than on a Fixed Rate Conversion Date) shall be delivered as follows: [2.07(a)] (i) Bonds (or portions thereof in authorized denominations) purchased with moneys described in clause (i) (to the extent that the Trustee has received notice of reinstatement of the Letter of Credit in an amount equal to the Purchase Price of the Bonds and has so notified the Tender Agent) and in clause (ii) of Section 2.05(h) shall be delivered by the Tender Agent to the purchasers there of upon receipt of payment thereof. Prior to such delivery, the Tender Agent shall surrender such Bonds, if so requested by the purchasers thereof, to the Trustee for registration of transfer. Bonds, portions of which in authorized denominations shall have been purchased with such moneys, shall be surrendered by the Tender Agent to the Trustee for registration of transfer with respect to principal amounts thereof so purchased and for registration of transfer with respect to the principal amounts thereof not so purchased as provided in clause (ii) below or for cancellation as provided in clause (iii) below; [2.07(a)] (ii) Bonds (or portions thereof in authorized denominations), any portion of the Purchase Price of which shall have been paid with moneys drawn under the Letter of Credit, shall, if and to the extent that the Trustee has not 115 69. received notice of reinstatement of the Letter of Credit in an amount equal to the Purchase Price of the Bonds (or portion thereof), be surrendered by the Tender Agent to the Trustee for registration of transfer to the Company and upon such registration of transfer, the Bonds issued in respect thereof shall be delivered to and held by the Tender Agent for the account of the Company and shall not be released, pledged or otherwise transferred or disposed of unless prior to or simultaneously with the release of the Bonds by the Tender Agent to the Remarketing Agents for remarketing, the amount to be drawn under the Letter of Credit shall have been correspondingly reinstated and written notice of such reinstatement shall have been delivered by the Trustee or the Bank to the Tender Agent, or in the case of a purchase pursuant to Section 2.05(e), an Alternate Credit Facility meeting the requirements of Section 6.07 has been provided; provided, further, that, upon receipt by the Tender Agent of either (A) notice of the establishment of a Mandatory Purchase Date pursuant to Section 2.05(e) or (B) notice from the Bank directing mandatory tender and purchase of the Bonds pursuant to Section 2.05(j), then any Bonds theretofore or thereafter purchased with such moneys drawn under the Letter of Credit shall be surrendered by the Tender Agent to the Trustee for registration of transfer to the Bank and upon such registration of transfer, the Bonds issued in respect thereof shall be delivered to and held by the Tender Agent for the account of the Bank and shall not be released, pledged or otherwise transferred or disposed of (except to the Bank) other than in accordance with the Remarketing Agreement, and the Tender Agent shall notify the Bank that it is holding such Bonds for the Bank's account; and [2.07(a)] (iii) Bonds (or portions thereof in authorized denominations) purchased with any other moneys pursuant to Section 2.05(h) shall be delivered to the Trustee for cancellation as to the principal amount thereof so purchased and for registration of transfer and delivery pursuant to (i) or (ii) above as to the remainder thereof. [2.07] (b) Bonds (or portions thereof in authorized denominations) purchased pursuant to Section 2.05(d)(1) (only insofar as such subsection relates to a Fixed Rate Conversion Date) shall be delivered to the Trustee for cancellation and Bonds shall be issued in exchange therefor in accordance with Section 2.03(k), which shall be delivered: (i) to the purchasers thereof, with respect to the Bonds (or portions thereof in authorized denominations) purchased with moneys described in Section 2.07(a)(i) or (ii) to the Tender Agent, with respect to Bonds (or portions thereof in authorized denominations) purchased 116 70. with moneys as described in Section 2.07(a)(ii) and shall be held for the account of the Company, except as otherwise provided in such Section 2.07(a)(ii), will not be entitled to the benefits of the Letter of Credit and shall (x) have a legend stating "This Bond is not entitled to the benefits of the Letter of Credit referred to herein", affixed thereto by the Tender Agent until released and delivered pursuant to the following paragraph (c), and (y) shall be held by the Tender Agent and shall be disposed of solely pursuant to the terms of the following clause (c). Bonds so purchased with any other moneys shall be delivered to the Trustee for cancellation and no replacement Bonds shall be issued in respect thereof. [2.07] (c) The Tender Agent shall authenticate and deliver new Bonds in replacement of any Bonds held pursuant to the preceding clause (ii) to or upon the order of the Remarketing Agents, only upon receipt by the Tender Agent from any Person other than the Company following any remarketing of such new Bonds of payment in immediately available funds in respect of the principal amount of such Bonds (including accrued interest, if any). Such funds shall be received by the Tender Agent solely for the account of the Bank and shall be promptly transmitted to or upon the written order of the Bank. Upon such delivery, such Bonds shall be entitled to the benefits of the Letter of Credit. Section 2.08. Mutilated, Lost, Stolen or Destroyed Bonds. In the event any outstanding Bond, whether temporary or definitive, is mutilated, lost, stolen or destroyed, the Authority may execute and, upon its request, the Trustee may authenticate a new Bond oflike tenor as the mutilated, lost, stolen or destroyed Bond; provided that, in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to the Trustee, and in the case of any lost, stolen or destroyed Bond, there shall be first furnished to the Trustee evidence of the ownership thereof and of such loss, theft or destruction in form satisfactory to the Trustee, together with an indemnity satisfactory to it which indemnity shall name the Authority as an additional indemnified party. In the event any such Bond shall have matured, instead of issuing a substitute Bond the Authority may authorize the payment of the same. The Authority and the Trustee may charge the owner of such Bond with their reasonable fees and expenses in this connection. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be destroyed, lost or stolen shall constitute an original additional contractual obligation on the part of the Authority, whether or not the Bond so alleged to be destroyed, lost or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of the Indenture with all other Bonds issued hereunder to the same extent as the Bonds in substitution for which such Bonds were issued. 117 71. Section 2.09. Temporary Bonds. Until Bonds in definitive form are ready for delivery, the Authority may execute, and upon its request in writing, the Trustee shall authenticate and deliver in lieu of any thereof, and subject to the same provisions, limitations, and conditions, one or more printed, lithographed or typewritten Bonds in temporary form, substantially of the tenor of the Bonds hereinbefore described, and with appropriate omissions, variations and insertions. Bonds in temporary form will be for such principal amounts as the Authority shall determine. Until exchanged for Bonds in definitive form, such Bonds in temporary form shall be entitled to the security and benefit of the Indenture. The Authority shall, without unreasonable delay, prepare, execute and deliver to the Trustee, and thereupon, upon the presentation and surrender of the Bond or Bonds in temporary form to the Trustee at the Corporate Trust Office, the Trustee shall authenticate and deliver, in exchange therefor, a Bond or Bonds, in definitive form in the authorized denomination, and for the same principal amount, as the Bond or Bonds in temporary form surrendered. Such exchange shall be made without making any charge to the Bondowners therefor. Section 2.10. Execution of Bonds; Effect of Change of Officers. All the Bonds shall, from time to time, be executed on behalf of the Authority by, or bear the facsimile signature of, its Chair, Vice Chair, President or Treasurer, and its corporate seal (which may be facsimile) shall be thereunto affixed (or imprinted or engraved if facsimile) and attested by the signature of its Secretary or an Assistant Secretary (which may be facsimile). If any of the officers who shall have signed or sealed any of the Bonds or whose facsimile signature shall be upon the Bonds shall cease to be such officer of the Authority before the Bonds so signed and sealed shall have been actually authenticated by the Trustee or delivered by the Authority, such Bonds nevertheless may be authenticated, issued and delivered with the same force and effect as though the person or persons who signed or sealed such Bonds or whose facsimile signature shall be upon the Bonds had not ceased to be such officer or officers of the Authority; and also any such Bond may be signed and sealed on behalf of the Authority by those persons who at the actual date of the execution of such Bond shall be the proper officers of the Authority, although at the date of such Bond any such person shall not have been such officer of the Authority. Section 2.11. Registration of Bonds; Transfers; Securities Depository. (a) All the Bonds issued under the Indenture shall be negotiable, subject to the provisions for registration of transfer contained in the Indenture and in the Bonds. The Trustee shall be the registrar for the Bonds. So long 118 72. as any of the Bonds shall remain outstanding, the Trustee shall maintain and keep at its Corporate Trust Office the Bond Register for the registration of transfer of Bonds. Upon presentation thereof for such purpose at said office, the Trustee shall register or cause to be registered therein under such reasonable regulations as it may prescribe, the transfer of any Bond. The registration of transfer of any Bond shall be made only upon the Bond Register at such Corporate Trust Office at the written request of the Registered Owner thereof or his or her representative duly authorized in writing, upon surrender thereof, together with a written instrument of transfer satisfactory to the Trustee duly executed by the Registered Owner or his or her representative duly authorized in writing. Upon the registration of transfer of any Bond, the Authority shall issue in the name of the transferee, in authorized denominations, one or more Bonds of the same aggregate principal amount as the surrendered Bonds. The Trustee shall not register any transfer of any Bond (or portion thereof), except pursuant to Bondowner tender, after notice calling such Bond (or portion thereof) for redemption or partial redemption has been given and prior to such redemption. In connection with any such transfer pursuant to Bondowner tender, the Trustee shall deliver to the transferee a copy of the applicable call for redemption. The Trustee or the Tender Agent shall, in addition, authenticate and register in the name and in the manner directed by the recipient thereof Bonds in replacement for Bonds deemed to be tendered for purchase pursuant to Section 2.05 for delivery in accordance therewith. [2.11] (b) DTC shall act as Securities Depository for the Bonds upon the initial issuance of the Bonds. The ownership of one fully registered Bond in the aggregate principal amount of the Bonds shall be registered in the name of Cede & Co., as nominee of DTC. Each such Bond shall be held in trust until its redemption or until such time as DTC or its nominee is no longer the Registered Owner of the Bonds, as provided below. For so long as the Bonds are held in a book-entry-only system and so long as a Securities Depository or its nominee is the Registered Owner of the Bonds, references herein to the Bondowners or Registered Owners of the Bonds shall mean such Securities Depository or its nominee and shall not mean the beneficial owners ("Beneficial Owners") of the Bonds. For so long as a Securities Depository or its nominee is the Registered Owner of the Bonds, principal, Purchase Price, redemption price, including premium, if any, and interest payments on the Bonds shall be made to such 119 73. Securities Depository or its nominee, as Registered Owner of the Bonds, and the Authority and the Trustee shall recognize such Securities Depository or its nominee as the Bondowner for all purposes, and such Securities Depository or its nominee shall be considered the only owner of such Bonds for all purposes, including receipt of notice, voting and requesting or directing the Trustee, the Remarketing Agents, the Paying Agent, the Tender Agent or any other fiduciary to take or not to take any action under the Indenture. Conveyance of notices and other communications by a Securities Depository to Beneficial Owners will be governed by arrangements among them, subject to any statutory and regulatory requirements as may be in effect from time to time. THE AUTHORITY, THE COMPANY, THE TRUSTEE, THE PAYING AGENT AND THE REMARKETING AGENTS WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY A SECURITIES DEPOSITORY; (II) THE PAYMENT BY A SECURITIES DEPOSITORY OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL, PURCHASE PRICE, INCLUDING PREMIUM, IF ANY, OR INTEREST ON THE BONDS; (III) ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO BENEFICIAL OWNERS OR (IV) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY A SECURITIES DEPOSITORY OR ITS NOMINEE AS BONDOWNER. The Authority may elect to discontinue such book-entry-only system and upon the discontinuance of such book-entry-only system, Bond certificates are required to be delivered in physical and registered form to the Bondowners or their designees, according to the terms of the Indenture. Upon the institution of any Rate Period after such discontinuance, the Authority upon the direction of the Company may direct that the Bonds shall be held as book-entry-only Bonds by notification to the Trustee, the Paying Agent, Tender Agent and the Remarketing Agents of its intention to reinstitute the book-entry-only system. Upon receipt of such notice, the Trustee shall notify owners of such Bonds that such Bonds shall be registered in a book-entry-only system with DTC or its nominee or such alternative Securities Depository as the Authority shall appoint. Upon or before the date specified in such notice, such owners shall surrender their Bond certificates to the Trustee or Tender Agent to have their beneficial ownership interest in the Bonds registered under the book-entry-only system described herein. If any Bondowner fails to surrender any such certificate to the Trustee or Tender Agent, such Bondowner shall remain the Registered Owner of such Bond; provided, however, that such Registered Owner shall have no right to transfer or tender such Bond without first surrendering such Bond for registry in the book-entry-only system. 120 74. If, during any period that a Securities Depository, including DTC or its nominee, is the Registered Owner of the Bonds, (a) such Securities Depository determines to discontinue providing its service with respect to the Bonds by giving notice to the Authority and the Trustee and discharging its responsibilities with respect thereto under applicable laws, and the Authority fails to appoint a successor Securities Depository for the Bonds, or (b) the Authority at the direction of the Company determines to discontinue the book-entry-only system through such Securities Depository, then Bond certificates are required to be delivered in physical and registered form to the Beneficial Owners or their designees, according to the terms of the Indenture. Each Beneficial Owner, upon delivery of certificates held in the Beneficial Owner's name, will become the Registered Owner of that portion of the Bonds. In the event that the book-entry-only system is discontinued and the Beneficial Owners become Registered Owners of the Bonds, the provisions applicable to such Registered Owners shall apply. In connection with any notice or other communication to be provided to Bondowners pursuant to the Indenture by the Authority or the Trustee with respect to any consent or other action to be taken by Bondowners, the Authority or the Trustee, as the case may be, shall establish a record date for such consent or other action and give the nominee or Securities Depository notice of such record date not less than fifteen calendar days in advance of such record date to the extent possible. The Authority and the Trustee are hereby authorized to enter into any arrangements determined necessary or desirable with any Securities Depository in order to effectuate this Section and both of them shall act in accordance with the Indenture and any such agreement. Without limiting the generality of the foregoing, any such arrangements may alter the manner of effecting delivery of Bonds and the transfer of funds for the payment of Bonds to the Securities Depository. Section 2.12. Persons Treated as Owners. The Authority, the Trustee, the Tender Agent and any Paying Agent may, for all purposes, deem and treat the Registered Owner of any Bond as the absolute owner of such Bond whether or not such Bond is overdue, and neither the Authority nor the Trustee nor the Tender Agent nor any Paying Agent shall be affected by any notice to the contrary. Payment made to the Registered Owner of any Bond for the purpose of such payment in accordance with the provisions of this Section 2.12 shall be valid and effectual, to the extent of the sum 121 75. or sums so paid, to satisfy and discharge the liability upon such Bond in respect of which such payment was made. Section 2.13. Exchange of Bonds. So long as any of the Bonds remain outstanding, the Authority shall make all necessary provisions to permit the exchange of Bonds at the Corporate Trust Office of the Trustee. Bonds, upon surrender thereof at the Corporate Trust Office of the Trustee with a written instrument requesting such exchange satisfactory to the Trustee duly executed by the Registered Owner or his or her representative duly authorized in writing, may be exchanged for an equal aggregate principal amount of Bonds of any other authorized denominations, in an aggregate principal amount equal to the principal amount of the Bonds so surrendered. Section 2.14. Payment For and Limitations on Exchanges and Transfers. In all cases in which the right of exchanging or registering the transfer of Bonds is exercised, the Authority shall execute and the Trustee shall authenticate and deliver Bonds in accordance with the provisions hereof. All Bonds surrendered for registration of transfer or exchange shall forthwith be cancelled by the Trustee. For every such registration of transfer or exchange of Bonds, the Trustee may charge an amount sufficient to reimburse it for any tax, fee or other governmental charge required to be paid with respect to such registration of transfer or exchange which, if not resulting in a change in Bondowner, shall be paid by the Company pursuant to the Participation Agreement. The cost of preparing each new Bond upon each registration of transfer or exchange, and any other expenses (except any applicable tax, fee or other governmental charge) of the Authority or the Trustee incurred in connection with such registration of transfer or exchange shall be paid by the Company pursuant to the Participation Agreement. Section 2.15. Endorsement of Certificate of Authentication on Bonds. No Bond shall be secured hereby or entitled to the benefit of the Indenture or be valid or obligatory for any purpose unless there shall be endorsed on such Bond a certificate of authentication, substantially in the form prescribed in the Indenture, executed by the Trustee or the Tender Agent; and such certificate on any Bond issued by the Authority shall be conclusive evidence and the only competent evidence that such Bond has been duly authenticated and delivered hereunder. The Trustee's certificate of authentication on any Bond shall be deemed to have been executed by it if signed by an authorized officer of the Trustee or the Tender Agent, but it shall not be necessary that the 122 76. same officer sign the certificate of authentication on all of the Bonds issued hereunder. Section 2.16. Cancellation of Bonds. Upon the surrender to the Trustee of any temporary or mutilated Bonds, or Bonds transferred or exchanged for other Bonds, or Bonds paid at maturity or upon defeasance in accordance with Article XIV or otherwise delivered to the Trustee for cancellation, the same shall forthwith be cancelled and may be destroyed by the Trustee in such manner as it deems appropriate and the Trustee shall, if such Bonds are so destroyed, deliver its certificate as to such destruction to the Authority. Section 2.17. Redemption of Bonds. The Bonds shall be subject to optional and mandatory redemption at the times and at the redemption prices set forth in the form of Bonds in the preamble hereto. 123 77. ARTICLE III SECURITY FOR BONDS; ISSUANCE OF BONDS Section 3.01. Pledge and Assignment Effected by Indenture; Bonds Equally and Ratably Secured. In accordance with the provisions of subsection 8 of Section 1860 of the Act, the pledge and assignment effected by the Indenture shall be valid and binding from the date of execution and delivery of the Indenture, the moneys so pledged and assigned and hereafter received by the Authority shall be subject to the lien of such pledge and assignment without any physical delivery thereof or further act, and such lien shall be a continuing, irrevocable and exclusive first lien and shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the Authority irrespective of whether such parties have notice thereof. In addition to the pledges and assignments set forth above, the Authority hereby further grants to the Trustee the same power as the Authority to enforce from time to time the rights of the Authority set forth in Article III and Section 5.16 of the Participation Agreement, subject to the provisions of the Participation Agreement relating to the amendment thereof. All Bonds issued and to be issued hereunder are, and are to be, to the extent provided in the Indenture, equally and ratably secured by the Indenture without preference, priority or distinction on account of the actual time or times of the authentication or delivery of the Bonds, or any of them, so that, subject to the provisions of Section 9.05, all Bonds at any time outstanding hereunder shall have the same right, lien and preference under and by virtue of the Indenture and shall all be equally and ratably secured hereby with like effect as if they had all been executed, authenticated and delivered simultaneously on the date hereof; provided, however, that Bonds registered in the name of the Company or held or required to be held by the Tender Agent pursuant to Section 2.07 shall not be entitled to any benefit of the Letter of Credit. Section 3.02. Issuance of Bonds. The Bonds shall forthwith be executed by the Authority and delivered to the Trustee for authentication and upon the written request and authorization to the Trustee signed by an Authorized Officer the Bonds shall be authenticated by the Trustee or the Tender Agent and shall be delivered to or upon the written order of an Authorized Officer, but only upon the receipt by the Trustee of proceeds (including accrued interest, if any) of sale of the Bonds, of which (i) a sum equal to the accrued interest, if any, paid by the initial purchasers of such Bonds shall be deposited in the Bond Fund and (ii) the balance thereof shall be deposited in the Construction Account of the Project Fund. Prior to, or simultaneously with, the 124 78. authentication and delivery of the Bonds, the Trustee shall also receive the following: (a) A copy, certified by the Secretary of the Authority, of the resolution or resolutions adopted by the Authority authorizing the execution and delivery of the Indenture and the Participation Agreement and the issuance, sale, execution and delivery of the Bonds; (b) An original executed counterpart of the Participation Agreement and the Indenture; (c) The Company Note; (d) The Letter of Credit; (e) A copy of resolutions authorizing the execution and delivery of the Participation Agreement, and the issuance, execution and delivery of the Company Note, by the Company, certified by the Secretary or an Assistant Secretary of the Company, under its corporate seal, to have been duly adopted by the Board of Directors of the Company, or the Executive and Finance Committee thereof, and to be in full force and effect on the date of such certification; (f) A copy of the opinion of counsel to the Company delivered to the initial purchasers of the Bonds, together with a letter to the effect that the Trustee may rely on such opinion as if it were addressed to it; (g) An opinion of counsel, who shall be satisfactory to the Trustee, experienced in laws relating to the issuance of bonds of states and their political subdivisions, to the effect that the issuance of the Bonds has been duly authorized and that all conditions precedent to the issuance thereof have been fulfilled; and (h) A copy of an opinion of counsel to the Bank to the effect that the Letter of Credit has been duly authorized, executed and delivered and is a valid and binding obligation of the Bank, together with a letter to the effect that the Trustee may rely on such opinion as if it were addressed to it. 125 79. ARTICLE IV PARTICIPATION AGREEMENT AND COMPANY NOTE Section 4.01. Amendments to Participation Agreement not Requiring Consent of Bondowners. The Authority may, without the consent of the Trustee and without notice to or consent of the Bondowners, enter into any amendment or modification of the rights and interest of the Authority under Article III of the Participation Agreement or Sections 4.04, 4.08, 4.09, 4.10 and 5.16 of the Participation Agreement upon the delivery to the Trustee of an Opinion of Bond Counsel, satisfactory to the Trustee, to the effect that the proposed amendment or modification will not impair the exclusion from gross income for federal income tax purposes of interest on any of the Bonds theretofore issued or otherwise adversely affect the rights and/or interests of the Trustee or any of the owners of the Bonds. The Authority may, without the consent of or notice to the Bondowners, amend or modify any other provision of the Participation Agreement as may be required (i) for the purpose of curing any ambiguity or formal defect or omission in the Participation Agreement; or (ii) in connection with any other change therein which is not prejudicial to the interests of the Trustee or the owners of the Bonds, including but not limited to any change necessary to obtain or maintain a rating of the Bonds from Moody's or S&P. Prior to the expiration of the Letter of Credit, no amendment modification of the Participation Agreement shall be effective without the prior written consent of the Bank, which consent shall not be unreasonably withheld. Section 4.02. Amendments to Participation Agreement Requiring Consent of Bondowners. Except for amendments or modifications as provided in Section 4.01, the Authority shall not enter into any amendment or modification of the Participation Agreement without the written consent of Trustee and the owners of not less than two-thirds in aggregate principal amount of the Bonds then outstanding and affected by such modification or amendment. Such consent of Bondowners shall be given and procured in the same manner as provided in Section 13.02 with respect to Supplemental Indentures. No modification or amendment requiring the consent of Bondowners shall be effective unless the required consent of Bondowners is obtained and such modification is not prejudicial to the interests of the Trustee. 126 80. Notwithstanding anything to the contrary contained in the Indenture or the Participation Agreement, the Authority shall not agree to any amendment, change or modification of, or any waiver, discharge or termination of, any of the provisions of the Participation Agreement in any respect which would impair the exclusion from gross income for federal income tax purposes of interest on any of the Bonds. Prior to the expiration of the Letter of Credit, no amendment or modification of the Participation Agreement shall be effective without the prior written consent of the Bank, which consent shall not be unreasonably withheld. Section 4.03. Amendments to Company Note. Except for such amendments or modifications of the Company Note as may be required for the purpose of curing any ambiguity or formal defect or omission in the Company Note, or in connection with any other change therein which, in the judgment of the Trustee, is not prejudicial to the interests of the Trustee or the Bondowners, the Trustee shall not enter into any amendment or modification of the Company Note without obtaining the prior written consent of the owners of not less than two-thirds in aggregate principal amount of the Bonds then outstanding. No such modification or amendment shall be made which will affect the times, amounts and currency of payment of the principal of and premium, if any, and interest on the Company Note without the consent of the owners of all Bonds then outstanding. The Trustee shall consent to any such proposed action requiring the consent of the owners of the Bonds if the required consent of the owners of the Bonds is obtained; provided that the Trustee may, but shall not be obligated to consent to any such proposed action which affects its own rights, powers, duties or obligations hereunder. Such consent of Bondowners shall be given and procured in the same manner as provided in Section 13.02 with respect to Supplemental Indentures. Prior to the expiration of the Letter of Credit, the Trustee shall not consent to any amendment or modification of the Company Note without the prior written consent of the Bank, which consent shall not be unreasonably withheld. Section 4.04. Amendments to Tax Regulatory Agreement. The Authority may, without the consent of the Trustee and without notice to or consent of the Bondowners, enter into any amendment or modification of the Tax Regulatory Agreement upon the delivery to the Trustee of an Opinion of Bond Counsel to the effect that the proposed amendment or modification will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. 127 81. ARTICLE V PROJECT FUND; REBATE FUND Section 5.01. Creation and Custody of Project Fund. 1. There is hereby created a Project Fund, which shall be held by the Trustee. There shall be paid into the Project Fund the amount required to be so paid by the provisions of Section 3.02. 2. There is hereby established within the Project Fund two (2) separate trust accounts to be known as the "Construction Account" and the "Investment Proceeds Account." All income or gain on moneys deposited in the Construction Account or the Investment Proceeds Account shall be deposited in the Investment Proceeds Account. Section 5.02. Application of Moneys in the Project Fund. 1. The moneys in the Construction Account, until applied in payment of any item of the Cost of Construction of the Project, shall be held by the Trustee and, pending such application, shall be subject to a claim and charge in favor of the owners of the Bonds and for the further security of such owners until paid out as herein provided. The moneys in the Investment Proceeds Account, until applied in accordance with the provisions of Section 5.02.2, shall be held by the Trustee, but shall not be subject to a claim or charge in favor of the Bondowners and shall be applied solely in accordance with the provisions of this Article and shall not be available for the payment of Bonds within the meaning of the Indenture. Pending such application, such moneys may be invested in accordance with the provisions of Article VII. 2. On the first Business Day following each Computation Period, the Trustee shall withdraw from the Investment Proceeds Account and deposit in the Rebate Fund an amount such that the amount held in the Rebate Fund after such deposit, as certified to the Trustee by an Authorized Company Representative, is equal to the Rebate Amount calculated as of the last day of the Computation Period, as certified to the Trustee by an Authorized Company Representative. Any remaining balance in the Investment Proceeds Account shall be deposited in the Construction Account. In the event of any deficiency, the balance required shall be provided by the Company pursuant to Section 7.3 of the Tax Regulatory Agreement. Computations of the amounts on deposit in each fund hereunder, descriptions of each investment held therein, and computations of the Rebate Amount shall be furnished to the Trustee by the Company in accordance with Section 7.3 of the Tax Regulatory Agreement. 128 82. Section 5.03. Construction Account Requisitions. The Trustee is authorized and directed to make payments from the Construction Account to pay the Cost of Construction of the Project, upon the written order of the Company, but only upon receipt from time to time of requisitions signed by an Authorized Company Representative in the form of EXHIBIT C attached hereto upon which the Trustee may conclusively rely, stating with respect to each payment to be made for the Project: (a) the requisition number; (b) the items of the Cost of Construction of the Project to which the disbursement relates or has been allocated and the nature of the disbursement; (c) the payee, with address, which may be the Company in the case of reimbursements for advances and payments made or costs incurred or work done by the Company; (d) the amount of such payment; (e) that the disbursement will be used to pay, or reimburse the Company for, a Cost of Construction of the Project and that it is a proper charge against the Construction Account; (f) that none of the items for which the disbursement is requested has formed the basis for any disbursement theretofore made from the Construction Account; (g) that the disbursement will not be used in a manner that would result in a violation of any representation, warranty or covenant contained in Article III of the Tax Regulatory Agreement or Section 5.04 of the Participation Agreement; (h) that no event of default under the Participation Agreement shall have occurred and be continuing and that no event which with the lapse of time alone would become such a default has occurred and is continuing; and (i) that no event of default under the Indenture shall have occurred and be continuing and that no event which with the lapse of time alone would become such a default has occurred and is continuing. 129 83. Section 5.04. Retention of Requisitions. For seven years from the dates thereof the Trustee shall retain in its possession all requisitions received by it as herein required, subject to the inspection during normal banking hours, of the Authority, its agents and representatives and the Company and, upon reasonable request, inspection during normal banking hours of the Bondowners and their representatives, in any case, at the Corporate Trust Office. Section 5.05. Certification of Completion of the Project. On the date when all Costs of Construction expected to be paid from the Project Fund have been paid, the Trustee and the Authority shall be furnished promptly with a certificate of an Authorized Company Representative, which certificate shall contain an appropriate direction to the Trustee with respect to any amount in the Project Fund which is to be disposed of as provided in Section 5.06. Section 5.06. Disposition of Balance Remaining in Project Fund. All moneys remaining in the Project Fund after the certificate referred to in Section 5.05 is furnished shall, at the written direction of an Authorized Company Representative, be deposited in segregated account in the Bond Fund, or paid to the Bank to reimburse the Bank for any unreimbursed draw under the Letter of Credit relating to the purchase of Bonds tendered or deemed tendered pursuant to Section 2.05 (and, pending any such application, be invested, in securities in accordance with the direction of an Authorized Company Representative delivered pursuant to Article VII, which direction shall confirm that such investment will not be in violation of the covenants and warranties made to the Authority by the Company in Section 7.1 of the Tax Regulatory Agreement), or deposited in the Rebate Fund. Section 5.07. Creation and Custody of Rebate Fund. There is hereby created a Rebate Fund, which shall be held by the Trustee. There shall be paid into the Rebate Fund the amount required to be so paid under Section 5.02.2. All income or gain on moneys deposited in the Rebate Fund shall be deposited in the Rebate Fund. The Rebate Fund and the amounts deposited therein shall not be subject to a claim and charge in favor of the Trustee or any owners of Bonds and shall be applied solely in accordance with the provisions of this Article and shall not be available for the payment of Bonds within the meaning of the Indenture. Section 5.08. Application of Moneys in the Rebate Fund. 1. Amounts deposited in the Rebate Fund shall be applied solely to pay Costs of Construction described in clause (i) of the definition of Costs of Construction in accordance with subsection 2 of this 130 84. Section 5.08 except to the extent otherwise permitted by subsection 3 of this Section 5.08. 2. The Trustee, upon receipt of written instructions from an Authorized Company Representative in accordance with Section 7.3 of the Tax Regulatory Agreement, shall pay to the United States out of amounts in the Rebate Fund (a) not later than thirty (30) days after the end of each five-year period following the date of issuance of the Bonds, an amount certified to the Trustee by an Authorized Company Representative such that, together with amounts previously paid, the total amount paid to the United States is equal to 90% of the Rebate Amount calculated as of the end of the most recent Computation Period, and (b) not later than 30 days after the date on which all of the Bonds have been paid or redeemed, 100% of the Rebate Amount as of the end of the final Computation Period as certified to the Trustee by an Authorized Company Representative. 3. In the event that on the first day of any Bond Year the amount on deposit in the Rebate Fund exceeds the Rebate Amount, the Trustee, upon the receipt of written instructions from an Authorized Company Representative specifying the amount of such excess, shall withdraw such excess amount and prior to the Completion Date, deposit it in the Investment Proceeds Account of the Project Fund, or, after the Completion Date, deposit it in the Bond Fund. Pending such application, such moneys may be invested in accordance with instructions from the Company given in accordance with the provisions of Article VII. 131 85. ARTICLE VI BOND FUND; LETTER OF CREDIT Section 6.01. Creation and Custody of the Bond Fund. There is hereby created a Bond Fund, which shall be held in trust by the Trustee for the benefit of the Bondowners and shall be subject to a lien and charge in favor of the Bondowners. Neither the Company nor the Authority shall have any interest in, or ability to withdraw funds from, the Bond Fund. There are hereby created within the Bond Fund two separate trust accounts to be designated as the Debt Service Account and the Letter of Credit Account. The moneys in each such account shall not in any way be commingled with funds in any other trust account maintained by the Trustee. The Trustee shall maintain such records for deposits made into the Debt Service Account so that the Trustee may at all times ascertain the source and dates of deposit of the moneys in the Debt Service Account. The Authority hereby authorizes and directs the Trustee to withdraw in accordance with Section 6.03 sufficient funds from the Bond Fund to pay the principal of and premium, if any, and interest on the Bonds as the same become due and payable and to make such funds so withdrawn available to the Paying Agents, if any, for the purpose of paying such principal, premium, if any, and interest. Section 6.02. Payments into the Bond Fund. The Trustee shall deposit in the Bond Fund for credit to the Debt Service Account as and when received (1) the amount, if any, of the proceeds of sale of the Bonds, to the extent required by this Indenture, (2) all Company Note Payments, (3) the amounts remaining in the Project Fund after the certificate referred to in Section 5.05 is furnished, (4) all interest and other income received on investments of moneys on deposit in the Bond Fund, as provided in Section 7.03, (5) any funds made available pursuant to Section 8.05, (6) any proceeds of refunding obligations and (7) any amount paid into the Bond Fund pursuant to Section 5.08.3. There shall be deposited in the Letter of Credit Account all moneys drawn by the Trustee under the Letter of Credit and received by the Trustee for the purposes of paying principal of, premium, if any, and interest on, the Bonds. In the event that the Bonds are held by a Securities Depository, moneys drawn under the Letter of Credit may be paid directly to the Securities Depository, in which event, proper notification concerning such payment shall be sent to the Trustee and Paying Agent. 132 86. Section 6.03. Application of Moneys in the Bond Fund. Except as otherwise provided in Sections 6.04 and 14.01.3, moneys on deposit in the Bond Fund shall be used solely for the payment of the principal of and premium, if any, and interest on the Bonds as the same shall become due and payable either at maturity, upon redemption, by declaration or otherwise. Moneys for such payments of the principal of, premium, if any and interest on the Bonds shall be derived from the following sources in the following order of priority: (i) moneys drawn under the Letter of Credit and either deposited in the Letter of Credit Account or, if necessary during any Rate Period when the Bonds are held by a Securities Depository, paid to such Securities Depository; (ii) moneys paid into the Bond Fund pursuant to clause (1) of Section 6.02 in respect of accrued interest which constitute Available Moneys and proceeds from the investment thereof that constitute Available Moneys which moneys shall be used to pay interest on the Bonds; (iii) proceeds of the sale of refunding obligations which constitute Available Moneys and proceeds from the investment thereof that constitute Available Moneys; (iv) moneys deposited into the Bond Fund pursuant to clause (3) or clause (7) of Section 6.02 which constitute Available Moneys and proceeds from the investment thereof that constitute Available Moneys; (v) Company Note Payments which constitute Available Moneys and proceeds from the investment thereof that constitute Available Moneys; (vi) to the extent permitted by Section 8.05, moneys deposited into the Bond Fund pursuant to clause (5) of Section 6.02, and proceeds from the investment thereof that constitute Available Moneys; and (vii) Company Note Payments which do not constitute Available Moneys and proceeds from the investment thereof. The Trustee hereby agrees to draw moneys under the Letter of Credit to be applied to the payment of principal of, premium, if any, or interest on, the Bonds. If and to the extent moneys under clause (i) of the preceding paragraph are insufficient or unobtainable therefor, the Trustee shall apply any other moneys that are available therefor, in the preceding order of priority, including moneys described in clauses (vi) and (vii) of the 133 87. preceding paragraph, to the payment of the principal of, premium, if any, and interest on, the Bonds. After the Letter of Credit has expired, any moneys held by the Trustee in the Bond Fund may be used to make any payment of the principal of, premium, if any, and interest on, the Bonds. Prior to the expiration of the Letter of Credit, moneys under clauses (iii), (iv) and (v) of this Section 6.03 shall not be used to pay the redemption price of any Bond redeemed pursuant to the direction of the Company, unless the Trustee shall have received the written direction specified in Section 8.01 providing for such redemption at least 123 days prior to such redemption date. If on the due date of principal and premium, if any, or interest with respect to Bonds, the amounts on deposit in the Bond Fund (except amounts held by the Trustee pursuant to Section 6.04) are not sufficient to pay in full all such principal of and premium, if any, and interest on the Bonds, such amounts shall be applied to the payment of such principal, premium and interest in accordance with the provisions of Section 10.09. Section 6.04. Non-presentment of Bonds. In the event any Bonds (or any portion thereof) shall not be presented for payment when the principal thereof and redemption premium, if any, thereon becomes due, either at maturity or at the date fixed for redemption thereof (including, for such purpose, any conversion to a Fixed Rate) or otherwise, if funds sufficient to pay such Bonds (or portions thereof) and redemption premiums, if any, shall be held by the Trustee for the benefit of the owner or owners thereof, all liability of the Authority to the owner or owners thereof for the payment of such Bonds (or portions thereof) and redemption premiums, if any, shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds (without investment thereof) in the Bond Fund for a period of at least two years, without liability for interest thereon, for the benefit of the owner or owners of such Bonds who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on such owner's or owners' part under the Indenture or on, or with respect to, such Bonds. On November 1 in each year Bonds are outstanding, the Trustee will pay any funds (other than moneys resulting from a draw on the Letter of Credit) which it has then held in respect of Bonds not presented for payment for two years or more to the Company, and thereafter the owners of such Bonds shall look only to the Company for the payment thereof and then only to the extent of the amount so received without any interest thereon, and the Authority, the Trustee and the Paying Agent shall have no responsibility with respect to such moneys. 134 88. Section 6.05. (Intentionally Deleted). Section 6.06. Trustee to Notify Authority and Company of Funds in Bond Fund. The Trustee, upon the written request of the Company or the Authority, shall notify the Company and the Authority of the amount of funds on deposit in the Bond Fund at the time of such request. Section 6.07. Letter of Credit. (1) The Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof as shall be necessary to make timely payments of principal of, and interest on, the Bonds required to be made from the Bond Fund and to make timely payments required to be made pursuant to, and in accordance with, Section 2.05. In connection with each such drawing, the Trustee shall timely prepare and present all certificates, drafts and other documents which are required by the terms of the Letter of Credit to effect payment thereunder. The Trustee shall give immediate telephonic or facsimile (confirmed in writing) notice to the Company of a draw under the Letter of Credit and the amount thereof. Nothing in this Section 6.07 shall require the Trustee to draw moneys under the Letter of Credit for the payment of Bonds registered in the name of, or held beneficially for, the Company or the Bank or any Bonds held or required to be held by the Tender Agent for the account of the Company or the Bank pursuant to the Indenture to the extent not permitted by the Letter of Credit. (2) If at any time on or prior to the thirty-seventh calendar day next preceding the scheduled expiration date of a Letter of Credit, there shall have been delivered to the Trustee (a) an Alternate Credit Facility, (b) an Opinion of Bond Counsel stating that the delivery of such Alternate Credit Facility to the Trustee is authorized under the Participation Agreement and the Indenture and complies with the terms of the Participation Agreement and the Indenture and (c) written evidence satisfactory to the Trustee from Moody's, if the Bonds are then rated by Moody's, and from S&P, if the Bonds are then rated by S&P, in each case to the effect that such Rating Agency has reviewed the proposed Alternate Credit Facility and that the substitution of the proposed Alternate Credit Facility for the Letter of Credit will not, by itself, result in a reduction or withdrawal of its rating or ratings of the Bonds from those which then prevail, then the Trustee shall accept such Alternate Credit Facility and surrender the previously held Letter of Credit to the Bank, in accordance with the terms ofsuch Letter of Credit, for cancellation. (3) The Company may substitute an Alternate Credit Facility which has the effect of lowering any then prevailing rating on the Bonds or with respect to which the Company will not 135 89. seek a rating from a Rating Agency then rating the Bonds only if (i) notice of mandatory purchase pursuant to Section 2.05(e)(1) shall have been given and such Alternate Credit Facility shall take effect on or prior to the date on which the Bonds are purchased pursuant to Section 2.05(e)(1) and (ii) such substitution will result in a rating of not less than the third highest rating category of a Rating Agency. Upon delivery to the Trustee of: (a) such Alternate Credit Facility, (b) an Opinion of Bond Counsel stating that the delivery of such Alternate Credit Facility is authorized under the Participation Agreement and the Indenture and complies with the terms thereof, and (c) written evidence satisfactory to the Trustee from a Rating Agency that delivery of such Alternate Credit Facility will not result in a rating of less than the third highest rating category of such Rating Agency, currently "A" in each case, the Trustee shall surrender the Letter of Credit previously in effect, promptly following any drawing required to be made on such Letter of Credit on the date the Bonds are so purchased. (4) If at any time, the Letter of Credit shall expire because there shall cease to be any Bonds outstanding hereunder, or because the Fixed Rate Conversion Date shall have occurred, then the Trustee shall surrender the Letter of Credit to the Bank for cancellation after having made any necessary drawing in accordance with this Section 6.07 and with the terms of the Letter of Credit. The Trustee shall comply with the procedures set forth in the Letter of Credit relating to the termination thereof. (5) Prior to the expiration of the Letter of Credit, the Trustee shall give notice, in the name of the Authority, of such expiration, which notice shall (a) specify the date of the expiration of the Letter of Credit and (b) specify the last time and date prior to such expiration on which Bonds must be delivered and the notice given for the purchase of Bonds pursuant to tenders as provided in Section 2.05, and the places where such Bonds must be delivered for such purchase, and (c) either (i) if the requirements of subsection 2 of this Section 6.07 have not been met, state that the Bonds shall be subject to mandatory tender for purchase at the Purchase Price thereof on the Mandatory Purchase Date or (ii) state the name of the issuer of the Alternate Credit Facility. Such notice shall be given by first class mail not later than thirty (30) days prior to the Mandatory Purchase Date to the owners of the Bonds. (6) Notwithstanding anything in the Indenture to the contrary, in the event the Bonds are held by a Securities Depository under Section 2.11(b), the Trustee may instruct the Letter of Credit Bank to pay amounts drawn thereunder directly to the Securities Depository, as Registered Owner of the Bonds, in 136 90. which event, proper notification concerning such payment shall be sent to the Trustee and the Paying Agent. 137 91. ARTICLE VII SECURITY FOR AND INVESTMENT OF MONEYS Section 7.01. Moneys Held in Trust. All moneys from time to time received by the Trustee and held in any fund created under the Indenture (other than the Rebate Fund), or otherwise held for the benefit of the owners, shall, except as otherwise provided herein, be held in trust by the Trustee for the benefit of the owners from time to time of the Bonds entitled to be paid therefrom. Section 7.02. Uninvested Moneys Held by the Trustee. All moneys received by the Trustee hereunder and not invested by the Trustee pursuant to the provisions of this Article VII, to the extent not insured by the Federal Deposit Insurance Company or other federal agency, shall be deposited with a member bank of the Federal Reserve System or with the Trustee, or with a national or state bank or a trust company which has a combined capital and surplus aggregating not less than $100,000,000; provided, however, that any such moneys drawn under the Letter of Credit and any moneys held under Section 6.04 shall be deposited with the Trustee or be fully insured by the Federal Deposit Insurance Company. Section 7.03. Investment of, and Payment of Interest on, Moneys. Moneys on deposit to the credit of the Project Fund or the Rebate Fund may be retained uninvested as trust funds. Such moneys shall, at the written direction of an Authorized Company Representative, be invested by the Trustee in (a) any obligation issued or guaranteed by, or backed by the full faith and credit of, the United States of America (including any certificates or any other evidence of an ownership interest in any such obligation or in specified portions thereof, which may consist of specified portions of the principal thereof or the interest thereon), (b) deposit accounts in, or certificates of deposit issued by, and bankers' acceptances of, any bank, trust company or national banking association which is a member of the Federal Reserve System (which may include the Trustee), having capital stock and surplus aggregating not less than $100,000,000, (c) obligations issued or guaranteed by any Person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to the authority granted by the Congress of the United States, (d) commercial paper rated in the highest investment grade or next highest investment grade by Moody's or S&P, (e) obligations rated not less than "A" or equivalent by Moody's or S&P issued or guaranteed by any state of the United States of America or the District of Columbia, or any political subdivision, agency or instrumentality of any such state or District, or issued by any corporation, (f) obligations of a public housing authority fully 138 92. secured by contracts with the United States of America, rated at least "A" or better by a Rating Agency, (g) shares of a money market fund, the sole assets of which are comprised of obligations described in (a) above or (h) shares of a money market fund which is rated "AAAm" or "AAAm-g" by S&P or "Prime-1" by Moody's. Moneys on deposit to the credit of the Bond Fund, other than moneys on deposit in the Letter of Credit Account, subject to Section 6.04, shall without any instruction from the Company or the Authority be invested in shares of a money market fund, the sole assets of which are comprised of obligations issued or guaranteed by, or backed by the full faith and credit of, the United States of America (including any certificates or any other evidence of an ownership interest in any such obligation or in specified portions thereof, which may consist of specified portions of the principal thereof or the interest thereon and which certificates or other evidence of an ownership interest must be rated by the Rating Agency then rating the Bonds at least as high as the obligations issued or guaranteed by, or backed by the full faith and credit of, the United States of America); provided that to the extent that such investments may be unavailable the Trustee may hold such funds uninvested. Notwithstanding anything in the preceding paragraph, Available Moneys held under the Indenture shall be invested by the Trustee, except to the extent such Available Moneys are permitted to be held uninvested under the Indenture, in any obligation issued or guaranteed by, or backed by the full faith and credit of, the United States of America (including any certificates or any other evidence of an ownership interest in any such obligation or in specified portions thereof, which may consist of specified portions of the principal thereof or the interest thereon and which certificates or other evidence of an ownership interest must be rated by the Rating Agency then rating the Bonds at least as high as the obligations issued or guaranteed by, or backed by the full faith and credit of, the United States of America), which matures on or prior to the redemption date. In no event shall the Trustee invest moneys on deposit to the credit of the Bond Fund in any obligation or security issued or guaranteed by the Company or the Authority or any obligation or security issued or guaranteed by any Person known to a Responsible Officer of the Trustee to be an Affiliate of either the Company or the Authority. Investments of moneys on deposit to the credit of the Project Fund, the Bond Fund and the Rebate Fund pursuant to this Section 7.03 shall have maturity dates, or shall be subject to redemption at the option of the Trustee, on or prior to the 139 93. respective dates on which the moneys invested therein are payable for the purposes of such Funds. The securities purchased with the moneys in each such Fund or in any account or sub-account thereof shall be deemed a part of such Fund or account or sub-account. The interest, including realized increment on securities purchased at a discount, received on all such securities in any Fund or any account or sub-account thereof shall be deposited by the Trustee to the credit of such Fund or account or sub-account, except as otherwise provided in Section 5.01.2. The Trustee shall not be liable or responsible for any loss resulting from any such investment or resulting from the redemption, sale or maturity of any such investment as herein authorized or for monitoring or ensuring the Company's compliance with its covenants contained in the Tax Regulatory Agreement. The Company shall be responsible for, and provide additional funds as necessary in connection with, any and all losses on investment of moneys on deposit in the Bond Fund. If at any time it shall become necessary that some or all of the securities purchased with the moneys in either such Fund be redeemed or sold in order to raise the moneys necessary to comply with the provisions of the Indenture, the Trustee shall effect such redemption or sale, employing in the case of a sale any commercially reasonable method of effecting such sale. Any direction to invest moneys given orally under the terms of the Indenture shall be confirmed in writing. Moneys drawn on the Letter of Credit shall be retained uninvested by the Trustee or the Tender Agent, as appropriate, and shall not bear interest. Section 7.04. Disposition of Amounts After Payment of Bonds. Any amounts determined by the Trustee to be remaining in the funds created under the Indenture, other than amounts held in the Rebate Fund, after payment in full, or provision for payment in full, of principal of and premium, if any, and interest on all the Bonds, in accordance with the provisions of the Indenture, and payment of all the fees, charges and expenses of the Authority, the Trustee, the Tender Agent, the Indexing Agent, the Remarketing Agents and Paying Agent in accordance with the Indenture and the Participation Agreement and any amounts required to be paid to the United States of America pursuant to the Tax Regulatory Agreement, shall be paid to the Bank; provided, however, that on or after the Fixed Rate Conversion Date and solely with respect to moneys not resulting from a draw on the Letter of Credit and not constituting remarketing proceeds, such amounts that would be payable to the Bank pursuant to this Section 7.04 shall, at the written direction of an Authorized Company Representative, be paid to the Company or, if the Bank has not been paid in full under the Reimbursement Agreement, to the Bank. 140 94. Section 7.05. Compliance with Tax Regulatory Agreement in the Event of Partial Redemption of Bonds. Notwithstanding any provision of the Indenture to the contrary, no later than twenty (20) days after any partial redemption of Bonds, the Trustee shall reduce the aggregate amount of all investments held under the Indenture which are subject to the 150 percent limitation described in Section 7.7 of the Tax Regulatory Agreement to the extent required by such Section, all in accordance with the written direction received from an Authorized Company Representative. The Trustee shall act only upon, and be entitled conclusively to rely upon, such written direction. 141 95. ARTICLE VIII REDEMPTION OF BONDS Section 8.01. Bonds to be Redeemed Only in Manner Provided in Article VIII. Any redemption of all or any part of the Bonds which are subject to redemption shall be made in the manner provided in this Article VIII. Bonds which are subject to redemption at the option of the Authority exercised upon the direction of an Authorized Company Representative, shall be called by the Trustee for redemption in the manner provided in this Article VIII upon receipt by the Trustee, at least forty-five (45) days prior to the redemption date, of an executed counterpart of the written direction of an Authorized Company Representative to the Authority and the Trustee providing for such redemption. Such written direction shall specify the principal amount of such Bonds or portions thereof so to be called for redemption, the applicable redemption price, the applicable redemption date and the provision or provisions of the Indenture pursuant to which such Bonds are to be called for redemption. The foregoing provisions of this paragraph shall not apply in the case of any mandatory redemption of Bonds in accordance with the Indenture. The moneys necessary for any redemption of Bonds shall be made available to the Trustee on or prior to the date fixed for redemption. The Trustee is hereby authorized and directed to apply such moneys in accordance with Section 6.03 to the payment of the Bonds or portions thereof called for redemption, together with accrued interest thereon to the redemption date. Upon the giving of notice and the deposit of funds for redemption, interest on the Bonds or portions thereof thus called shall no longer accrue on and after the date fixed for redemption. No payment shall be made by the Trustee upon any Bond or portion thereof called for redemption until such Bond or portion thereof shall have been delivered for payment or cancellation or the Trustee shall have received the items required by Section 2.08 with respect to any mutilated, lost, stolen or destroyed Bond. Notwithstanding anything in the Indenture to the contrary, no redemption at the option of the Authority which requires a redemption price in excess of par to be payable shall be exercisable unless (i) a Letter of Credit providing for payment of such premium together with other amounts owed as part of redemption price shall be in effect and shall not be scheduled to expire by its terms before the specified redemption date or (ii) other Available Moneys shall be held by the Trustee under the Indenture and are available for payment of such premium. 142 96. Section 8.02. Redemption of Less Than all Bonds. If less than all of the Bonds shall be called for redemption, the particular Bonds or portions of Bonds to be redeemed shall be selected by the Trustee by lot or in such other manner as the Trustee in its discretion may deem proper in order to assure each owner of Bonds a fair opportunity to have such owner's Bond or Bonds or portions thereof selected; provided, however, that the portion to be redeemed of any Bond of a denomination more than the then-applicable minimum authorized denomination shall be such minimum authorized denomination or an integral multiple thereof, and that in selecting portions of such Bonds for redemption, the Trustee shall treat each such Bond as representing that number of Bonds of such minimum authorized denomination obtained by dividing the principal amount of such Bond by such minimum authorized denomination; provided further that the Trustee shall first select any Bonds registered in the name of the Company or the Bank and then the remaining Bonds. Section 8.03. Notice of Redemption. In the case of any redemption pursuant to Section 2.17, the Trustee shall give in its own name or in the name of the Authority, notice mailed by first-class mail to the Registered Owners of the Bonds to be redeemed, addressed to him or her at his or her address as it appears on the Bond Register at least thirty (30) days before the date fixed for redemption, which notice shall state that Bonds properly identified have been called for redemption and, in the case of Bonds to be redeemed in part only, the portion of the principal amount thereof that has been called for redemption (or if all the outstanding Bonds are to be redeemed, so stating, in which event such identification may be omitted), that they will be due and payable on the date fixed for redemption (specifying such date) upon surrender thereof at the Corporate Trust Office or, at the option of the owner, at the corporate trust office of the Paying Agent, if any, for such Bonds, at the applicable redemption price (specifying such price) together with accrued interest to such date, and that all interest on the Bonds, or portions thereof, so to be redeemed will cease to accrue on and after such date. Failure to give any required notice of redemption as to any particular Bonds will not affect the validity of the call for redemption of any Bonds in respect to which no such failure occurs. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Registered Owner actually receives the notice. Section 8.04. Rights of Owners of Bonds Called for Redemption Limited to Redemption Price and Accrued Interest. If notice of redemption has been given as provided in Section 8.03, the Bonds or portions thereof called for redemption shall be due and payable on the date fixed for redemption at the redemption 143 97. price, together with accrued interest to the date fixed for redemption. Payment of the redemption price, together with accrued interest, shall be made by the Trustee upon surrender of such Bonds. If there shall be called for redemption less than the entire principal amount of a Bond, the Authority shall execute and deliver and the Trustee shall authenticate, upon surrender of such Bond, and without charge to the owner thereof, Bonds for the unredeemed portion of the principal amount of the Bond so surrendered. Subject to the deposit with the Trustee of amounts necessary for the redemption of such Bonds as provided in Section 8.01, from and after the date fixed for redemption designated in such notice, notwithstanding that any Bonds so called for redemption in whole or in part shall not have been surrendered for cancellation, no further interest shall accrue upon the principal of any of the Bonds or portions thereof so called for redemption; and such Bonds or portions thereof so to be redeemed shall cease to be entitled to any lien, benefit or security under the Indenture and the owners thereof shall have no rights in respect of such Bonds or portions thereof except toreceive payment of the redemption price thereof and unpaid interest accrued to the date fixed for redemption from such amounts deposited with the Trustee which shall be held uninvested by the Trustee in trust for the owner of such Bonds or portions thereof. Section 8.05. Redemption at Demand of the State. In accordance with the provisions of Section 1864 of the Act, the State of New York may, upon furnishing sufficient funds therefor, require the Authority to redeem prior to maturity, as a whole, any issue of Bonds, on any Interest Payment Date not less than twenty years after the date of the original issuance of the Bonds of such issue. The Authority shall deposit any such funds received by it with the Trustee. After the expiration of the Letter of Credit, the Trustee shall deposit such funds in the Bond Fund and, upon notice given as provided in Section 8.03, shall apply such funds to the redemption of such Bonds, at a redemption price equal to the applicable optional redemption price set forth in the Indenture or 105 percent of the principal amount of the Bonds to be redeemed, whichever is less, together with accrued and unpaid interest to the date fixed for redemption, all in the manner provided in this Article VIII. Prior to the expiration of the Letter of Credit, the Trustee shall deposit any such funds received by it in a segregated sub-account in the Debt Service Account of the Bond Fund, and upon notice published in the manner provided in Section 1864 of the Act, shall draw moneys under the Letter of Credit and apply such moneys drawn under the Letter of Credit to the redemption of such Bonds at a redemption price equal to 100 percent of the principal amount of the Bonds to be redeemed, together with accrued and unpaid interest 144 98. to the date fixed for redemption in the manner specified in the preceding sentence. Upon the application of such moneys drawn under the Letter of Credit, the Trustee shall pay the funds furnished by the State to the Bank with instructions to apply such funds to the reimbursement of the Bank for such moneys drawn under the Letter of Credit. Upon such redemption, the Trustee shall assign the Company Note to or as directed in writing by the Authority. 145 99. ARTICLE IX PARTICULAR COVENANTS Section 9.01. Payment of Principal of and Interest and Redemption Premium of Bonds. The Authority will promptly pay from the Company Note Payments and other funds held by the Trustee and available therefor the principal of, and the interest on, every Bond issued under and secured by the Indenture and any premium required to be paid for the retirement of said Bonds by redemption, at the places, on the dates and in the manner specified in the Indenture and in said Bonds according to the true intent and meaning thereof, subject, however, to the provisions of Section 1.03. Section 9.02. Performance of Covenants. The Authority will faithfully perform at all times all covenants, undertakings, stipulations and provisions contained in the Indenture, in any and every Bond and in all proceedings of the Authority pertaining thereto. Section 9.03. Further Instruments. The Authority will from time to time execute and deliver such further instruments and take such further action as may be reasonable and as may be required to carry out the purpose of the Indenture; provided, however, that no such instruments or actions shall pledge the credit of the Authority or the State of New York or the taxing power of the State of New York or otherwise be inconsistent with the provisions of Section 1.03. Section 9.04. Inspection of Project Books. All books and documents in the possession of the Authority relating to the Project or the Participation Agreement shall at all times be open to inspection by such accountants or other agents as the Trustee may from time to time designate. Section 9.05. No Extension of Time of Payment of Interest. In order to prevent any accumulation of claims for interest after maturity, the Authority will not directly or indirectly extend or assent to the extension of the time of payment of any claims for interest on any of the Bonds and will not directly or indirectly be a party to or approve any such arrangement by purchasing such claims for interest or in any other manner. In case any such claim for interest shall be extended in violation hereof, such claim for interest shall not be entitled, in case of any default hereunder, to the benefit or security of the Indenture except subject to the prior payment in full of the principal of, and premium, if any, on, all Bonds issued and 146 100. outstanding hereunder, and of all claims for interest which shall not have been so extended or funded. Section 9.06. Trustee's, Paying Agent's, Indexing Agent's, Tender Agent's and Remarketing Agents's Fees, Charges and Expenses. Pursuant to the provisions of Section 4.05 of the Participation Agreement, the Company has agreed to pay the fees and the expenses of the Trustee, any Paying Agent, the Indexing Agent, the Tender Agent and the Remarketing Agents, in the amounts set forth more fully therein, and the Authority shall have no liability for the payment of any fees or expenses of the Trustee, any Paying Agent, the Indexing Agent, the Tender Agent and the Remarketing Agents. Exclusive of the proceeds of any drawing under the Letter of Credit and any other moneys within the meaning of subdivision (a) of the definition of Available Moneys, the Trustee shall have a first lien with right of payment prior to payment on account of principal of, premium, if any, and interest on any Bond under the Indenture for the fees, charges and expenses of the Trustee. When the Trustee incurs expenses or renders services after the occurrence of an Act of Bankruptcy with respect to the Company, the expenses and the compensation for services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. The Company shall have no liability to pay any fees, charges or other expenses of the Trustee hereinabove mentioned except from amounts pledged under the Indenture. Section 9.07. Agreement of the State of New York. In accordance with the provisions of subdivision 11 of Section 1860 of the Act, the Authority, on behalf of the State of New York, does hereby pledge to and agree with the owners of the Bonds that the State of New York will not limit or alter the rights and powers vested by the Act in the Authority to fulfill the terms of any contract made with Bondowners, or in any way impair the rights and remedies of such owners, until the Bonds, together with the interest thereon, with (to the extent permitted by law) interest on any unpaid installments of interest, and all costs and expenses in connection with any action or proceeding by or on behalf of such owners, are fully met and discharged. 147 101. ARTICLE X DEFAULTS AND REMEDIES Section 10.01. Events of Default. In case one or more of the following Events of Default shall have occurred: (a) default in the payment of any installment of interest in respect of any Bond as the same shall become due and payable which default continues for five days; or (b) default in the payment of the principal of or premium, if any, in respect of any Bond as the same shall become due and payable either at maturity, upon redemption, by acceleration or otherwise; or (c) default in the payment of any amount due pursuant to Section 2.05 as the same becomes due and payable which default continues for five days; or (d) an event of default specified in Article VI of the Participation Agreement; or (e) after the expiration of the Letter of Credit, failure on the part of the Authority to duly observe or perform any other of the covenants or agreements on the part of the Authority contained in the Indenture or in any Bond for a period of 90 days after the date on which written notice of such failure, requiring the Authority to remedy the same, shall have been given to the Authority and the Company by the Trustee; or (f) receipt by the Trustee of written notice from the Bank of the occurrence and continuance of an event of default under the Reimbursement Agreement, that the Bank is terminating the Letter of Credit and that the Bank is directing the Trustee to accelerate the Bonds; or (g) receipt by the Trustee of written notice from the Bank on or before the tenth day after a drawing under the Letter of Credit in respect of interest on the Bonds, to the effect that the Bank has not been reimbursed for any such drawing and that the Bank is directing the Trustee to accelerate the Bonds; then, upon (a) the occurrence and continuance of any Event of Default described in clause (a), (b), (c), (d) or (e) of this paragraph, the Trustee may, and at the written request of owners of not less than 25% in aggregate principal amount of Bonds then 148 102. outstanding shall, or (b) the occurrence of an Event of Default described in clause (f) or (g) of this paragraph the Trustee shall immediately, by written notice given to the Authority, the Governor, the Comptroller, the Attorney General of the State of New York and the Company, declare the principal of all Bonds then outstanding to be due and payable immediately, at which time (unless a Fixed Rate Conversion Date has occurred and the Letter of Credit is no longer in effect) interest shall cease to accrue, and upon such declaration the said principal, together with interest accrued thereon, shall become due and payable immediately at the place of payment provided therein, anything in the Indenture or in the Bonds to the contrary notwithstanding and the Trustee shall give notice thereof to the Authority, the Company, the Tender Agent, the Remarketing Agents and the Bank, and shall give notice thereof by mail to all owners of outstanding Bonds. Prior to the expiration of the Letter of Credit, the Trustee shall draw immediately upon the Letter of Credit in the event the Bonds shall have been declared immediately due and payable and immediately apply amounts drawn under the Letter of Credit to payment of Bonds in accordance with the Indenture. The provisions of the preceding paragraph, however, are subject, after the expiration of the Letter of Credit, to the condition that if, after the principal of said Bonds has been so declared to be due and payable, all arrears of interest upon the Bonds are paid, and the Authority has performed all other things in respect to which it may have been in default hereunder and the reasonable compensation and expenses of the Trustee, and the Bondowners, including reasonable attorneys' fees, shall have been paid, or provision satisfactory to the Trustee shall be made for such payments, then, and in every such case, the owners of a majority in aggregate principal amount of the Bonds then outstanding, by written notice to the Authority and to the Trustee, may annul such declaration and its consequences, and such annulment shall be binding upon the Trustee and upon all owners of Bonds issued hereunder, or, if the Trustee shall have acted in the absence of a written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of all outstanding Bonds, and if there shall not have been theretofore delivered to the Trustee written direction to the contrary by the owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding, then any such declaration shall ipso facto be deemed to be rescinded and any such default and its consequences shall ipso facto be deemed to be annulled and such annulment shall be binding upon the Trustee and upon all owners of Bonds; but no such annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. The Trustee shall forward a copy of any notice from 149 103. Bondowners received by it pursuant to this paragraph to the Company. The provisions of the second preceding paragraph are, further, subject to the condition that any waiver by the Bank of any event of default under the Reimbursement Agreement and a rescission and annulment of its consequences shall constitute a waiver of the corresponding Event of Default under the Indenture and a rescission and annulment of the consequences thereof; provided that, the Trustee shall have received written notice from the Bank to the effect that the Letter of Credit has been reinstated, if applicable, and is in full force and effect (with respect to the principal of, premium, if any, interest on, and the purchase price of, all Bonds then entitled to the benefits of the Letter of Credit). If written notice of such event of default under the Reimbursement Agreement shall have been given as provided herein and if the Trustee shall thereafter have received written notice from the Bank that such event of default shall have been waived, the Trustee shall promptly give written notice of such waiver, rescission or annulment and of the corresponding waiver, rescission and annulment of the Event of Default hereunder to the Authority, the Governor, the Comptroller, the Attorney General of the State of New York, the Company, the Bank, the Tender Agent and the Remarketing Agents, and shall give written notice thereof by mail to all owners of outstanding Bonds; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. Section 10.02. Judicial Proceedings by Trustee. Upon the happening and continuance of any Event of Default, then and in every such case the Trustee in its discretion may, and upon the written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding and receipt of indemnity to its satisfaction, shall: (a) by suit, action or special proceeding, enforce all rights of the Bondowners and require the Authority, the Bank or the Company to perform its or their duties under the Act, the Participation Agreement, the Bonds, the Letter of Credit, the Company Note and the Indenture; (b) bring suit upon the Bonds; (c) by action or suit in equity require the Authority to account as if it were the trustee of an express trust for the Bondowners; or 150 104. (d) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Bondowners. Section 10.03. Effect of Discontinuance or Abandonment of Proceedings. In case the Trustee shall have proceeded to enforce any right under the Indenture and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Authority, the Trustee and the Bondowners shall be restored respectively to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Authority, the Trustee and the Bondowners, respectively, shall continue as though no such proceedings had been taken. Section 10.04. Power of Bondowners to Direct Proceedings. Anything in the Indenture to the contrary notwithstanding, the owners of a majority in aggregate principal amount of the Bonds then outstanding hereunder shall have the right, by an instrument in writing executed and delivered to the Trustee, to direct the method and place of conducting all remedial proceedings to be taken by the Trustee hereunder, subject, however, to the provisions of Section 11.04, and provided, however, such direction shall not be in conflict with any rule of law or with any provision of the Indenture (including, without limitation, any provision requiring the Trustee to accelerate the Bonds and draw on the Letter of Credit upon the occurrence of an Event of Default under Section 10.01(f) or (g)) and shall not unduly prejudice the rights of the Bondowners who are not in such majority. The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the owners of a majority in aggregate principal amount of the Bonds and which is not in conflict with the Trustee's obligation to accelerate the Bonds and draw on the Letter of Credit upon the occurrence of an Event of Default under Section 10.01(f) or (g). Section 10.05. Limitation on Actions by Bondowners. No owner of any of the Bonds shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of any trust hereunder, or any other remedy hereunder or under the Bonds, unless such owner previously shall have given to the Trustee written notice of an Event of Default as hereinabove provided and unless also the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding shall have made written request of the Trustee so to do, after the right to exercise such powers or rights of action, as the case may be, shall have accrued, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers hereinabove granted, or to institute such action, suit or 151 105. proceeding in its or their name; nor unless there also shall have been offered to the Trustee security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall not have complied with such request within a reasonable time; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the trusts of the Indenture or for any other remedy hereunder; it being understood and intended that no one or more owners of the Bonds hereby secured shall have any right in any manner whatever by such owner's or owners' action to affect, disturb or prejudice the security of the Indenture, or to enforce any right hereunder or under the Bonds, except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all owners of outstanding Bonds, subject, however, to the provisions of Section 9.05. Nothing in the Indenture or in the Bonds contained shall affect or impair the right of action, which is also absolute and unconditional, of any owner of any Bond to enforce payment of the principal of and premium, if any, and interest on such owner's Bond at the date of maturity and places therein expressed. Section 10.06. Trustee's Right to Enforce Rights in Respect of Bonds in Own Name and Without Possession of Bonds. All rights of action under the Indenture or under any of the Bonds which are enforceable by the Trustee may be enforced by it without the possession of any of the Bonds, or the production thereof at the trial or other proceedings relative thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in its name, as trustee, for the equal and ratable benefit of the owners of the Bonds subject to the provisions of the Indenture. Section 10.07. No Remedy herein Conferred upon or Reserved Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the owners of the Bonds is intended to be exclusive of any other remedy or remedies, except as provided in Section 10.10, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder. Section 10.08. No Delay or Omission to be Deemed Waiver of Default. No delay or omission of the Trustee or of any owner of the Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default, or an acquiescence therein; and every power and remedy given by this Article X to the Trustee and to the owners of the Bonds, respectively, may be exercised from time to time and as often as may be deemed expedient. 152 106. Section 10.09. Application of Moneys Received by Trustee Pursuant to Article X. Any moneys or other property or assets received by the Trustee or by any receiver pursuant to this Article X (i) shall be applied first to the payment of the costs and expenses of the proceedings resulting in the collection of any moneys received by the Trustee or by any receiver pursuant to this Article X and of the expenses, liabilities and advances incurred or made and compensation for services rendered by or on behalf of the Trustee, including reasonable counsel fees and expenses; provided that, moneys drawn under the Letter of Credit shall not be appliedto any such payment, and (ii) any remaining amounts shall then be applied as follows: (a) Unless the principal of all Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: First: To the payment to the Persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest including (to the extent permitted by law) interest on overdue installments of interest at the rate borne by the Bonds on which such interest shall then be due, and, if the amount available shall not be sufficient to pay in full any particular installment or installments, then to the payment ratably, according to the amounts due on such installment or installments, to the Persons entitled thereto, without any discrimination or preference; and Second: To the payment to the Persons entitled thereto of the unpaid principal of and premium, if any, on any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Indenture) in the order of their due dates, with interest on such Bonds from the respective dates upon which they become due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the Persons entitled thereto without any discrimination or preference. (b) If the principal of all the Bonds shall have become or shall have been declared due and payable, all 153 107. such moneys shall be applied to the payment of the principal, premium, if any, and interest then due and unpaid upon the Bonds, with interest on overdue principal, premium, if any, and interest as aforesaid, without preference or priority of principal and premium, if any, over interest or of interest over principal and premium, if any, or of any installment of interest over any other installment of interest or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal, premium, if any, and interest, to the Persons entitled thereto without any discrimination or preference. (c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article X, then, subject to the provisions of paragraph (b) of this Section which shall be applicable in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) of this Section. Moneys drawn under the Letter of Credit may not be applied to effect any payment on any Bond not entitled to the benefits thereof as provided in Section 3.01. Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an Interest Payment Date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amount of principal to be paid on such date shall cease to accrue. Notwithstanding the two preceding sentences any moneys drawn under the Letter of Credit under this Article X shall be applied by the Trustee pursuant to the provisions of this Section 10.09 within five days after such moneys have been drawn. For the purpose of determining the Bondowners who are entitled to such application, the Trustee may establish a record date not more than five days before such payment date. The Trustee shall give such notice to Bondowners by mailing in the manner it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such payment date, and shall not be required to make payment to the owner of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. 154 108. Section 10.10. Entirety of Agreement. The rights and remedies of the owners of the Bonds and of the Trustee set forth in this Article X are in lieu of the rights and remedies of owners of bonds of the Authority set forth in Section 1865 of the Act and the provisions of such Section 1865 are hereby abrogated with respect to the Bonds. Section 10.11. Notice of Event of Default. The Trustee shall, within 30 days after the occurrence of an Event of Default becomes known to a Responsible Officer, give notice thereof to all Bondowners by mail in the manner provided in Section 16.05 unless such Event of Default shall have been cured before the giving of such notice. 155 109. ARTICLE XI CONCERNING THE TRUSTEE AND PAYING AGENT Section 11.01. Appointment of Trustee; Paying Agents. Chemical Bank is hereby appointed as Trustee and Paying Agent for the owners from time to time of the Bonds. The Trustee hereby accepts the duties and obligations of the Trustee and Paying Agent created by the Indenture for the owners from time to time of the Bonds. The provisions of this Article XI shall not affect the Trustee's obligation to accelerate the Bonds upon the occurrence of an Event of Default under Section 10.01(f) or (g), draw on the Letter of Credit or make any payment of principal, premium or interest on the Bonds. Subject to Article X and Section 11.04, and as and to the extent provided in Sections 4.08 and 4.09 of the Participation Agreement, the Trustee, the Paying Agent and the Tender Agent shall be entitled to indemnification by the Company for any losses, costs, charges, expenses (including reasonable attorneys' fees and disbursement), judgments and liabilities incurred by the Trustee, the Paying Agent and the Tender Agent in connection with any claims made, or any action, suit or proceeding instituted or threatened, in connection with the transactions contemplated by the Participation Agreement or the Indenture. The Trustee, Paying Agents and Tender Agent, except as otherwise provided in Section 9.06, shall look solely to the Company for such indemnification. Section 11.02. No Responsibility for Correctness of Statements in Indenture. The recitals, statements and representations in the Indenture or in the Bonds contained, save only the Trustee's certificate of authentication upon the Bonds, shall be taken and construed as made by and on the part of the Authority, and not by the Trustee, and the Trustee does not assume, and shall not have, any responsibility or obligation for the correctness of any recitals, statements and representations hereof or thereof or any other document delivered by the Authority or the Company in connection with the issuance of the Bonds. Section 11.03. No Responsibility for Default of Agents Selected with Due Care, nor for Own Acts Save Willful Misconduct or Negligence. The Trustee may execute such of the trusts or powers required of it hereunder and perform the duties required of it hereunder as may be reasonably necessary by or through attorneys, agents or receivers and the Trustee shall not be answerable for the default, negligence or misconduct of any such attorney, agent or 156 110. receiver selected by it with reasonable care. The Trustee may in all cases pay such reasonable compensation to and receive reimbursement for all such attorneys, agents, receivers, and employees as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Authority or the Company), approved by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action or non-action in good faith in reliance upon such opinion or advice. The Trustee shall not be answerable for the exercise or non-exercise of any discretion or power under the Indenture or for anything whatever in connection with the trusts herein created, except only for its own willful misconduct or negligence. No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that such funds will not be repaid or if satisfactory indemnity against such risk or liability is not provided to the Trustee. Section 11.04. No Duty to Take Enforcement Action Unless so Requested by Owners of 25% of the Bonds. Unless and until an Event of Default shall have occurred and (i) written notice thereof shall have been given to the Trustee or (ii) the occurrence thereof otherwise shall be known to a Responsible Officer of the Trustee, the Trustee shall be under no obligation to take any action in respect of any default or otherwise in respect of or toward the execution or enforcement of any of the trusts hereby created, or to institute, appear in or defend any suit or other proceeding in connection therewith, unless requested in writing so to do by owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding, and if in its opinion such action may tend to involve it in expense or liability, unless furnished, from time to time as often as it may require, with security and indemnity satisfactory to it; but the foregoing provisions are intended only for the protection of the Trustee, and shall not affect any discretion or power given by any provisions of the Indenture to the Trustee to take action in respect of any default without such notice or request from the Bondowners, or without such security or indemnity. Notwithstanding any other provision of the Indenture or the Participation Agreement, no right of the Trustee to indemnification shall prevent the Trustee from (a) making payments on the Bonds when due from moneys available to it, (b) accelerating the Bonds as required pursuant to Article X, or (c) drawing on the Letter of Credit to make payments on the Bonds when due. 157 111. Section 11.05. Right to Rely. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any resolution, notice, telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good faith believe to be genuine and to have been authorized or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of the Indenture and the Trustee may require a written opinion from legal counsel who is reasonably acceptable to the Trustee, which counsel may be an employee of or counsel to the Company or the Trustee, confirming the accuracy of any such paper or document, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. Section 11.06. Right to Own and Deal in Bonds and Engage in Other Transactions with Authority and Company. The Trustee may in good faith buy, sell, own, hold and deal in any of the Bonds issued hereunder and secured by the Indenture, and may join in any action which any Bondowner may be entitled to take with like effect as if the Trustee were not a party to the Indenture. The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Authority or the Company, and may act as depository, trustee, or agent for any committee or body of owners of the Bonds secured hereby or other obligations of the Authority as freely as if it were not Trustee hereunder. Section 11.07. Construction of Provisions of Indenture by Trustee. The Trustee may construe any of the provisions of the Indenture insofar as the same may appear to be ambiguous or inconsistent with any other provision thereof, and any construction of any such provisions hereof by the Trustee in good faith shall be binding upon the Bondowners. Section 11.08. Right to Resign Trust. The Trustee may at any time and for any reason resign and be discharged of the trusts created by the Indenture by (a) executing an instrument in writing resigning such trusts and specifying the date when such resignation shall take effect, (b) filing the same with the Secretary of the Authority (c) giving notice thereof in writing to the Company not less than 60 days before the date specified in such instrument when such resignation shall take effect, and (d) giving notice of such resignation to Bondowners by mail in the manner provided in Section 16.05, the mailing of said notice to occur not less than four weeks prior to the date specified in such notice when such resignation shall take effect. Such resignation shall take effect only upon 158 112. the appointment of a successor Trustee in accordance with the provisions of Section 11.10. Section 11.09. Removal of Trustee. (a)The Trustee at any time and for any reason may be removed by an instrument in writing, appointing a successor, filed with the Trustee so removed and executed by the owners of a majority in aggregate principal amount of the Bonds then outstanding; provided, however, that no such removal shall become effective until the acceptance of appointment by a successor Trustee in accordance with Section 11.13. (b) The Trustee at any time other than during the continuance of an Event of Default or the continuance of an event which but for the passage of time would constitute an Event of Default and for any reason may be removed by an instrument in writing, executed by an Authorized Officer, appointing a successor, filed with the Trustee so removed; provided, however, that no such removal shall become effective until the acceptance of appointment by a successor Trustee in accordance with Section 11.13. Section 11.10. Appointment of Successor Trustee by Bondowners or Authority. In case at any time the Trustee shall resign, or shall be removed, or be dissolved, or if its property or affairs shall be taken under the control of any state or federal court or administrative body because of insolvency or bankruptcy, or for any other reason, a vacancy shall forthwith and ipso facto exist in the office of the Trustee, then a successor may be appointed by the owners of a majority in aggregate principal amount of the Bonds then outstanding, by an instrument or instruments in writing filed with the Secretary of the Authority, signed by such Bondowners or by their attorneys-in-fact duly authorized. Copies of each such instrument shall be promptly delivered by the Authority to the predecessor Trustee, to the Trustee so appointed and to the Company. Until a successor Trustee shall be appointed by the Bondowners as herein authorized, the Authority, by an instrument authorized by resolution, shall appoint a Trustee to fill such vacancy. The Authority shall not appoint a Trustee without the approval of the Company as evidenced by a certificate in writing signed by an Authorized Company Representative, which approval shall not be unreasonably withheld. After any appointment by the Authority, it shall cause notice of such appointment to be mailed to the Bondowners in the manner provided in Section 16.05. Any new Trustee so appointed by the Authority shall immediately and without further act be superseded by a Trustee appointed by the Bondowners in the manner above provided. 159 113. Section 11.11. Qualifications of Successor Trustee. Every successor in the trusts hereunder appointed pursuant to the foregoing provision shall be a bank or trust company organized and doing business under the laws of the United States or any state or territory thereof with trust powers, shall have a combined capital and surplus of at least $100,000,000 and shall (or the parent corporation of such successor shall) be rated at least Baa-3 and/or P-3 or an equivalent rating by Moody's or otherwise be acceptable to Moody's and the Authority if such a bank or trust company willing and able to accept the trusts on customary terms can, with reasonable effort, be located. Section 11.12. Court Appointment of Successor Trustee. In case at any time the Trustee shall resign and no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XI prior to the date specified in the notice of resignation as the date when such resignation shall take effect, the Trustee, the Company or the owner of any Bond may apply to any court of competent jurisdiction to appoint a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee. Section 11.13. Acceptance of Appointment by, and Transfer of Trust Estate to, Successor Trustee. Any successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Authority an instrument accepting such appointment hereunder as a fiduciary for the owners from time to time of the Bonds and shall request the Bank to transfer the Letter of Credit to it as successor Trustee, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become duly vested with all the estates, property, rights, powers, trusts, duties and obligations of its predecessor in the trust hereunder, with like effect as if originally named Trustee herein and shall give notice thereof to the Company. Upon request of such Trustee, the Trustee ceasing to act and the Authority shall execute and deliver an instrument transferring to such successor Trustee all the estates, property, rights, powers and trusts hereunder of the Trustee so ceasing to act, and the Trustee so ceasing to act shall pay over to the successor Trustee all moneys and other assets, including the Company Note at the time held by it hereunder. Section 11.14. Successor Trustee by Merger or Consolidation. Any corporation into which any Trustee hereunder may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which any Trustee hereunder shall be a party, or any corporation to which any Trustee hereunder may transfer all or substantially all of its assets, shall be the successor Trustee under the Indenture, without the execution or filing of any paper or any further act on the part 160 114. of the parties hereto, anything herein to the contrary notwithstanding. Section 11.15. Exercise of Rights and Powers During Event of Default. Notwithstanding any other provisions of this Article XI, the Trustee shall, during the existence of an Event of Default of which a Responsible Officer of the Trustee has actual knowledge, exercise such of the rights and powers vested in it by the Indenture and use the same degree of skill and care in their exercise as a prudent man would use and exercise under the circumstances in the conduct of his own affairs. Section 11.16. Trustee may Intervene in Judicial Proceedings Involving Authority or the Company. In any judicial proceeding to which the Authority or the Company is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of owners of the Bonds, the Trustee may in its own name or as trustee of an express trust intervene on behalf of the owners of the Bonds and shall, upon receipt of indemnity satisfactory to it, do so if requested in writing by the owners of at least twenty-five percent (25%) in aggregate principal amount of Bonds then outstanding if permitted by the court having jurisdiction in the premises. Section 11.17. Paying Agents. The Authority may, with the approval of the Company as evidenced by a certificate in writing signed by an Authorized Company Representative, at any time or from time to time appoint one or more additional Paying Agents for the owners from time to time of the Bonds in the manner and subject to the conditions set forth in this Section 11.17. Each Paying Agent shall signify its acceptance of the duties and obligations imposed upon it by the Indenture by written instrument of acceptance deposited with the Authority, the Trustee and the Company. Each Paying Agent appointed in addition to the Trustee and the Tender Agent shall be a bank or trust company duly organized under the laws of the United States or any state or territory thereof, shall have a capital stock and surplus aggregating at least $100,000,000 and shall (or the parent corporation of such successor shall) be rated at least Baa-3 and/or P-3 or an equivalent rating by Moody's or otherwise be acceptable to Moody's and the Authority and shall be willing and able to accept the office on reasonable and customary terms and shall be authorized by law to perform all the duties imposed upon it by the Indenture. Any Paying Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at 161 115. least 60 days' prior written notice to the Authority, the Trustee and the Company. Any Paying Agent may be removed at any time by an instrument filed with such Paying Agent, the Company and the Trustee and signed by the Authority. In the event of the resignation or removal of any Paying Agent, such Paying Agent shall pay over, assign and deliver any moneys held by it as Paying Agent to its successor, or if there be no successor, to the Trustee. In the event that for any reason there shall be a vacancy in the office of any Paying Agent, the Trustee shall act as such Paying Agent. Each Paying Agent shall set aside, segregate and hold in a trust account in trust solely for the benefit of the owners from time to time of the Bonds moneys transferred to such Paying Agent for the payment of the principal of, premium, if any, and interest on the Bonds. Section 11.18. Appointment of Co-Trustee. It is the purpose of the Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State of New York) denying or restricting the right of banking corporations or associations to transact business as a trustee in such jurisdiction. It is recognized that in case of litigation under the Indenture or the Participation Agreement and in particular in case of the enforcement thereof upon an Event of Default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee. The following provisions of this Section are adapted to these ends. In the event that the Trustee appoints an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by the Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co-trustee shall run to and be enforceable by either of them. Should any instrument in writing from the Authority be required by the separate or co-trustee so appointed by the Trustee 162 116. for more fully and certainly vesting in and confirming to it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Authority. In case any separate or co-trustee or a successor to either shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate or co-trustee. 163 117. ARTICLE XII EXECUTION OF INSTRUMENTS BY BONDOWNERS AND PROOF OF OWNERSHIP OF BONDS Section 12.01. Execution of Instruments; Proof of Ownership of Bonds. Any request, direction, consent, or other instrument in writing required or permitted by the Indenture to be signed or executed by Bondowners may be in any number of concurrent instruments of similar tenor and shall be signed or executed by such Bondowners in person or by agent appointed by an instrument in writing. Proof of the execution of any such instrument and of the ownership of Bonds shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner: (a) The fact and date of the execution by any Person of any such instrument may be proved by the certificate of any officer in any jurisdiction who, by the laws thereof, has power to take acknowledgements within such jurisdiction, to the effect that the Person signing such instrument acknowledged before him or her the execution thereof, or by an affidavit of a witness to such execution. (b) The ownership of Bonds shall be proved by the Bond Register. Nothing contained in this Article XII shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which to it may seem sufficient. Any request or consent of the owner of any Bond shall bind every future owner of the same Bond, or any Bond issued in exchange or substitution therefor, in respect of anything done by the Trustee in pursuance of such request or consent. 164 118. ARTICLE XIII INDENTURES SUPPLEMENTAL HERETO Section 13.01. Supplemental Indentures not Requiring Consent of Bondowners. Subject to the conditions and restrictions herein contained, the Authority and the Trustee may, without the consent of or notice to the Bondowners, enter into an indenture or indentures supplemental hereto, for any one or more of the following purposes: (a) To cure any ambiguity or formal defect or omission in the Indenture; (b) To grant to or confer upon the Trustee for the benefit of the Bondowners any additional rights, remedies, power or authority that may lawfully be granted to or conferred upon the Bondowners or the Trustee or either of them; (c) To subject to the provisions of the Indenture additional revenues, properties or collateral; (d) To modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under any federal statute now or hereafter in effect or under any state Blue Sky Law, and, in connection therewith, if they so determine, to add to the Indenture, such other terms, conditions and provisions as may be permitted or required by said federal statute or Blue Sky Law; (e) To modify, amend or supplement the Indenture in such manner as to permit the qualification of the Bonds for deposit with a Securities Depository, and, in connection therewith, if they so determine, to add to the Indenture, such other terms, conditions and provisions as may be required to permit such qualification; or (f) To provide for any change in the Indenture which is not prejudicial to the interests of the Trustee or the Bondowners, including but not limited to any change necessary to obtain or maintain a rating on the Bonds from Moody's or S&P. 165 119. Section 13.02. Supplemental Indentures Requiring Consent of Bondowners. Except as otherwise provided in Section 13.01, any modification or amendment of the Indenture may be made only with the consent of the owners of not less than two-thirds in aggregate principal amount of the Bonds then outstanding and shall be set forth in a Supplemental Indenture. No such modification or amendment shall be made which will reduce the percentages of aggregate principal amount of Bonds, the consent of the owners of which is required for any such modification or amendment, or permit the creation by the Authority of any lien prior to or on a parity with the lien of the Indenture upon the Company Note Payments and other funds pledged hereunder, or which will affect the times, amounts and currency of payment of the principal of and premium, if any, and interest on the Bonds without the consent of the owners of all Bonds then outstanding and affected thereby. If at any time the Authority shall request the consent of Bondowners to the execution of any such Supplemental Indenture for any of the purposes of this Section, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Supplemental Indenture to be given as shall be reasonably requested by the Authority and in any event mailed to Bondowners in the manner provided in Section 16.05. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the Corporate Trust Office of the Trustee for inspection by all Bondowners. If, within 60 days or such longer period as shall be prescribed by the Authority following the mailing of such notice, the required consent and approval of Bondowners is obtained, no owner of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Authority or the Trustee from executing the same or restrain the Authority or the Trustee from taking any action pursuant to the provisions thereof. Upon the execution of any such Supplemental Indenture as in this Section permitted and provided, the Indenture shall be and be deemed to be modified and amended in accordance therewith. The Trustee shall consent to any such Supplemental Indenture requiring the consent of Bondowners if the required consent of Bondowners is obtained; provided that the Trustee may, but shall not be obligated to consent to any Supplemental Indenture which affects its own rights, powers, duties or obligations hereunder. 166 120. Section 13.03. Company and Bank Consent to Amendment of Indenture. The Authority and the Trustee shall not enter into any indenture supplemental to or amendatory of the Indenture without the prior consent of the Company as evidenced by a certificate in writing signed by an Authorized Company Representative and no such indenture supplemental to or amendatory of the Indenture shall be or become effective until such consent (as so evidenced) shall have been given by the Company. Prior to the expiration of the Letter of Credit, the Trustee shall not enter into any indenture supplemental to or amendatory of the Indenture without the prior written consent of the Bank, which consent shall not be unreasonably withheld. 167 121. ARTICLE XIV DEFEASANCE Section 14.01. Defeasance. 1. If at any time: (a) there shall have been delivered to the Trustee for cancellation all the Bonds (other than any Bonds which have been mutilated, lost, stolen or destroyed and which shall have been replaced or paid as provided in the Indenture, except for any such Bonds as are shown by proof satisfactory to the Trustee to be held by bona fide owners), or (b) with respect to all the Bonds not theretofore delivered to the Trustee for cancellation, the whole amount of the principal and the interest and the premium, if any, due and payable on such Bonds then outstanding shall be paid in accordance with the terms thereof and the terms of the Indenture (including but not limited to Section 6.03) or deemed to be paid as set forth below, and provision shall also be made for paying all other sums payable hereunder, including the Authority's, Trustee's, Tender Agent's, Remarketing Agent's, Indexing Agent's and Paying Agent's fees and expenses, then the Trustee, in such case, on written demand of the Authority or the Company, shall release the Indenture with respect to such Bonds and turn over to the Company the Company Note and turn over to the Bank the Letter of Credit, and shall execute such documents as may be reasonably required by the Authority and the Company to evidence such release. If the Bank certifies to the Trustee that any amount remains unpaid under the Reimbursement Agreement, the Trustee shall pay to the Bank any balances remaining in any fund created under the Indenture, other than (i) moneys and Investment Obligations retained for the redemption or payment of principal, interest or Purchase Price of Bonds which shall be held under the Indenture for the benefit of the Owners and (ii) moneys held in the Rebate Fund which shall be paid to the Company. Notwithstanding the foregoing, the Trustee shall not release the Project Fund or Rebate Fund or any funds therein to the Company until it shall have received an Opinion of Bond Counsel to the effect that such funds may be transferred to the Company without adversely affecting the exclusion of interest on any series of Bonds from gross income for federal income tax purposes; and all rights and immunities of the Trustee, including its rights to indemnification and to payment of fees and expenses under the Indenture or the Participation Agreement, shall survive the satisfaction of the Indenture under this Article XIV. 168 122. 2. After the date that the interest rate on the Bonds is converted to a Fixed Rate, Bonds shall be deemed to be paid whenever there shall have been deposited with the Trustee (whether upon or prior to the maturity or the redemption date of such Bonds) either moneys in an amount which shall be sufficient, or noncallable obligations, not subject to prepayment, issued or guaranteed as to full and timely payment by the United States of America (including any certificates or any other evidence of an ownership interest in such obligations or in specified portions thereof, which may consist of specified portions of the principal thereof or the interest thereon and which certificates or other evidence of an ownership interest must be rated by the Rating Agency then rating the Bonds at least as high as the obligations issued or guaranteed by, or backed by the full faith and credit of, the United States of America, which obligations are held by a custodian in safekeeping on behalf of the owners thereof) (such noncallable obligations, certificates and other evidence are herein referred to as "Investment Obligations") of such maturities and interest payment dates and bearing such interest as will, without the necessity of further investment or reinvestment of either the principal amount thereof or interest therefrom, provide moneys which shall be sufficient, to pay when due the principal of and premium, if any, and interest due and to become due on all such Bonds on and prior to the redemption date or maturity date thereof, as the case may be, or a combination of such moneys and Investment Obligations which shall be sufficient for such purposes, and the Trustee shall have given notice to the Registered Owners of such Bonds in the manner provided in Section 16.05 that a deposit meeting the requirements of this paragraph has been made and stating such maturity or redemption date upon which moneys are to be available for the payment of the principal or redemption price, if applicable, on such Bonds; provided, however, that neither Investment Obligations nor moneys deposited with the Trustee pursuant to this paragraph nor principal or interest payments on any Investment Obligations shall be withdrawn, or used for any purpose other than, and shall be held in trust for, the payment of the principal of and premium, if any, and interest on such Bonds. 3. Prior to the date that the interest rate on the Bonds is converted to a Fixed Rate, Bonds shall be deemed to be paid whenever (i) there shall have been deposited with the Trustee in the Bond Fund, Available Moneys in an amount which shall be sufficient, without the necessity of further investment or reinvestment of either the principal amount thereof or interest therefrom, to pay when due the principal of, premium, if any, and interest due and to become due on the Bonds (computed at the maximum interest rate that may become applicable to the Bonds) on and prior to the redemption date or maturity date thereof, as the case may be, provided, however, if the Bonds are subject to 169 123. optional or mandatory tender for purchase prior to the redemption date or maturity date thereof, as the case may be, such deposit also must be in an amount which shall be sufficient, without the necessity of such further investment or reinvestment, to pay when due the Purchase Price which may become applicable to the Bonds prior to the redemption date or maturity date, as the case may be, and (ii) any Rating Agency then rating the Bonds shall have received both an opinion of a nationally recognized accounting firm as to the sufficiency of the deposit in clause (i), without the necessity of further investment or reinvestment, and an unqualified opinion of counsel experienced in bankruptcy matters and satisfactory to the Trustee and to Moody's, if the Bonds are then rated by Moody's, to the effect that the application of such Available Moneys to the payment of principal of, premium, if any, and interest on the Bonds would not result in a preferential payment pursuant to the provisions of Section 547 of the United States Bankruptcy Code, 11 U.S.C. ##101, et seq.; and, if the Bonds are to be redeemed the Trustee shall have given, or shall have received, in form satisfactory to it, irrevocable instructions to give, on a date in accordance with the provisions of Article VIII, notice of redemption of the Bonds to Bondowners; provided, however, that if the Trustee shall not have given notice of redemption to the Bondowners because such notice is not yet due, then the Trustee shall give notice to the Registered Owners of such Bonds in the manner provided in Section 16.05 that a deposit meeting the requirements of this paragraph has been made and stating such maturity or redemption date upon which moneys are to be available for the payment of principal or redemption price, if applicable, on such Bonds. Moneys so deposited with the Trustee shall not be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of, premium, if any, and interest on, the Bonds or for the payment of the Purchase Price of Bonds or authorized denominations thereof, in accordance with Section 2.05; provided that such moneys, if not then needed for such purpose, shall, to the extent practicable, upon written direction of the Company be invested and reinvested in Investment Obligations maturing on or prior to the earlier of (i) the date moneys may be required for the purchase of Bonds pursuant to Section 2.05 or (ii) the date moneys may be required to pay principal, premium, if any, or interest on the Bonds as evidenced by an opinion of a nationally recognized accounting firm or such other evidence as may be acceptable to the Trustee. Subject to the provisions of the next succeeding sentence and the last sentence of Section 14.01.1, neither the Company nor the Authority shall have any interest in, or ability to withdraw amounts from, any moneys so deposited with the Trustee. Amounts determined by the Trustee to be in excess of the amount necessary to pay the principal of, premium, if any, and interest (computed at the maximum interest rate that may become applicable to the Bonds on or prior to the 170 124. redemption date or maturity date, as applicable) on, the Bonds or the Purchase Price thereof (computed at the maximum interest rate that may become applicable to the Bonds on or prior to the redemption date or Maturity Date, as applicable) pursuant to Section 2.05 shall, upon a written direction of the Company, be paid over to the Company, as received by the Trustee, free and clear of any trust, lien or pledge. 171 125. ARTICLE XV REMARKETING AGENTS; REMARKETING OF BONDS; INDEXING AGENT; TENDER AGENT Section 15.01. Appointment and Duties of Remarketing Agents. The Authority has appointed, with the approval of the Company, Lehman Brothers Inc. and Dillon, Read & Co. Inc. as the initial Remarketing Agents for the Bonds. Each Remarketing Agent shall designate to the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Authority, the Company and the Trustee under which such Remarketing Agent will agree particularly to (i) perform its obligations under Section 2.03 with respect to the determination of the Weekly Rate, the Semi-Annual Rate, the Medium-Term Rate, the Money Market Municipal Rate, and the Fixed Rate (ii) perform its obligations under Section 2.06 with respect to any Bond delivered or deemed to have been delivered to the Tender Agent for purchase pursuant to Section 2.05, and (iii) keep books and records with respect to its activities hereunder as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Authority, the Trustee, the Company and the Bank at all reasonable times. Such acceptance shall include a designation of one Remarketing Agent as the "Remarketing Representative" who shall act on behalf of the other Remarketing Agent(s) and the acceptance by each Remarketing Agent of the determinations of the Remarketing Representative. Each Remarketing Agent acts as an agent for the purchasers of remarketed Bonds and not as an agent of the Authority or the Company in connection with any moneys delivered to it for the purchase of Bonds. The Authority shall cooperate with the Trustee, the Tender Agent and the Company to cause the necessary arrangements to be made and to be thereafter continued whereby funds from the sources specified herein and in the Participation Agreement will be made available for the purchase of Bonds presented at the Corporate Trust Office of the Tender Agent and whereby Bonds executed by the Authority and authenticated by the Trustee shall be made available to the Tender Agent to the extent necessary for delivery pursuant to Section 2.07. Section 15.02. Qualifications of a Remarketing Agent. Each Remarketing Agent shall be a commercial bank or member of the National Association of Securities Dealers, Inc., having a capitalization of at least $25,000,000 and authorization by law to perform all the duties imposed upon it by the Indenture (provided 172 126. that to qualify as a successor Remarketing Agent, such successor, or the parent corporation of such successor, shall be rated at least Baa-3 and/or P-3 or an equivalent rating by Moody's or otherwise be acceptable to Moody's and the Authority). Subject to the provisions of the next succeeding paragraph, a Remarketing Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at least thirty (30) days' notice to the Authority, the Company and the Trustee. A Remarketing Agent may be removed upon 30 days' notice, upon written request of the Company, by an instrument, signed by the Authority, filed with the Company, each Remarketing Agent (if more than one), the Indexing Agent, the Bank, the Tender Agent and the Trustee. In the event that a Remarketing Agent shall resign or be removed, and the Authority shall not have appointed a successor as Remarketing Agent and there are no other Remarketing Agents continuing to serve hereunder, then the last such Remarketing Agent or Remarketing Agent to resign or be removed notwithstanding the provisions of the first paragraph of this Section 15.02, shall continue as the Remarketing Agent solely for the purpose of determining the interest rate to be borne by the Bonds until the appointment by the Authority of a successor Remarketing Agent. Section 15.03. Appointment and Duties of Indexing Agents. The Authority shall, with the approval of the Company, appoint the Indexing Agent for the Bonds, subject to the conditions set forth in this Section. There may be separate Indexing Agents for the purpose of calculating each of the interest indices set forth in Section 1.01. The Indexing Agent shall designate to the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Authority, the Trustee, the Company and the Remarketing Agents under which the Indexing Agent will agree, particularly: (a) to compute the Weekly Rate Index, Semi-Annual Rate Index, the Medium-Term Rate Index, the Money Market Municipal Rate Index or the Fixed Rate Index, as the case may be, pursuant to and in accordance with Section 2.03, and when the Bonds bear interest at the related Rate, to give written notice to the Trustee, the Remarketing Agents and the Company of such index on the date of the computation thereof; and (b) to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Authority, the Trustee, the Remarketing Agents and the Company at all reasonable times. 173 127. The Indexing Agent will perform the duties provided for in Section 2.03. Whenever the Indexing Agent makes a computation under that Section, it will promptly notify in writing the Trustee, the Authority, the Remarketing Agents and the Company of the results and date of computation. The Indexing Agent will keep adequate records pertaining to the performance of its duties and allow the Trustee, the Authority, the Remarketing Agents and the Company to inspect the records at reasonable times. Section 15.04. Qualifications of Indexing Agents. The Indexing Agent shall be a commercial bank, a member of the National Association of Securities Dealers, Inc. or a nationally recognized municipal securities evaluation service authorized by law to perform all the duties imposed upon it by the Indenture. The Indexing Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at least sixty (60) days' written notice to the Authority, the Company, the Remarketing Agents and the Trustee. The Indexing Agent may be removed at any time, at the written direction of the Company, by an instrument, signed by the Authority, filed with the Company, the Indexing Agent, the Remarketing Agents, the Trustee and the Bank. In the event that the Authority shall fail to appoint an Indexing Agent hereunder or the Indexing Agent shall resign or be removed, or be dissolved, or if the property or affairs of the Indexing Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, and the Authority shall not have appointed its successor as Indexing Agent, the Remarketing Representative, notwithstanding the provisions of the first paragraph of this Section 15.04, shall ipso facto be deemed to be the Indexing Agent solely for the purpose of determining the interest rate to be borne by the Bonds until the appointment by the Authority of the Indexing Agent or successor Indexing Agent, as the case may be. Section 15.05. Dealings With the Authority and the Company. The Remarketing Agents and the Indexing Agent may in good faith buy, sell, own, hold and deal in any of the Bonds issued hereunder, and may join in any action which any Bondowner may be entitled to take with like effect as if it did not act in any capacity hereunder. The Remarketing Agents and the Indexing Agent, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Authority or the Company, and may act as depository, trustee or agent for any committee or body of Bondowners secured hereby or other obligations of the Authority as freely as if it did not act in any capacity hereunder. 174 128. Section 15.06. Tender Agent. The Authority shall, with the approval of the Company and the Bank, appoint the Tender Agent for the Bonds, subject to the conditions set forth in Section 15.07. The Tender Agent shall designate its Corporate Trust Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Authority, the Trustee, the Remarketing Agents, the Indexing Agent, the Bank and the Company under which the Tender Agent will agree, particularly to perform its obligations under Article II and to request the Trustee to draw on the Letter of Credit as provided in Section 6.07.1. Notwithstanding anything to the contrary in the Indenture, the Tender Agent shall not invest any moneys it receives from such a draw on the Letter of Credit. The Tender Agent may designate from time to time a different Corporate Trust Office within The City of New York, New York, by a written instrument delivered to the Authority, the Trustee, the Remarketing Agents, the Indexing Agent, the Bank and the Company. The Tender Agent undertakes to perform such duties, and only such duties, as are specifically set forth in the Indenture and in any written instrument of acceptance of duties hereunder and no implied covenants shall be read into the Indenture against the Tender Agent. Insofar as such provisions may be applicable, the Tender Agent shall enjoy the same protective provisions in the performance of its duties hereunder as are specified in Sections 11.03, 11.05, 11.06, 11.07 and 11.14 with respect to the Trustee. Section 15.07. Qualifications of Tender Agent; Resignation; Removal. Any successor Tender Agent shall be a bank or trust company or a corporation duly organized under the laws of the United States of America or any state or territory thereof, which has an office in The City of New York, New York, and having a combined capital stock, surplus and undivided profits of at least $100,000,000 and authorized by law to perform all the duties imposed upon it by the Indenture. The Tender Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at least sixty (60) days' notice to the Authority, the Trustee, the Remarketing Agents, the Indexing Agent and the Company. The Tender Agent may be removed at any time, at the request of the Company, by an instrument, signed by the Authority, delivered to the Tender Agent, and to the Trustee, the Remarketing Agents, the Bank and the Indexing Agent. Any such resignation or removal of the Tender Agent shall not take effect until the appointment of a successor Tender Agent. 175 129. In the event of the resignation or removal of the Tender Agent, the Tender Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity to its successor (provided that to qualify as a successor Tender Agent, such successor, or the parent corporation of such successor, shall be rated at least Baa-3 and/or P-3 or an equivalent rating by Moody's or otherwise be acceptable to Moody's and the Authority) or, if there be no successor, to the Trustee. In the event that the Tender Agent shall resign or be removed, or be dissolved, or if the property or affairs of the Tender Agent shall be taken under the control of the state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, a successor may be appointed by the Authority with the prior written approval of the Bank and the Trustee. Any such successor shall have an office in The City of New York, New York, and shall be acceptable to the Trustee. Written notice of such appointment shall immediately be given by the Company to the Trustee and the Remarketing Agents and the Trustee shall cause written notice of such appointment to be given to the owners of the Bonds. Any successor Tender Agent shall execute and deliver an instrument accepting such appointment and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all rights, powers, duties and obligations of its predecessor, with like effect as if originally named as Tender Agent, but such predecessor shall nevertheless, on the written request of the Authority or the Trustee, or of the successor, execute and deliver such instruments and do such other things as may reasonably be required to more fully and certainly vest and confirm in such successor all rights, powers, duties and obligations of such predecessor. If no successor Tender Agent has accepted appointment in the manner provided above within 90 days after the Tender Agent has given notice of its resignation as provided above, the Tender Agent may petition any court of competent jurisdiction for the appointment of a temporary successor Tender Agent; provided that any Tender Agent so appointed shall immediately and without further act be superseded by a Tender Agent appointed by the Authority as provided above. The Tender Agent shall not be required to take or be deemed to have notice of any Event of Default or of any event which the lapse of time or giving of notice, or both, would constitute an Event of Default unless an officer in its Corporate Trust Office shall have received written notice thereof from the Authority, the Bank or the Trustee. 176 130. ARTICLE XVI MISCELLANEOUS Section 16.01. Parties in Interest. Except as herein otherwise specifically provided, nothing in the Indenture expressed or implied is intended or shall be construed to confer upon any Person other than the Company, the Authority, the Trustee, the Tender Agent, the Bank and the owners of the Bonds hereunder, any right, remedy or claim under or by reason of the Indenture, the Indenture being intended to be for the sole and exclusive benefit of the Company, the Authority, the Trustee, the Bank and the owners of the Bonds. Section 16.02. Severability. In case any one or more of the provisions of the Indenture or of the Bonds issued hereunder shall, for any reason, be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of the Indenture or of the Bonds, and the Indenture and the Bonds shall be construed and enforced as if such illegal or invalid provisions had not been contained therein. Section 16.03. No Individual Liability. No covenant or agreement contained in the Bonds or in the Indenture shall be deemed to be the covenant or agreement of any member, agent or employee of the Authority in his or her individual capacity, and neither the members of the Authority nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. Section 16.04. Payment Due on Saturdays, Sundays and Holidays. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of any Bonds or any Mandatory Purchase Date shall be on a day other than a Business Day, then payment of interest or principal and premium, if any, or Purchase Price, need not be made on such date but may be made (without additional interest) on the next succeeding Business Day, with the same force and effect as if made on the date of maturity or the date fixed for redemption or the Mandatory Purchase Date. Section 16.05. Notices. (a) All notices, certificates, requests or other communications hereunder shall be sufficiently given and shall be deemed given, unless otherwise required by the Indenture, when mailed by first class mail, postage prepaid, addressed as follows: If to the Authority, at Empire State Plaza, Agency Building #2, Albany, New York 12223, Attention: President; if to the Company, at 175 East Old Country Road, Hicksville, New 177 131. York, Attention: Treasurer; if to the Trustee, at 450 West 33rd Street, 15th Floor, New York, New York 10001, Attention: Corporate Trustee Administration Department; if to the Tender Agent, at 55 Water Street, Room 234, North Building, New York, New York 10041, Attention: Corporate Tellers; if to the Bank, at its address specified in the Reimbursement Agreement; and, if to the Indexing Agent or Remarketing Agents, at the address specified in their respective acceptances delivered pursuant to Article XV. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Authority, the Company, the Trustee, the Bank, the Indexing Agent, the Tender Agent or the Remarketing Agents shall also be given to the Authority, the Company and the Trustee. The Company, the Authority, the Trustee, the Bank, the Remarketing Agents and the Indexing Agent may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Any notice or other communication to be mailed to Registered Owners of the Bonds hereunder shall be mailed by first class mail in a sealed envelope, postage prepaid, addressed to each such Bondowner as his or her address last appears on the Bond Register. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impractical to mail notice to the Registered Owners of Bonds of any event when such notice is required to be given pursuant to any provision of the Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. (b) So long as the Bonds shall be rated by Moody's, the Trustee shall furnish to Moody's at 99 Church Street, New York, New York, Attn: Structured Transactions Group or such other office as Moody's may designate to the Trustee, and if the Bonds shall be rated by S&P, the Trustee shall furnish to S&P, (i) a copy of each amendment to the Indenture, Participation Agreement, Letter of Credit, and Reimbursement Agreement of which it has knowledge, (ii) notice of the termination, extension or expiration of any Letter of Credit, (iii) notice of the payment of all the Bonds, (iv) notice of conversion to a Medium-Term Rate Period of greater than three years duration or a Fixed Rate, and (v) notice of any successor Trustee, Paying Agent, Tender Agent or Remarketing Agents; provided, however, that failure by the Trustee to notify Moody's or S&P shall not result in any liability on the part of the Trustee or affect the validity of such documents or actions. SECTION 16.06. GOVERNING LAW. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION OF THE INDENTURE AND OF THE BONDS. 178 132. Section 16.07. Effective Date; Counterparts. The Indenture shall become effective on delivery. The Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 16.08. References to the Bank. After the establishment of a Fixed Rate for the Bonds and upon receipt by the Trustee of notice from the Bank that all amounts payable to the Bank with respect to draws under the Letter of Credit have been received, all references in the Indenture to the Bank shall be ineffective. Section 16.09. Date for Identification Purposes Only. The date of the Indenture shall be for identification purposes only and shall not be construed to imply that the Indenture was delivered as of any date other than the actual date of the delivery hereof by the parties hereto. 179 IN WITNESS WHEREOF, the Authority has caused the Indenture to be executed by its Chair and its corporate seal to be hereunto affixed and attested by its Secretary, and the Trustee has caused the Indenture to be executed by one of its Vice Presidents or Assistant Vice Presidents and attested by one of its authorized officers or persons, all as of the date first above written. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By /s/ Francis J. Murray, Jr. -------------------------- Chair (SEAL) Attest: /s/ Howard A. Jack - ------------------ Secretary CHEMICAL BANK AS TRUSTEE By /s/ Glenn Booth ---------------- (SEAL) Assistant Vice President Attest: /s/ L. O'Brien - ---------------------- Assistant Secretary 180 135. STATE OF NEW YORK ) : ss.: CITY OF NEW YORK ) On the 17th day of November, 1993 before me personally came Glenn Booth and L. O'Brien, to me known, who, being by me duly sworn, did depose and say that they are a(n) Assistant Vice Presiident and a(n) Assistant Secretary, respectively, of Chemical Bank, the Trustee, described in and which executed the above instrument; that they know the seal of said Trustee; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Corporate Trust Committee of the Board of Directors of said Trustee, and that they signed their names thereto by like authority. /s/ Annabelle DeLuca -------------------- Notary Public Annabelle DeLuca Notary Public, State of New York No. 01DE5013759 Qualified in Kings County Certificate Filed in New York County Commission Expires July 15, 1995 181 STATE OF NEW YORK ) : ss.: COUNTY OF ALBANY ) On the 9th day of November, 1993, before me personally came Francis J. Murray, Jr., to me known, who being by me duly sworn, did depose and say that he is Chair of New York State Energy Research and Development Authority, the Authority described in and which executed the above instrument and that he signed his name thereto by authority of the members of said Authority. /s/ Jacquelyn L. Jerry ---------------------- Notary Public Jacquelyn L. Jerry Notary Public, State of New York No. 4953824 Qualified in Albany County Commission Expires July 31, 1995 STATE OF NEW YORK ) : ss.: COUNTY OF ALBANY ) On the 9th day of November, 1993, before me personally came Howard A. Jack, to me known, who being by me duly sworn, did depose and say that he is Secretary of New York State Energy Research and Development Authority, the Authority described in and which executed the above instrument; that he knows the seal of said Authority, the Authority described in and which executed the above instrument; that he knows the seal of said Authority; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the members of said Authority, and that he signed his name thereto by like authority. /s/ Jacquelyn L. Jerry ---------------------- Notary Public Jacquelyn L. Jerry Notary Public, State of New York No. 4953824 Qualified in Albany County Commission Expires July 31, 1995 182 EXHIBIT A [Intentionally Omitted] 183 EXHIBIT B NOTICE OF ELECTION TO RETAIN BOND* FOLLOWING A MANDATORY PURCHASE DATE [Name and Address of Tender Agent] Attention: Bond Tender Unit Gentlemen: This notice is being sent to you in your capacity as Tender Agent under the Indenture of Trust (the "Indenture"), dated as of November 1, 1993, between New York State Energy Research and Development Authority (the "Authority") and Chemical Bank as Trustee (the "Trustee"), relating to the Authority's $___________ aggregate principal amount Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series A (the "Bonds"). You are hereby notified that: 1. The undersigned is the owner of Bond No.(s)____________ ________________ outstanding under the Indenture in the principal amount(s) of $__________. 2. The undersigned's address is _____________________ _______________________. 3. The undersigned has received a notice from the Trustee that the Bonds are required to be tendered on the Mandatory Purchase Date for purchase on the Mandatory Purchase Date as a result of the matters discussed in such notices. 4. The undersigned elects to retain Bond No.(s)___________ ______________ in the principal amount(s) of $________________ (or any portion thereof in an authorized denomination) and will not tender such Bond(s) (or portion thereof as aforesaid) on the Mandatory Purchase Date (or prior thereto) for purchase pursuant to Section 2.05(e)(4) of the Indenture. 5. The undersigned agrees to surrender such Bond(s) to be retained by the undersigned to [Name of Trustee], as Trustee, on the Mandatory Purchase Date in exchange for a replacement Bond or ____________________ *Note: Owners of Bonds may not elect to retain (i) if the Bonds currently bear interest at a Money Market Municipal Rate and (ii) unless the Bonds continue to be secured by a Letter of Credit after the Mandatory Purchase Date or have been converted to a Fixed Rate, as more particularly set forth in Section 2.05(e) of the Indenture. 184 Bonds bearing the appropriate legend and in the following denomination(s): ______________________. 6. The undersigned acknowledges that this notice of election is irrevocable and that the events specified in the notice from the Trustee referred to in Paragraph 3 above are to occur. 7. The undersigned acknowledges that the rating assigned by Moody's or S&P, if any, to the Bonds may be lowered or withdrawn as a result of the matters described in the notice from the Trustee referred to in Paragraph 3 above. 8. All capitalized terms not otherwise defined herein shall have the meaning given to such terms in the Indenture. Dated: __________, ____ _______________________ ______________________________ Witness Name of owner as it is written on the face of the above-identified Bonds, in every particular without alteration, enlargement or any change whatsoever. B-2 185 EXHIBIT C REQUISITION CERTIFICATE Long Island Lighting Company (the "Company") hereby requests Chemical Bank, as Trustee, under the Indenture of Trust relating to New York State Energy Research and Development Authority's (the "Authority") Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series A dated as of November 1, 1993 (the "Indenture"), to withdraw $____________ from the Construction Account in the Project Fund established under the Indenture for purposes permitted by Section 5.03 thereof. In connection with this withdrawal, the Company states as follows: 1. This requisition relates to the Bond Proceeds Sub-Account of the separate account in the Project Fund relating to the Project (as defined in the Indenture). 2. The number of this requisition is No. _____. 3. Payments aggregating $_____________ are due to the following persons in the following amounts for expenditures incurred in connection with the Project: Person Amount Item ------ ------ ---- 4. Payment is due to the Company in the total amount of $_____________ in reimbursement for amounts paid by the Company in connection with the Project as shown on the Schedule attached hereto. Deposit such payment by wire transfer to the ____________________________ ________________________. 5. Each amount referred to in paragraphs 3 and 4 hereof will be used to pay, or reimburse the Company for, a Cost of Construction of such Project and is a proper charge against the separate account for such Project in the Project Fund. 6. None of the items for which the disbursement is requested has formed the basis for any disbursement heretofore made from the Project Fund. 7. The disbursement will not be used in a manner that would result in a violation of any representation, warranty or 186 covenant contained in Section 5.04 of the Participation Agreement or in the Tax Regulatory Agreement. 8. No "event of default" as defined in the Participation Agreement has occurred and is continuing and no event which with the lapse of time alone would become such a default has occurred and is continuing. 9. No "event of default" as defined in the Indenture has occurred and is continuing and no event which with the lapse of time alone would become such a default has occurred and is continuing. Capitalized terms used in this requisition are used as defined in the Indenture. I am an Authorized Company Representative. LONG ISLAND LIGHTING COMPANY By:__________________________ Name: Title: C-2 EX-10.V 6 PARTICIPATION AGREEMENT SERIES B 1 ----------------------------------------------------------------- ----------------------------------------------------------------- NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY AND LONG ISLAND LIGHTING COMPANY ------------------------- PARTICIPATION AGREEMENT ------------------------- Dated as of November 1, 1993 ----------------------------------------------------------------- ----------------------------------------------------------------- - relating to - Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series B 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; EFFECTIVE DATE AND DURATION OF PARTICIPATION AGREEMENT Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 1.02. Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 1.03. Effective Date of Participation Agreement; Duration of Participation Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE II REPRESENTATIONS Section 2.01. Representations and Warranties by the Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.02. Representations and Warranties by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III CONSTRUCTION OF THE PROJECT; ISSUANCE OF BONDS Section 3.01. Construction of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3.02. Sale of Bonds and Deposit of Proceeds; Liability Under Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 3.03. Disbursements from Project Fund and Rebate Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.04. Revision of Construction Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.05. Certification of Completion of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 3.06. Payment of Cost of Construction of the Project in Event Project Fund Inadequate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.07. No Interest in Project Conferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.08. Operation, Maintenance and Repair. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 3.09. Investment of Moneys in Funds Under the Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.10. Agreement not to Exercise Option to Convert to Fixed Rate Absent Specified Rating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 3.11. Securities Depository. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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Page ---- ARTICLE IV COMPANY NOTE AND PAYMENTS; LETTER OF CREDIT Section 4.01. Execution and Delivery of Company Note to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4.02. Redemption of Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4.03. Obligation for Payment Absolute; Deficiencies. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 4.04. Administration Fees; Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.05. Compensation of Trustee, Paying Agent, Remarketing Agents, Indexing Agent and Tender Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 4.06. Project Not Security for Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.07. Payment of Taxes and Assessments; No Liens or Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 4.08. Indemnification of Authority, Trustee, Tender Agent, Paying Agent, Remarketing Agents and Indexing Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 4.09. Company to Pay Attorneys' Fees and Disbursements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 4.10. No Abatement of Administration Fees and Other Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 4.11. Payment to Tender Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 4.12. The Letter of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE V SPECIAL COVENANTS Section 5.01. No Warranty as to Suitability of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 5.02. Authority's Rights to Inspect Project and Plans and Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 5.03. Company Consent to Amendment of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 5.04. Tax Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 5.05. Company Agrees to Perform Obligations Imposed by Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 5.06. Maintenance of Office or Agency of Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 5.07. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 5.08. Payment of Taxes and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 5.09. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 5.10. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 5.11. Proper Books of Record and Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 5.12. Certificates as to Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 5.13. Company Not to Permit Hindrance or Delay of Payment of Company Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.14. Corporate Existence, Consolidation, Merger or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.15. Financial Statements of Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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Page ---- Section 5.16. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE VI DEFAULTS BY COMPANY; REMEDIES Section 6.01. Events of Default; Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 6.02. Certain Events of Default; Authority or Trustee May Take Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 6.03. Judicial Proceedings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VII MISCELLANEOUS Section 7.01. Disposition of Amounts After Payment of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.03. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.04. Amendment of Participation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 7.05. Assignment by Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 7.06. Participation Agreement Supersedes Any Prior Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 7.07. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 7.08. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 7.09. NEW YORK LAW TO GOVERN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
(iii) 5 This PARTICIPATION AGREEMENT, dated as of November 1, 1993, between NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY, a body corporate and politic, constituting a public benefit corporation, established and existing under and by virtue of the laws of the State of New York (the "Authority"), and LONG ISLAND LIGHTING COMPANY, a corporation duly organized and existing and qualified to do business as a public utility under the laws of the State of New York (the "Company"), W I T N E S S E T H : WHEREAS, pursuant to special act of the Legislature of the State of New York (Title 9 of Article 8 of the Public Authorities Law of New York, as from time to time amended and supplemented, herein called the "Act"), the Authority has been established, as a body corporate and politic, constituting a public benefit corporation; and WHEREAS, pursuant to the Act, the Authority is empowered to contract with any power company to participate in the construction of facilities for the furnishing of electricity to the extent required by the public interest in development, health, recreation, safety, conservation of natural resources and aesthetics; and WHEREAS, pursuant to the Act, the Authority has also been empowered to extend credit and make loans from bond and note proceeds to any person for the construction, acquisition and installation of, or for the reimbursement to any person for costs in connection with, any special energy project, including, but not limited to, any land, works, system, building or other improvement, and all real and personal properties of any nature or any interest in any of them which are suitable for or related to the furnishing, generation or production of energy; and WHEREAS, the Authority is also authorized under the Act to borrow money and issue its negotiable bonds and notes to provide sufficient moneys for achieving its corporate purposes; and WHEREAS, the Authority is also authorized under the Act to enter into any contracts and to execute all instruments necessary or convenient for the exercise of its corporate powers and the fulfillment of its corporate purposes; and WHEREAS, the Company is a public utility corporation doing business in the State of New York and operates power plants in the State of New York; and WHEREAS, the Company has requested that the Authority participate in financing the acquisition, construction and 6 2. installation of certain facilities for the furnishing of electric energy within the Company's service area (such facilities for the furnishing of electric energy being hereinafter referred to as the "Project") and, as part of such participation, that the Authority issue bonds pursuant to the Act to provide funds to finance the cost to the Company of the Project and the expenses incurred in connection with the authorization, issuance and sale of such bonds; and WHEREAS, the Authority, pursuant to Resolution No. 801, adopted January 25, 1993, has determined to issue its Electric Facilities Revenue Bonds (Long Island Lighting Company Project), bearing the series designation set forth on the first page of this Participation Agreement in an aggregate principal amount of $50,000,000 (the "Bonds"), for the purpose of financing a portion of such costs and expenses, all such Bonds to be issued under and secured by an Indenture of Trust relating to the Bonds dated as of November 1, 1993, between the Authority and Chemical Bank, as Trustee (the "Indenture"); NOW, THEREFORE, for and in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, it is hereby agreed by and between the parties as follows: 7 3. ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; EFFECTIVE DATE AND DURATION OF PARTICIPATION AGREEMENT Section 1.01. Definitions. The terms used in this Participation Agreement which are defined in Section 1.01 of the Indenture shall have the meanings, respectively, herein, which such terms are given in said Section 1.01 of the Indenture. Section 1.02. Rules of Construction. Unless the context clearly indicates to the contrary, the following rules shall apply to the construction of the Participation Agreement: (a) Words importing the singular number shall include the plural number and vice versa; (b) All references herein to particular articles or sections are references to articles or sections of the Participation Agreement; (c) The captions and headings herein are solely for convenience of reference and shall not constitute a part of the Participation Agreement nor shall they affect its meaning, construction or effect; (d) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in the Participation Agreement, refer to the Participation Agreement in its entirety and not to the particular article or section of the Participation Agreement in which they appear, and the term "hereafter" means after, and the term "heretofore" means before, the date of the Participation Agreement; and (e) In the event that there is any conflict between the provisions of the Participation Agreement and those of the Indenture, the provisions of the Indenture shall govern the disposition of such conflict. Section 1.03. Effective Date of Participation Agreement; Duration of Participation Agreement. This Participation Agreement shall become effective upon its execution and delivery, and shall continue in full force and effect until the principal of, and premium, if any, and interest on, the Company Note and Bonds have been fully paid (or provision for their payment has been made in accordance with the provisions of the Indenture) and all sums to which the Authority or the Trustee are entitled hereunder have been fully paid. 8 4. ARTICLE II REPRESENTATIONS Section 2.01. Representations and Warranties by the Authority. The Authority represents and warrants as follows: (a) The Authority is a body corporate and politic, constituting a public benefit corporation, established and existing under the laws of the State of New York; (b) The Authority has full power and authority to execute and deliver this Participation Agreement, the Indenture and the Tax Regulatory Agreement and to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder; (c) The Authority is not in default under any of the provisions of the laws of the State of New York which would affect its existence or its powers referred to in the preceding paragraph (b); (d) The Authority has determined that its participation in the financing of the Project, as contemplated by this Participation Agreement, is in the public interest; (e) The Authority has duly authorized the execution and delivery of this Participation Agreement, the Indenture and the Tax Regulatory Agreement and the execution and delivery of the other documents incidental to this transaction, and all necessary authorizations therefor or in connection with the performance by the Authority of its obligations hereunder or thereunder have been obtained and are in full force and effect; and (f) The execution and delivery by the Authority of this Participation Agreement, the Indenture and the Tax Regulatory Agreement and the consummation of the transactions herein or therein contemplated will not violate any indenture, mortgage, loan agreement or other contract or instrument to which the Authority is a party or by which it is bound, or to the best of the Authority's knowledge, any judgment, decree, order, statute, rule or regulation applicable to the Authority. Section 2.02. Representations and Warranties by the Company. The Company represents and warrants as follows: (a) The Company is a corporation duly incorporated and in good standing under the laws of the State of New York, is duly 9 5. qualified and authorized to engage in business as a public utility in the State of New York, has power to enter into, execute and deliver this Participation Agreement, the Tax Regulatory Agreement and the Company Note by proper corporate action and has duly authorized the execution and delivery by it of this Participation Agreement, the Tax Regulatory Agreement and the Company Note; (b) The execution and delivery by the Company of this Participation Agreement, the Tax Regulatory Agreement and the Company Note and the consummation of the transactions herein contemplated do not conflict with or constitute a breach of or a default under the Company's Certificate of Incorporation, By-Laws or any indenture, mortgage, loan agreement or other contract or instrument to which the Company is a party or by which it is bound, or to the best of the Company's knowledge, any judgment, decree, order, statute, rule or regulation applicable to the Company; (c) This Participation Agreement, the Tax Regulatory Agreement and the Company Note constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or other laws, judicial decisions or principles of equity relating to or affecting the enforcement of creditors' rights or contractual obligations generally; (d) The execution and delivery by the Company of this Participation Agreement and the Company Note in the manner and for the purposes herein set forth have been duly authorized by an order of the Public Service Commission of the State of New York; (e) No additional authorizations for or approvals of the execution and delivery by the Company of this Participation Agreement, the Tax Regulatory Agreement and the Company Note need be obtained by the Company or if any such authorization or approval is necessary it has been obtained; and (f) The representations of the Company set forth in the Tax Regulatory Agreement are hereby incorporated by reference as though fully set forth herein. 10 6. ARTICLE III CONSTRUCTION OF THE PROJECT; ISSUANCE OF BONDS Section 3.01. Construction of the Project. 1. The Company will construct and complete or cause construction and completion of the Project with reasonable dispatch and in accordance with the Company's construction plans therefor. The Project shall belong to and be the property of the Company. In order to effectuate the purposes of this Participation Agreement, the Company will do or cause to be done all things requisite or proper for the construction of the Project and the fulfillment of the obligations of the Company under this Participation Agreement. 2. Notwithstanding any other provision of this Participation Agreement to the contrary, the Company shall not be required to complete the construction of any component of the Project with respect to which funds have not been disbursed from the Project Fund if in the Company's business judgment it is not necessary or advisable to do so, provided that failure to complete the construction of such component will not affect the character or intended purpose of any other component of such Project and provided further that the estimated Cost of Construction of the components of the Project yet to be completed (as estimated by the Company at the time it determines not to complete any component) is at least equal to the amount of moneys remaining in the Project Fund. Notwithstanding any other provision of this Participation Agreement to the contrary, the Company shall not be required to complete the construction of any component of the Project if in the Company's business judgment it is not necessary or advisable to do so and the Company shall have delivered to the Authority an opinion of Bond Counsel to the effect that failure to complete such component of such Project will not adversely affect the qualification of any other component of such Project for financing under the Act or the exclusion from gross income for Federal income tax purposes of interest on the Bonds. Section 3.02. Sale of Bonds and Deposit of Proceeds; Liability Under Bonds. 1. In order to provide funds for payment of a portion of the Cost of Construction of the Project, the Authority, as soon as practicable after the execution of this Participation Agreement will issue, sell and deliver the Bonds to the initial purchasers thereof, all pursuant to and as provided in the Purchase Contract for the Bonds among the Authority, the Company, Dillon, Read & Co. Inc., Lehman Brothers Inc., Artemis Capital Group, Inc. and Samuel A. Ramirez & Co. Inc. and will 11 7. deposit the proceeds of such sale of the Bonds with the Trustee, as follows: (i) in the Bond Fund, a sum equal to the accrued interest, if any, paid by the initial purchasers of the Bonds and (ii) in the Construction Account of the Project Fund, the balance of the proceeds received from such sale. 2. The Bonds shall not be general obligations of the Authority, and shall not constitute an indebtedness of, or a charge against the general credit of, the Authority or give rise to any pecuniary liability of the Authority. The liability of the Authority under the Bonds shall be enforceable only to the extent provided in the Indenture, and the Bonds shall be payable solely from the Company Note Payments, funds drawn under the Letter of Credit and any other funds held by the Trustee under the Indenture and available for such payment. The Bonds shall not be a debt of the State of New York, and the State of New York shall not be liable thereon. Section 3.03. Disbursements from Project Fund and Rebate Fund. 1. The Authority has, in the Indenture, authorized and directed the Trustee to make payments from the Project Fund, in accordance with and subject to the provisions of Section 5.03 of the Indenture, to pay the Cost of Construction of the Project upon receipt from time to time of requisitions signed by an Authorized Company Representative, stating with respect to each payment to be made for the Project the information required by Section 5.03 of the Indenture. The Company will cause such requisitions to be submitted to the Trustee as may be necessary to effect payments out of the Project Fund in accordance with the provisions of the Indenture. Concurrently with the delivery by the Company of each requisition to the Trustee, the Company will deliver to the Authority a copy of such requisition and any attachments thereto. The Authority and the Trustee may rely on the Company as to the completeness and accuracy of all statements in such requisition, and the Company will indemnify and save harmless the Authority and the Trustee from any liability incurred in connection with any requisition so delivered and the payment of funds in reliance thereon. 2. All moneys remaining in the Project Fund after the certificate referred to in Section 5.05 of the Indenture is furnished shall, at the written direction of an Authorized Company Representative, be applied in accordance with Section 5.06 of the Indenture. Section 3.04. Revision of Construction Plans. The Company may revise the construction plans for the Project at any time and from time to time; provided, however, that no such 12 8. revision shall be made prior to the Completion Date with respect to such Project which would render the description of such Project inaccurate in any material respect, except in accordance with the following procedure: (a) Prior to any such revision the Company shall deliver to the Trustee and the Authority (1) a certificate of an Authorized Company Representative, setting forth the text of the change in the description of such Project which would be necessary to reflect accurately the proposed revision in plans and specifications, and certifying that, notwithstanding such revision, such Project will still be designed to serve the purposes which would have been served by such Project in the absence of such revision, and (2) an opinion of Bond Counsel that such revision of such Project description and the expenditure of moneys from the Project Fund under the provisions of the Indenture to pay the Cost of Construction of such Project in accordance with the revised description of such Project will not impair the exclusion of interest on any of the Bonds then outstanding from gross income for Federal income tax purposes. (b) Ten (10) days after the receipt by the Authority and the Trustee of the certificate and opinion referred to in paragraph (a) above, such Project description shall be deemed amended to include such revision for all purposes of this Participation Agreement and the Indenture. Upon the request of either party or the Trustee, the Authority and the Company shall enter into an appropriate instrument reflecting such amendment. Section 3.05. Certification of Completion of Project. When the Project has been completed (except for components that the Company has determined not to complete in accordance with Section 3.01), the Company shall promptly deliver to the Trustee and the Authority a certificate of an Authorized Company Representative to the effect that, as of a specified date, the Project has been completed (except as aforesaid). Such certificate shall specify the components of the Project, if any, the completion of which has been excused pursuant to Section 3.01. The certificate delivered pursuant to this Section 3.05 shall also contain an appropriate direction to the Trustee with respect to any amount in the Project Fund which is to be retained or thereupon disposed of as provided in Section 5.06 of the Indenture. The Trustee may rely as to the accuracy and completeness of all statements in such certificate. Notwithstanding the foregoing, such certificate shall be given and may state that it is given without prejudice to any 13 9. rights against third parties which exist at the date thereof or which may subsequently come into being. Section 3.06. Payment of Cost of Construction of the Project in Event Project Fund Inadequate. If the moneys in the Project Fund available therefor shall not be sufficient to pay the Cost of Construction of the Project in full (whether due to investment losses or otherwise), the Company shall, subject to the provisions of Section 3.01, complete the Project and pay (whether through financing or otherwise) all that portion of the Cost of Construction thereof in excess of the moneys available therefor in the Project Fund. The Authority does not make any warranty, either express or implied, that the moneys which will be paid into the Project Fund will be sufficient to pay the Cost of Construction of the Project. If the Company shall pay any portion of the Cost of Construction of the Project pursuant to the provisions of this Section, except to the extent it may submit requisitions pursuant to Section 5.03 of the Indenture, it shall not be entitled to any reimbursement therefor from the Authority, the Trustee or the owners of any of the Bonds, nor shall it be entitled to any diminution in or postponement of the payments required to be paid by the Company pursuant to this Participation Agreement or the Company Note. Section 3.07. No Interest in Project Conferred. Neither the Authority nor the Trustee shall be entitled to any interest in the Project by reason of the advance of Bond proceeds pursuant to this Participation Agreement. Section 3.08. Operation, Maintenance and Repair. The Authority and the Company recognize that the Project will constitute integrated portions of the electric energy production, transmission, and distribution facilities of the Company and that it is not feasible to administer the Project separately from such facilities. The Company shall operate the Project (with such changes, improvements or additions as the Company may deem desirable) as part of such facilities for the joint useful life of the Project and such facilities and shall maintain and repair the Project in conformity with the Company's normal maintenance and repair programs for such facilities provided that the Company shall have no obligation to operate, maintain or repair any element or item of the Project the operation, maintenance, or repair of which becomes uneconomic to the Company because of damage or destruction or obsolescence (including physical, functional and economic obsolescence), or change in government standards and regulations, or the termination of the operation of the facilities to which the element or item of the Project is an adjunct; and provided further that,in any event, the Company is proceeding in good faith to 14 10. maintain the availability of the Project for use as an authorized project under the Act. Section 3.09. Investment of Moneys in Funds Under the Indenture. Any moneys held as a part of any fund created under the Indenture shall be invested or reinvested by the Trustee as provided in Article VII of the Indenture. Any such investment shall be consistent with the provisions of the Tax Regulatory Agreement. Section 3.10. Agreement not to Exercise Option to Convert to Fixed Rate Absent Specified Rating. The Company agrees not to direct that a Fixed Rate become effective pursuant to Section 2.04(b) of the Indenture unless the Company shall have delivered to the Authority evidence satisfactory to the Authority that upon conversion to a Fixed Rate the Bonds are expected to be rated in at least the third highest rating category of Moody's or S&P (currently "A" in the case of Moody's and "A" in the case of S&P). Section 3.11. Securities Depository. The Company acknowledges that the Authority and the Trustee, at the request of the Company, have arranged for the initial deposit of the Bonds with The Depository Trust Company ("DTC") which will act as Securities Depository in order to effectuate a book-entry-only system and that this system may be discontinued or, if discontinued, reinstituted (with DTC or another Securities Depository) in accordance with the Indenture. The Company agrees to take all actions necessary, and to refrain from taking actions contrary to the effectuation of a book-entry-only system established pursuant to the Indenture and any arrangements among the Authority, the Trustee and any Securities Depository. The Authority shall not enter into any written agreements with a Securities Depository without receipt and acceptance of such agreements by the Company. The Company agrees that, absent subsequent agreement among the Authority, the Trustee, the Company and a Securities Depository, the Bonds shall not be held in a book-entry-only system during any Money Market Municipal Rate Period. 15 11. ARTICLE IV COMPANY NOTE AND PAYMENTS; LETTER OF CREDIT Section 4.01. Execution and Delivery of Company Note to Trustee. 1. Concurrently with the authentication by the Trustee and delivery by the Authority of the Bonds and in order to evidence the obligation of the Company to the Authority to repay the advance of the proceeds of the Bonds, the Authority hereby directs the Company, and the Company hereby agrees, to execute and deliver to the Trustee its Company Note and to duly and punctually pay the principal of, premium, if any, and interest on, the Company Note at the place, the times and in the manner provided therein. The Company Note shall be substantially in the form attached hereto as EXHIBIT C. 2. The obligation of the Company to make any payment of principal of, and premium, if any, and interest on, the Company Note shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit. Section 4.02. Redemption of Bonds. Whenever Bonds are redeemable in whole or in part, the Authority will redeem the same at the written direction of an Authorized Company Representative given in accordance with Section 8.01 of the Indenture. Section 4.03. Obligation for Payment Absolute; Deficiencies. The Company agrees that its obligation to make the Company Note Payments and payments under Section 4.11 at the times and in the amounts provided in the Company Note and this Participation Agreement shall be absolute, irrevocable and unconditional and shall not be subject to any defense (other than payment) or any right of set-off, counterclaim or recoupment for any reason, including, without limitation, the unenforceability (because of judicial decision or otherwise) or the impossibility of performance of the Company Note obligations, or any breach by the Authority of any obligation to the Company, whether under this Participation Agreement or otherwise, or inaccuracy of any representation by the Authority to the Company under this Participation Agreement or in any other instrument, or any indebtedness or liability at any time owing to the Company by the Authority, or any failure to complete the Project, or the destruction by fire or other casualty of the Project or any portion thereof, or the taking of title thereto or the use thereof by the exercise of the power of eminent domain. If for any reason Company Note Payments, together with other moneys held by the Trustee and then available for such purpose (including moneys paid by the Bank under the Letter of Credit), would not be sufficient to make the corresponding payments of principal of, and premium, if any, and 16 12. interest on, the Bonds when such payments are due, the Company will pay the amounts required from time to time to make up any such deficiency. If for any reason payments under Section 4.11, together with other moneys held by the Trustee and the Tender Agent and then available for such purpose (including moneys paid by the Bank under the Letter of Credit), would not be sufficient to make the corresponding payments of the purchase price of the Bonds when such payments are due, the Company will pay the amounts required from time to time to make up any such deficiency. Section 4.04. Administration Fees; Expenses, Etc. In order to defray a portion of the expenses incurred by the Authority in conducting and administering its programs for the acquisition and construction of facilities for the furnishing of electricity, special energy projects and the development of advanced technologies, the Company shall pay to the Authority an initial Administration Fee in the amount of $125,000 on the date of the delivery of the Bonds to the initial purchasers thereof and an annual Administration Fee in the amount of $6,500 on November 1 of each year commencing November 1, 1994, until the Bonds are no longer outstanding. In addition, the Company shall pay to the State of New York with respect to the Bonds a bond issuance charge in the amount of $175,000 on the date of authentication and delivery of the Bonds to the initial purchasers. In addition to such Administration Fees, the Company will pay or reimburse the Authority upon its request for all reasonable expenses, disbursements and advances incurred or made by the Authority (including printing costs and the reasonable fees, expenses and disbursements of its counsel, bond counsel and co-bond counsel) in connection with the Participation Agreement, the Indenture or any transaction or event contemplated by the Participation Agreement, the Tax Regulatory Agreement or the Indenture. Section 4.05. Compensation of Trustee, Paying Agent, Remarketing Agents, Indexing Agent and Tender Agent. The Company agrees: (1) to pay to the Trustee from time to time upon its request reasonable compensation for all services rendered by it in any capacity under the Indenture (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as so otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred by it in any capacity under the Indenture (including the reasonable 17 13. compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; (3) to pay to the Paying Agent from time to time upon its request, reasonable compensation for all services rendered by it as Paying Agent under the Indenture and reimburse it for its reasonable expenses incurred under the Indenture (including reasonable compensation and expenses and disbursements of its agents and counsel), except any such expense as may be attributable to its negligence or bad faith; and (4) to pay to the Remarketing Agents, the Tender Agent and the Indexing Agent their reasonable fees and expenses as and when the same become due, except any such expense as may be attributable to such person's negligence or bad faith. Section 4.06. Project Not Security for Bonds. It is expressly recognized by the parties that neither the Project nor any other property of the Company will constitute any part of the security for the Bonds. Section 4.07. Payment of Taxes and Assessments; No Liens or Charges. The Company will (a) pay, when the same shall become due, all taxes and assessments, including income, profits, property or excise taxes, if any, or other municipal or governmental charges, imposed, levied or assessed by the Federal, state or any municipal government upon the Authority, the Tender Agent or the Trustee in respect of any payments (other than payments made pursuant to Sections 4.04 and 4.05) made or to be made pursuant to this Participation Agreement or the Company Note and (b) pay or cause to be discharged, within sixty (60) days after the same shall accrue, any lien or charge upon any such payment made or to be made under this Participation Agreement, provided that the Company shall not be required to pay any such tax or assessment so long as (i) the Company at its expense contests by appropriate legal proceedings conducted in good faith and with due diligence the amount, validity or application of any such tax, assessment or charge, (ii) such proceedings shall have the effect of suspending the collection thereof from the Authority, the Trustee and the Tender Agent, and (iii) the Company shall indemnify and hold the Authority, the Trustee and the Tender Agent harmless from any losses, costs, charges, expenses (including reasonable attorneys' fees and disbursements), judgments and liabilities arising in respect of such tax, assessment or charge and the nonpayment thereof. 18 14. Section 4.08. Indemnification of Authority, Trustee, Tender Agent, Paying Agent, Remarketing Agents and Indexing Agent. Any obligation of the Authority created by or arising out of this Participation Agreement shall be a limited obligation of the Authority, payable solely from the Company Note Payments, any payments by the Company under Section 4.11, funds drawn under the Letter of Credit and any other funds held by the Trustee under the Indenture and available for such payment, and shall not constitute an indebtedness of or a charge against the general credit of the Authority and shall not constitute or give rise to any pecuniary liability of the Authority; nevertheless, if the Authority shall incur any such pecuniary liability, then in such event the Company shall indemnify and hold the Authority harmless by reason thereof. The Company releases the Authority, the Trustee, any Paying Agent, the Remarketing Agents, the Tender Agent and the Indexing Agent from, agrees that the Authority, the Trustee, the Remarketing Agents, the Tender Agent, any Paying Agent and the Indexing Agent shall not be liable for, and agrees to indemnify and hold the Authority, the Trustee, any Paying Agent, the Remarketing Agents, the Tender Agent and the Indexing Agent harmless from, any liability for any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever arising out of the construction or operation of the Project or the financing thereof. The Company agrees to indemnify and hold the Authority, its members, officers and employees, the Trustee, the Tender Agent, any Paying Agent and the Indexing Agent harmless from any losses, costs, charges, expenses (including reasonable attorneys' fees and disbursements), judgments and liabilities incurred by it or them, as the case may be, in connection with any claims made, any action, suit or proceeding instituted or threatened, in connection with the transactions contemplated by this Participation Agreement or the Indenture so long as, in the case of the Authority, its members, officers and employees, it or they, as the case may be, have acted in good faith to carry out the transactions contemplated by this Participation Agreement, the Remarketing Agreement or the Indenture and, except, in the case of the Trustee, the Tender Agent, any Paying Agent and the Indexing Agent, the Trustee's, the Tender Agent's, the Paying Agent's and the Indexing Agent's willful misconduct or negligence. Section 4.09. Company to Pay Attorneys' Fees and Disbursements. If the Company shall default under any of the provisions of this Participation Agreement and the Authority or the Trustee or both of them shall employ attorneys or incur other expenses for the collection of payments due under this Participation Agreement or for the enforcement of performance or observance of any obligation or agreement on the part of the Company contained in this Participation Agreement, the Company will 19 15. on demand therefor reimburse the reasonable fees of such attorneys and such other reasonable disbursements so incurred. Section 4.10. No Abatement of Administration Fees and Other Charges. It is understood and agreed that so long as any Bonds are outstanding under the Indenture, Administration Fees and other charges payable to the Authority pursuant to this Participation Agreement shall continue to be payable at the times and in the amounts herein specified, whether or not the Project, or any portion thereof, shall have been destroyed by fire or other casualty, or title thereto or the use thereof shall have been taken by the exercise of the power of eminent domain, and that there shall be no abatement of any such Administration Fees and other charges by reason thereof. Section 4.11. Payment to Tender Agent. The Company shall pay, or cause to be paid, to the Tender Agent amounts equal to the amounts to be paid pursuant to Section 2.05 of the Indenture in respect of Bonds tendered for purchase or deemed to be so tendered pursuant to the terms of Section 2.05 of the Indenture, such amounts to be paid by the Company to the Tender Agent on the dates such payments pursuant to Section 2.05 of the Indenture are to be made; provided, however, that the obligation of the Company to make any such payment shall be reduced by the amount of any moneys available for such payment under clauses (i) through (iii) of Section 2.05(h) of the Indenture and provided, further, that the obligation of the Company to make any such payment shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit. Section 4.12. The Letter of Credit. At all times on or prior to the Fixed Rate Conversion Date except during any period when all the Bonds then outstanding are held by or for the account of the Company, a Letter of Credit meeting the requirements of this Section 4.12 shall be in effect and, in the event that an Alternate Credit Facility is to replace an expiring Letter of Credit, the requirements of Section 2.05(j) and Section 6.07 of the Indenture will be fulfilled. A Letter of Credit shall be an obligation of a bank or banks, insurance company or companies, other financial institution or institutions, or any combination of the foregoing, entitling the Trustee to draw up to (a) an amount equal to the principal amount of the Bonds then outstanding to pay (i) the principal of the Bonds when due, or (ii) the portion of the Purchase Price of Bonds corresponding to principal, plus (b) an amount equal to 210 days' accrued interest on the Bonds then outstanding computed at the maximum rate specified in such Letter of Credit, which shall in no event exceed fifteen percent (15%), on the basis of a 360-day year. A Letter of Credit shall expire (1) at its stated expiration date, which shall be no earlier than 20 16. two (2) days after the next succeeding Optional Tender Date or Purchase Date not less than six months from its effective date, (2) when all available amounts have been drawn, (3) one (1) day after the Fixed Rate Conversion Date, (4) on the effective date of any Alternate Credit Facility that replaces the then effective Letter of Credit, (5) the earliest date on which no Bonds are outstanding, whichever shall occur first and (6) twelve (12) days after the Trustee receives notice from the Bank that it is terminating the Letter of Credit and directing the Trustee to cause a mandatory tender and purchase of or to accelerate the Bonds. A Letter of Credit shall provide that when there is a drawing to pay interest on scheduled payment dates, if the Trustee does not receive from the Bank by the close of business on a day specified therein, which shall not be later than the tenth (10th) day following such a drawing in respect of interest, notice by telephone confirmed in writing (or by other means acceptable to the Trustee and the Authority) that the amount available to be drawn has not been reinstated by the amount of the drawing for interest (except on principal of a Bond being paid or purchased and cancelled), the amount available to be drawn will automatically be reinstated by the amount of the drawing on such specified day. 21 17. ARTICLE V SPECIAL COVENANTS Section 5.01. No Warranty as to Suitability of Project. The Authority makes no warranty, either express or implied, with respect to actual or designed capacity of the Project, as to the suitability of the Project for the purposes specified in this Participation Agreement, as to the condition of the Project, or as to the suitability of the Project for the Company's purposes or needs. Section 5.02. Authority's Rights to Inspect Project and Plans and Specifications. The Authority shall have the right at all reasonable times to examine and inspect the Project and, to the extent reasonably available, the plans and specifications therefor and such other information and records relating to the Project as may be reasonably necessary to establish the qualification of the Project for financing under the Act and compliance with this Participation Agreement. Section 5.03. Company Consent to Amendment of Indenture. The Authority shall not enter into any indenture supplemental to or amendatory of the Indenture without the prior consent of the Company as evidenced by a certificate in writing signed by an Authorized Company Representative. Section 5.04. Tax Covenant. Notwithstanding any other provision hereof, the Company covenants and agrees that it will not take or authorize or permit any action to be taken with respect to the Project, or the proceeds of Bonds, including any amounts treated as proceeds of the Bonds for any purpose of Section 103 of the Code, which will result in the loss of the exclusion of interest on the Bonds from gross income for Federal income tax purposes under Section 103 of the Code (except for any Bond during any period while any such Bond is held by a person referred to in Section 147(a) of the Code). This provision shall control in case of conflict or ambiguity with any other provision of this Participation Agreement. In furtherance of such covenant and agreement, the Authority and the Company have entered into the Tax Regulatory Agreement and the Company hereby agrees to comply with the provisions thereof insofar as the Tax Regulatory Agreement relates to the Bonds. Section 5.05. Company Agrees to Perform Obligations Imposed by Indenture. The Company agrees to perform such obligations as may be required of it by the provisions of the Indenture. 22 18. Section 5.06. Maintenance of Office or Agency of Company. The Company will at all times keep in Hicksville, New York, or another location in the State of New York an office or agency where notices and demands with respect to the Company Note and this Participation Agreement may be served, and will, from time to time, give written notice to the Trustee and the Authority of the location of such office or agency; and, in case the Company shall fail so to do, notices may be served and demands may be made at the principal office of the Trustee. Section 5.07. Further Assurances. The Company will make, execute, acknowledge and deliver, or cause to be made, executed, acknowledged and delivered, to the Trustee any and all such further acts, instruments or assurances as may be reasonably required for effectuating the intention of this Participation Agreement and the Company Note. Section 5.08. Payment of Taxes and Other Charges. The Company will promptly pay and discharge, or cause to be paid and discharged, as the same become due and payable, any and all taxes, rates, levies, assessments, and governmental liens, claims and other charges at any time lawfully imposed or accruing upon or against the Company or upon or against its properties or any part thereof, or upon the income derived therefrom or from the operations of the Company, provided that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any such obligation, tax, rate, levy, assessment, lien, claim or other charge so long as in good faith and by appropriate legal proceedings the validity thereof shall be contested. Section 5.09. Maintenance of Properties. The Company will at all times make or cause to be made such expenditures for repairs, maintenance and renewals, or otherwise, as shall be necessary to maintain its properties in good repair, working order and condition as an operating system or systems to the extent necessary to meet the Company's obligations under the Public Service Law of the State of New York and the Participation Agreement; provided, however, that nothing herein contained shall be construed to prevent the Company from ceasing to operate any of its plants or any other property, if, in the judgment of the Company, it is advisable not to operate the same and the operation thereof shall not be essential to the maintenance and continued operation of the rest of the operating system or systems, and the security under the Indenture afforded by the Company Note will not be substantially impaired by the termination of such operation. It is understood that the Company has agreed pursuant to a settlement with the State of New York, approved by the Company's shareholders on June 28, 1989, not to operate the Shoreham Nuclear Power Station. 23 19. Section 5.10. Insurance. The Company will keep or cause to be kept such parts of its properties as, in the opinion of an Authorized Company Representative (as defined in the Indenture and who shall be a licensed professional engineer), are of an insurable nature, insured against loss or damage by fire or other casualties, the risk of which is customarily insured against by companies similarly situated and operating like properties, to the extent that property of similar character is customarily insured against by such companies, either (a) by reputable insurers or (b) in whole or in part in the form of reserves or of one or more insurance funds created by the Company, whether alone or with other corporations, provided that the plan of each such insurance fund shall have been or shall be approved by the Board of Directors of the Company. Notwithstanding the foregoing, the Company may carry a lesser amount of insurance with respect to Shoreham Nuclear Generating Station to the extent that the Company has received an exemption from the Nuclear Regulatory Commission permitting it to carry such lesser amount. Section 5.11. Proper Books of Record and Account. The Company will at all times keep or cause to be kept proper books of record and account, in which full, true and correct entry will be made of all dealings, business and affairs of the Company, including proper and complete entries to capital or property accounts covering property worn out, obsolete, abandoned or sold, all in accordance with the requirements of any system of accounting or keeping accounts or the rules, regulations or orders prescribed by a regulatory commission with jurisdiction over the rates of the Company giving rise to at least fifty-one percent (51%) of the Company's gross revenues, or if there are no such requirements or rules, regulations or orders, then in compliance with generally accepted accounting principles. Section 5.12. Certificates as to Defaults. The Company shall file with the Trustee, on or before April 30 of each year, a certificate signed by an Authorized Company Representative (as defined in the Indenture) stating that, to the best of his knowledge, information and belief, the Company has kept, observed, performed and fulfilled each and every one of its covenants and obligations contained in this Participation Agreement and in the Company Note and, to the best of his knowledge, information and belief, there does not exist at the date of such certificate any default by the Company under this Participation Agreement or any event of default hereunder or other event which, with notice or the lapse of time specified in Section 6.01, or both, would become an event of default or, if any such default or event of default or other event shall so exist, specifying the same and the nature and status thereof. 24 20. Section 5.13. Company Not to Permit Hindrance or Delay of Payment of Company Note. The Company will not voluntarily do, suffer or permit any act or thing intended to hinder or delay the payment of the indebtedness evidenced by the Company Note. Section 5.14. Corporate Existence, Consolidation, Merger or Sale of Assets. The Company will maintain its corporate existence, will not consolidate with or permit itself to be merged into any other corporation or corporations, or sell, transfer or otherwise dispose of all or substantially all of its properties and assets, except in the manner and upon the terms and conditions set forth in this Section 5.14. Nothing contained in this Participation Agreement shall prevent (and this Participation Agreement shall be construed as permitting and authorizing) any lawful consolidation or merger of the Company with or into any other corporation or corporations lawfully authorized to acquire and operate the properties of the Company, or a series of consolidations or mergers, in which the Company or its successor or successors shall be a party, or any sale of all or substantially all the properties of the Company as an entirety to a corporation lawfully authorized to acquire and operate the same; provided that, upon any consolidation, merger or sale, the corporation formed by such consolidation, or into which such merger may be made, or making such purchase shall execute and deliver to the Trustee an instrument, in form satisfactory to the Trustee, whereby such corporation shall effectually assume the due and punctual payment of the principal of, and premium, if any, and interest on, the Company Note according to its tenor and the due and punctual performance and observance of all covenants and agreements to be performed by the Company pursuant to this Participation Agreement, the Tax Regulatory Agreement and the Company Note. Every such successor corporation shall possess, and may exercise, from time to time, each and every right and power hereunder of the Company, in its name or otherwise; and any act, proceeding, resolution or certificate by any of the terms of this Participation Agreement, the Tax Regulatory Agreement and the Company Note required or provided to be done, taken and performed or made, executed or verified by any board or officer of the Company shall and may be done, taken and performed or made, executed or verified with like force and effect by the corresponding board or officer of any such successor corporation. If consolidation, merger or sale or other transfer is made as permitted by this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, 25 21. merger or sale or other transfer shall be made except in compliance with the provisions of this Section. Section 5.15. Financial Statements of Company. The Company agrees to furnish the Trustee with a copy of its annual report to stockholders for each year, beginning with the year 1994, on or before March 31 of the subsequent year or as soon thereafter as it is reasonably available. The Company further agrees to furnish to the Trustee, and to any owner of the Bonds if requested in writing by such owner, all financial statements which it sends to its shareholders generally. Section 5.16. Compliance with Laws. The Company agrees to comply in all material respects with all applicable laws, rules and regulations and orders of any governmental authority, non-compliance with which would adversely affect the Company's ability to perform its obligations hereunder or under the Tax Regulatory Agreement or the Company Note, except laws, rules, regulations or orders being contested in good faith or laws, rules, regulations or orders which the Company has applied for variances from, or exceptions to. 26 22. ARTICLE VI DEFAULTS BY COMPANY; REMEDIES Section 6.01. Events of Default; Acceleration. In case one or more of the following events of default shall have occurred and be continuing: (a) failure by the Company to pay when due any amount required to be paid under this Participation Agreement or the Company Note, which failure causes a default in the payment when due of the interest on any of the Bonds and continuance of such default for five (5) days; or (b) failure by the Company to pay when due any amount required to be paid under this Participation Agreement or the Company Note, which failure causes a default in the payment when due of the principal of, or premium, if any, on any of the Bonds; or (c) failure by the Company to pay when due any amount required to be paid under Section 4.11, which failure causes a default in the payment when due of any amount payable pursuant to Section 2.05 of the Indenture and continuance of such default for five (5) days; or (d) failure on the part of the Company duly to observe or perform any other of the covenants or agreements on the part of the Company contained in this Participation Agreement (other than failure to pay amounts required to be paid under Sections 4.04, 4.05, 4.08, 4.09 or 4.10) or in the Company Note for a period of ninety (90) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Authority or the Trustee; or (e) an Act of Bankruptcy relating to the Company; or (f) the occurrence and continuance of an "event of default" as defined in the Company Indenture; then, and in any such event, the Trustee, may, and upon the written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding shall, by notice in writing to the Company and provided that the default has not theretofore been cured, declare the Company Note to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything contained in this Participation Agreement or in the Company Note to the contrary notwithstanding. Any amounts collected by the Trustee 27 23. pursuant to action taken under this Section 6.01 shall be applied in accordance with the Indenture. In addition, if at any time the principal of the Bonds shall have been declared to be due and payable by acceleration pursuant to the terms of the Indenture, the Company Note shall thereupon become and be immediately due and payable, subject to such declaration with respect to the Bonds being annulled pursuant to Section 10.01 of the Indenture. The right or obligation of the Trustee to make any such declaration as aforesaid, however, is subject to the condition that if, at any time after declaration, but before all the Bonds shall have matured by their terms, the principal of, premium, if any, and interest on, the Company Note which shall have become due and payable otherwise than by such declaration, and all other sums payable hereunder, except the principal of, and interest on, the Company Note which shall have become due and payable by such declaration, shall have been paid or provision satisfactory to the Trustee shall have been made for such payment, and the reasonable expenses of the Trustee and of the owners of the Bonds shall have been paid, including reasonable attorneys' fees paid or incurred, and all defaults hereunder and under the Bonds or under the Indenture, except as to the payment of principal and interest due and payable solely by reason of such declaration, shall be made good or be secured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall be made therefor, then and in every such case the owners of a majority in aggregate principal amount of the Bonds then outstanding, by written notice to the Authority and to the Trustee, may rescind such declaration and annul such default in its entirety, or, if the Trustee shall have acted in the absence of a written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of the outstanding Bonds, and if there shall not have been theretofore delivered to the Trustee written direction to the contrary by the owners of at least twenty-five percent (25%) in aggregate principal amount of the outstanding Bonds, then any such declaration shall ipso facto be deemed to be rescinded and any such default and its consequences shall ipso facto be deemed to be annulled, but no such rescission and annulment shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon. In case the Trustee shall have proceeded to enforce any right under this Participation Agreement or the Company Note and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Authority and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Authority and the Trustee shall continue as though no such proceedings had been taken. 28 24. Section 6.02. Certain Events of Default; Authority or Trustee May Take Certain Actions. In case the Company shall have failed to comply with its obligations under Article III or under Sections 4.04, 4.08, 4.09, 4.10 or 5.16, which event shall have continued for a period of ninety (90) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Authority or the Trustee, the Authority or the Trustee may take whatever action at law or in equity as may appear necessary or desirable to enforce performance or observance of any obligations or agreements of the Company under said Article or Sections. In case the Company shall have failed to comply with its obligations under Section 4.05, which event shall have continued for a period of ninety (90) days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, the Trustee may take whatever action at law or in equity as may appear necessary or desirable to the Trustee to enforce performance or observance of any obligations or agreements of the Company under said section. Section 6.03. Judicial Proceedings by Trustee. Upon the occurrence and continuance of an event of default (as defined in Section 6.01) the Trustee may, and upon the written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding and receipt by the Trustee of indemnity satisfactory to it shall, institute any actions or proceedings at law or in equity for the collection of any amounts then due and unpaid on the Company Note, and may prosecute any such action or proceeding to judgment or final decree, and may collect in the manner provided by law the moneys adjudged or decreed to be payable. 29 25. ARTICLE VII MISCELLANEOUS Section 7.01. Disposition of Amounts After Payment of Bonds. Any amounts determined by the Trustee to be remaining in the funds created under the Indenture after payment in full, or provision for payment in full, of principal of, and premium, if any, and interest on, all of the Bonds, in accordance with the provisions of the Indenture, and payment of all the fees, charges and expenses of the Authority, the Trustee, the Tender Agent, the Indexing Agent, the Remarketing Agents and the Paying Agents in accordance with the Indenture and this Participation Agreement and any amounts required to be paid to the United States of America pursuant to the Tax Regulatory Agreement, shall be paid to the Bank; provided, however, that on or after the Fixed Rate Conversion Date and solely with respect to moneys not resulting from a draw on the Letter of Credit and not constituting remarketing proceeds, such amounts that would be payable to the Bank pursuant to this Section 7.01 shall be paid to the Company if the Bank has been paid in full under the Reimbursement Agreement. Section 7.02. Notices. All notices, certificates, requests or other communications between the Authority, the Company and the Trustee required to be given under this Participation Agreement or under the Indenture (except as otherwise provided therein) shall be sufficiently given and shall be deemed given when delivered or mailed by first class mail, postage prepaid, addressed as follows if to the Authority, at 2 Empire State Plaza, Albany, New York 12223, Attention: President; if to the Company, at 175 East Old Country Road, Hicksville, New York 11801, Attention: Treasurer; and if to the Trustee, at 450 West 33rd Street, 15th Floor, New York, New York 10001 Attention: Corporate Trustee Administration Department and if to the Tender Agent, Remarketing Agents or the Indexing Agent to the addresses set forth for such persons in Section 16.05 of the Indenture. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Authority, the Company or the Trustee shall also be given to the others. The Company, the Authority and the Trustee may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Section 7.03. Successors and Assigns. This Participation Agreement shall inure to the benefit of and shall be binding upon the Authority, the Company, the Bank, the Trustee and their respective successors and assigns. 30 26. Section 7.04. Amendment of Participation Agreement. This Participation Agreement may not be amended except by an instrument in writing signed by the parties and, if such amendment occurs after the issuance of the Bonds, upon compliance with the provisions of Sections 4.01 and 4.02 of the Indenture. Section 7.05. Assignment by Authority. The Authority shall assign its rights under and interest in this Participation Agreement (except the rights and interest of the Authority under Article III and Sections 4.04, 4.08, 4.09, 4.10 and 5.16), subject to the provisions of this Participation Agreement relating to the amendment thereof, to the Trustee pursuant to the Indenture, as security for payment of the principal of, and premium, if any, and interest on, the Bonds. In addition, the Trustee shall have the same power as the Authority to enforce from time to time the rights of the Authority set forth in Article III and Section 5.16, subject to the provisions of this Participation Agreement relating to the amendment hereof. Except as provided in this Section 7.05, the Authority will not sell, assign, transfer, convey or otherwise dispose of its interest in this Participation Agreement during the term of this Participation Agreement. Section 7.06. Participation Agreement Supersedes Any Prior Agreements. This Participation Agreement supersedes any other prior agreements or understandings, written or oral, between the parties with respect to the transactions contemplated hereby. Section 7.07. Counterparts. This Participation Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but such counterparts shall together constitute but one and the same Participation Agreement. Section 7.08. Severability. If any clause, provision or section of this Participation Agreement is held illegal, invalid or unenforceable by any court or administrative body, such Participation Agreement shall be construed and enforced as if such illegal or invalid or unenforceable clause, provision or section had not been contained in this Participation Agreement. In case any agreement or obligation contained in this Participation Agreement shall be held to be in violation of law, then such agreement or obligation shall be deemed to be the agreement or obligation of the Authority or the Company, as the case may be, to the full extent permitted by law. 31 SECTION 7.09. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION OF THIS PARTICIPATION AGREEMENT. IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed as of the day and year first written above. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By /s/ Francis J. Murray, Jr. ---------------------------- Francis J. Murray, Jr. Chair (SEAL) ATTEST: /s/ Howard A. Jack - ---------------------- Howard A. Jack Secretary LONG ISLAND LIGHTING COMPANY By ---------------------------- Treasurer (SEAL) ATTEST: - ---------------------- Assistant Secretary 32 SECTION 7.09. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION OF THIS PARTICIPATION AGREEMENT. IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed as of the day and year first written above. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By ---------------------------- Chair (SEAL) ATTEST: - ---------------------- Secretary LONG ISLAND LIGHTING COMPANY By /s/ Anthony Nozzolillo ---------------------------- Anthony Nozzolillo Treasurer (SEAL) ATTEST: /s/ Herbert M. Leiman - ---------------------- Herbert M. Leiman Assistant Secretary 33 EXHIBIT A (To Participation Agreement dated as of November 1, 1993, between New York State Energy Research and Development Authority and Long Island Lighting Company) DESCRIPTION OF ELECTRIC FACILITIES The Project will consist of the following facilities which are to be acquired, constructed and installed by Long Island Lighting Company (the "Utility") as part of the Utility's electric system: 1. Production Facilities; 2. Transmission Facilities including interconnections and subtransmission; 3. Distribution Facilities, including stations, lines, transformers and meters; 4. Certain Common Facilities. All such facilities are as further described in the Tax Regulatory Agreement between the Authority and the Company dated the date of the initial delivery of the Bonds. The Project shall also include (i) such instrumentation, controls, structures and all other facilities, equipment, devices and the like necessary to support the facilities herein described, (ii) such necessary land improvements, and (iii) subject to Section 3.04 of the Participation Agreement, such additional or substituted facilities for the furnishing of electric energy which, because of changes in technology, environmental standard, cost or the like, the Utility determines shall be added or substituted for said facilities. 34 EXHIBIT B (To Participation Agreement dated as of November 1, 1993, between New York State Energy Research and Development Authority and Long Island Lighting Company) DESCRIPTION OF OTHER FACILITIES Any portion of the Electric Facilities described in Exhibit A as shall have been placed in service more than one year prior to the date of the original issuance and delivery of the Bonds. 35 EXHIBIT C (To Participation Agreement dated as of November 1, 1993, between New York State Energy Research and Development Authority and Long Island Lighting Company) LONG ISLAND LIGHTING COMPANY $50,000,000 PROMISSORY NOTE FOR ELECTRIC FACILITIES REVENUE BONDS (LONG ISLAND LIGHTING COMPANY PROJECT), 1993 SERIES B Long Island Lighting Company (the "Corporation"), a New York corporation, for value received, hereby promises to pay, on or before the dates set forth below, the amounts set forth below, to Chemical Bank, New York, New York, as trustee or its successor or successors as trustee (the "Trustee") under the Indenture of Trust relating to the above-referenced Bonds dated as of November 1, 1993, between the New York State Energy Research and Development Authority (the "Authority"), a body corporate and politic, constituting a public benefit corporation, established and existing under and by virtue of the laws of the State of New York, and the Trustee. Such Indenture of Trust, as it may be amended or supplemented from time to time, is herein called the "Indenture." Unless otherwise defined herein, the terms used in this promissory note (the "Company Note") which are defined in Section 1.01 of the Indenture shall have the meanings, respectively, herein which such terms are given in said Section 1.01 of the Indenture. This Company Note is issued pursuant to the Participation Agreement in order to evidence the obligation of the Company to the Authority to repay the advance of the proceeds of the Bonds. In accordance with the Participation Agreement, the Authority has authorized and directed the Company to issue this Company Note payable to the order of the Trustee as security for the payment of principal of, premium, if any, and interest on, the Bonds. The rights and interest of the Authority under the Participation Agreement (except the rights and interest of the Authority under Article III and Sections 4.04, 4.08, 4.09 and 4.10 and 5.16 thereof), subject to the provisions of the Participation Agreement relating to the amendment thereof, have been assigned to the Trustee pursuant to the Indenture. In addition, the Authority has granted the Trustee the same power as the Authority to enforce from time to time the rights of the Authority set forth in said Article III and Section 5.16, subject to the provisions of the Participation Agreement relating to the amendment thereof. All of 36 C-2 the terms, conditions and provisions of the Participation Agreement are, by this reference thereto, incorporated herein as part of this Company Note. This Company Note shall be payable as to principal, premium, if any, and interest as follows: (a) On or before each Interest Payment Date, commencing May 1, 1994, a sum which together with other moneys then available for such purpose in the Bond Fund will enable the Trustee to pay the interest on the Bonds coming due on such date; (b) On or before any redemption date for the Bonds (other than a redemption date pursuant to Section 8.05 of the Indenture), a sum which together with other moneys then available for such purpose in the Bond Fund will enable the Trustee to pay the principal of, premium, if any, and interest on the Bonds which are to be redeemed on such date; and (c) On or before November 1, 2023, a sum which together with other moneys then available for such purpose in the Bond Fund will enable the Trustee to pay the outstanding principal amount of the Bonds; provided that, if the Bonds are redeemed pursuant to Section 8.05 of the Indenture, the amounts that would otherwise have been payable on this Company Note if not for such redemption, shall continue to be payable at the times and in the amounts set forth above as if such redemption had not occurred; and provided further that if the Bonds are redeemed pursuant to Section 8.05 of the Indenture the Company shall have the right at any time thereafter to prepay this Company Note by paying the amount due on this Company Note at the time of such prepayment together with unpaid interest accrued thereon to the date of such prepayment. The obligation of the Company to make any payment of principal of, and premium, if any, and interest on, this Company Note shall be deemed satisfied and discharged to the extent of the corresponding payment made by the Bank under the Letter of Credit. All payments of principal of, and premium, if any, and interest on, this Company Note shall be made in immediately available funds to the Trustee at its corporate trust office, 450 West 33rd Street, 15th Floor, New York, New York 10001, Attention: Corporate Trustee Administration Department, Wire Transfer Number: 967-0-22461, or to such different address or wire transfer number as the Trustee may from time to time designate, on or before each date on which such principal, premium, if any, or interest is due in such coin or currency of the United States of America as at 37 C-3 the time of payment shall be legal tender for the payment of public and private debts. The Company has agreed in the Participation Agreement that if for any reason Company Note Payments, together with other moneys held by the Trustee and then available for such purpose (including moneys paid by the Bank under the Letter of Credit), would not be sufficient to make the corresponding payments of principal of, and premium, if any, and interest on, the Bonds when such payments are due, the Company will pay the amounts required from time to time to make up any such deficiency. In the event that payment has been made in respect of the principal of and premium, if any, and interest on, all of the Bonds, or provision therefor has been made in accordance with Article XIV of the Indenture, then this Company Note shall be deemed paid in full and shall be cancelled and returned to the Company; provided that this Company Note shall not be deemed paid in full if the Bonds are redeemed pursuant to Section 8.05 of the Indenture. No reference herein to the Participation Agreement shall impair the obligation of the Company to pay the principal of and premium, if any, and interest on this Company Note at the time and place and in the amounts herein prescribed, which obligation is absolute, irrevocable and unconditional and is not subject to any defense (other than payment) or any right of set-off, counterclaim or recoupment for any reason, including, without limitation, any breach by the Authority of any obligation to the Company, whether under the Participation Agreement or otherwise, or inaccuracy of any representation by the Authority to the Company under the Participation Agreement, or any indebtedness or liability at any time owing to the Company by the Authority or any failure to complete the Project or the destruction by fire or other casualty of the Project or any portion thereof, or the taking of title thereto or the use thereof by the exercise of the power of eminent domain. In case of an event of default (as defined in Section 6.01 of the Participation Agreement), the principal of and interest to the date of payment of this Company Note may be declared immediately due and payable as provided in the Participation Agreement. In addition, if at any time the principal of the Bonds shall have been declared to be due and payable by acceleration pursuant to the terms of the Indenture, this Company Note shall thereupon become and be immediately due and payable, subject to such declaration with respect to the Bonds being annulled pursuant to Section 10.01 of the Indenture. 38 C-4 This Company Note may not be amended except by an instrument in writing signed by the Company, by the Authority and by the Trustee, on behalf of the owners of the Bonds, in the manner and subject to the conditions provided in Section 4.03 of the Indenture. This Company Note may not be transferred by the Trustee except to effect an assignment to a successor Trustee under the Indenture or pursuant to Section 8.05 of the Indenture. THIS COMPANY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. Presentment, demand, protest and notice of dishonor are hereby expressly waived. IN WITNESS WHEREOF, the Company has caused this Company Note to be duly executed and delivered as of November __, 1993. LONG ISLAND LIGHTING COMPANY (SEAL) By: ----------------------------- Treasurer ATTEST: - ------------------------ Assistant Secretary 39 Exhibit 10(v) _______________________________________________________________________________ _______________________________________________________________________________ INDENTURE OF TRUST BETWEEN NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY AND Chemical Bank, as Trustee Dated as of November 1, 1993 _______________________________________________________________________________ _______________________________________________________________________________ -relating to- Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series B 40 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; LIABILITY UNDER BONDS; INDENTURE TO CONSTITUTE CONTRACT Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 1.02. Rules of construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 1.03. Liability under Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE II DESCRIPTION; AUTHORIZATION; MANNER OF EXECUTION; AUTHENTICATION; REGISTRATION AND TRANSFER OF BONDS Section 2.01. Issuance of Bonds; Designation of Bonds; Certain Particulars and Form of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 2.02. Additional Particulars of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 2.03. Interest Rates on Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 2.04. Conversion of Interest Rate on Bonds . . . . . . . . . . . . . . . . . . . . . . . 54 Section 2.05. Optional and Mandatory Tender of Bonds for Purchase . . . . . . . . . . . . . . . . 59 Section 2.06. Remarketing of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 2.07. Delivery of Purchased Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 2.08. Mutilated, Lost, Stolen or Destroyed Bonds . . . . . . . . . . . . . . . . . . . . 70 Section 2.09. Temporary Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 2.10. Execution of Bonds; Effect of Change of Officers . . . . . . . . . . . . . . . . . 71 Section 2.11. Registration of Bonds; Transfers; Securities Depository . . . . . . . . . . . . . . 71 Section 2.12. Persons Treated as Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 2.13. Exchange of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 2.14. Payment For and Limitations on Exchanges and Transfers . . . . . . . . . . . . . . 75 Section 2.15. Endorsement of Certificate of Authentication on Bonds . . . . . . . . . . . . . . . 75 Section 2.16. Cancellation of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 2.17. Redemption of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
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Page ---- ARTICLE III SECURITY FOR BONDS; ISSUANCE OF BONDS Section 3.01. Pledge and Assignment Effected by Indenture; Bonds Equally and Ratably Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 3.02. Issuance of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE IV PARTICIPATION AGREEMENT AND COMPANY NOTE Section 4.01. Amendments to Participation Agreement not Requiring Consent of Bondowners . . . . . . . 79 Section 4.02. Amendments to Participation Agreement Requiring Consent of Bondowners . . . . . . . . . 79 Section 4.03. Amendments to Company Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 4.04. Amendments to Tax Regulatory Agreement . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE V PROJECT FUND; REBATE FUND Section 5.01. Creation and Custody of Project Fund . . . . . . . . . . . . . . . . . . . . . . . . . 81 Section 5.02. Application of Moneys in the Project Fund . . . . . . . . . . . . . . . . . . . . . . . 81 Section 5.03. Construction Account Requisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Section 5.04. Retention of Requisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 5.05. Certification of Completion of the Project . . . . . . . . . . . . . . . . . . . . . . 83 Section 5.06. Disposition of Balance Remaining in Project Fund . . . . . . . . . . . . . . . . . . . 83 Section 5.07. Creation and Custody of Rebate Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 5.08. Application of Moneys in the Rebate Fund . . . . . . . . . . . . . . . . . . . . . . . 83
(ii) 42
Page ---- ARTICLE VI BOND FUND; LETTER OF CREDIT Section 6.01. Creation and Custody of the Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . 85 Section 6.02. Payments into the Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Section 6.03. Application of Moneys in the Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 6.04. Non-presentment of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 6.05. (Intentionally Deleted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Section 6.06. Trustee to Notify Authority and Company of Funds in Bond Fund . . . . . . . . . . . . . 88 Section 6.07. Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
ARTICLE VII SECURITY FOR AND INVESTMENT OF MONEYS Section 7.01. Moneys Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Section 7.02. Uninvested Moneys Held by the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . 91 Section 7.03. Investment of, and Payment of Interest on, Moneys . . . . . . . . . . . . . . . . . . . 91 Section 7.04. Disposition of Amounts After Payment of Bonds . . . . . . . . . . . . . . . . . . . . . 93 Section 7.05. Compliance with Tax Regulatory Agreement in the Event of Partial Redemption of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
ARTICLE VIII REDEMPTION OF BONDS Section 8.01. Bonds to be Redeemed Only in Manner Provided in Article VIII . . . . . . . . . . . . . 95 Section 8.02. Redemption of Less Than all Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 8.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 8.04. Rights of Owners of Bonds Called for Redemption Limited to Redemption Price and Accrued Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Section 8.05. Redemption at Demand of the State . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
(iii) 43
Page ---- ARTICLE IX PARTICULAR COVENANTS Section 9.01. Payment of Principal of and Interest and Redemption Premium of Bonds . . . . . . . . 99 Section 9.02. Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 9.03. Further Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 9.04. Inspection of Project Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Section 9.05. No Extension of Time of Payment of Interest . . . . . . . . . . . . . . . . . . . . . 99 Section 9.06. Trustee's, Paying Agent's, Indexing Agent's, Tender Agent's and Remarketing Agents's Fees, Charges and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 100 Section 9.07. Agreement of the State of New York . . . . . . . . . . . . . . . . . . . . . . . . . 100
ARTICLE X DEFAULTS AND REMEDIES Section 10.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Section 10.02. Judicial Proceedings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 Section 10.03. Effect of Discontinuance or Abandonment of Proceedings . . . . . . . . . . . . . . . 104 Section 10.04. Power of Bondowners to Direct Proceedings . . . . . . . . . . . . . . . . . . . . . . 104 Section 10.05. Limitation on Actions by Bondowners . . . . . . . . . . . . . . . . . . . . . . . . . 104 Section 10.06. Trustee's Right to Enforce Rights in Respect of Bonds in Own Name and Without Possession of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 Section 10.07. No Remedy herein Conferred upon or Reserved Exclusive . . . . . . . . . . . . . . . . 105 Section 10.08. No Delay or Omission to be Deemed Waiver of Default . . . . . . . . . . . . . . . . . 105 Section 10.09. Application of Moneys Received by Trustee Pursuant to Article X . . . . . . . . . . . 106 Section 10.10. Entirety of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 Section 10.11. Notice of Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
(iv) 44
Page ---- ARTICLE XI CONCERNING THE TRUSTEE AND PAYING AGENT Section 11.01. Appointment of Trustee; Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . 109 Section 11.02. No Responsibility for Correctness of Statements in Indenture . . . . . . . . . . . . 109 Section 11.03. No Responsibility for Default of Agents Selected with Due Care, nor for Own Acts Save Willful Misconduct or Negligence . . . . . . . . . . . . . . . . . . . . . 109 Section 11.04. No Duty to Take Enforcement Action Unless so Requested by Owners of 25% of the Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 Section 11.05. Right to Rely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Section 11.06. Right to Own and Deal in Bonds and Engage in Other Transactions with Authority and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Section 11.07. Construction of Provisions of Indenture by Trustee . . . . . . . . . . . . . . . . . 111 Section 11.08. Right to Resign Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 Section 11.09. Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Section 11.10. Appointment of Successor Trustee by Bondowners or Authority . . . . . . . . . . . . . 112 Section 11.11. Qualifications of Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 113 Section 11.12. Court Appointment of Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . 113 Section 11.13. Acceptance of Appointment by, and Transfer of Trust Estate to, Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Section 11.14. Successor Trustee by Merger or Consolidation . . . . . . . . . . . . . . . . . . . . 113 Section 11.15. Exercise of Rights and Powers During Event of Default . . . . . . . . . . . . . . . . 114 Section 11.16. Trustee may Intervene in Judicial Proceedings Involving Authority or the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Section 11.17. Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Section 11.18. Appointment of Co-Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
(v) 45
Page ---- ARTICLE XII EXECUTION OF INSTRUMENTS BY BONDOWNERS AND PROOF OF OWNERSHIP OF BONDS Section 12.01. Execution of Instruments; Proof of Ownership of Bonds . . . . . . . . . . . . . . . . 117
ARTICLE XIII INDENTURES SUPPLEMENTAL HERETO Section 13.01. Supplemental Indentures not Requiring Consent of Bondowners . . . . . . . . . . . . . 118 Section 13.02. Supplemental Indentures Requiring Consent of Bondowners . . . . . . . . . . . . . . . 119 Section 13.03. Company and Bank Consent to Amendment of Indenture . . . . . . . . . . . . . . . . . 120
ARTICLE XIV DEFEASANCE Section 14.01. Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
ARTICLE XV REMARKETING AGENTS; REMARKETING OF BONDS; INDEXING AGENT; TENDER AGENT Section 15.01. Appointment and Duties of Remarketing Agents . . . . . . . . . . . . . . . . . . . . 125 Section 15.02. Qualifications of a Remarketing Agent . . . . . . . . . . . . . . . . . . . . . . . . 125 Section 15.03. Appointment and Duties of Indexing Agents . . . . . . . . . . . . . . . . . . . . . . 126 Section 15.04. Qualifications of Indexing Agents . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Section 15.05. Dealings With the Authority and the Company . . . . . . . . . . . . . . . . . . . . . 127 Section 15.06. Tender Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Section 15.07. Qualifications of Tender Agent; Resignation; Removal . . . . . . . . . . . . . . . . 128
(vi) 46
Page ---- ARTICLE XVI MISCELLANEOUS Section 16.01. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Section 16.02. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Section 16.03. No Individual Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 Section 16.04. Payment Due on Saturdays, Sundays and Holidays . . . . . . . . . . . . . . . . . . . 130 Section 16.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 SECTION 16.06. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Section 16.07. Effective Date; Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Section 16.08. References to the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 Section 16.09. Date for Identification Purposes Only . . . . . . . . . . . . . . . . . . . . . . . . 132
(vii) 47 THIS INDENTURE OF TRUST, made and dated as of the first day of November, 1993, by and between New York State Energy Research and Development Authority (the "Authority"), a body corporate and politic, constituting a public benefit corporation, and Chemical Bank (the "Trustee"), a banking corporation organized under the laws of the State of New York, with its principal corporate trust office located in New York, New York, as trustee, W I T N E S S E T H T H A T: WHEREAS, pursuant to special act of the Legislature of the State of New York (Title 9 of Article 8 of the Public Authorities Law of New York, as from time to time amended and supplemented, herein called the "Act"), the Authority has been established as a body corporate and politic, constituting a public benefit corporation; and WHEREAS, pursuant to the Act, the Authority is empowered to contract with any power company to participate in the construction of facilities to be used for the furnishing of electric energy to the extent required by the public interest in development, health, recreation, safety, conservation of natural resources and aesthetics; and WHEREAS, pursuant to the Act, the Authority has also been empowered to extend credit and make loans from bond and note proceeds to any Person for the construction, acquisition and installation of, or for the reimbursement to any Person for costs in connection with, any special energy project, including, but not limited to, any land, works, system, building or other improvement, and all real and personal properties of any nature or any interest in any of them which are suitable for or related to the furnishing, generation or production of energy; and WHEREAS, the Authority is also authorized under the Act to borrow money and issue its negotiable bonds and notes to provide sufficient moneys for achieving its corporate purposes; and WHEREAS, the Authority is also authorized under the Act to enter into any contracts and to execute all instruments necessary or convenient for the exercise of its corporate powers and the fulfillment of its corporate purposes; and WHEREAS, contemporaneously with the execution hereof, Long Island Lighting Company (the "Company") and the Authority have entered into a Participation Agreement of even date herewith (herein referred to as the "Participation Agreement"), providing for the acquisition, construction and installation of certain facilities (the "Project") for the furnishing of electric energy within the Company's service area; and 48 2. WHEREAS, the Participation Agreement provides that the Authority will issue its bonds and make the proceeds of such bonds available to the Company to finance the cost of the Project; and WHEREAS, pursuant to Resolution No. 801 adopted January 25, 1993, the Authority has determined to issue $50,000,000 aggregate principal amount of revenue bonds initially bearing the designation set forth on the title page of the Indenture of Trust (the "Bonds") for the purpose of financing the cost of the Project; and WHEREAS, in order to provide an inducement to the Authority to issue the Bonds, the Company has entered into a Letter of Credit and Reimbursement Agreement relating to the Bonds dated as of November 1, 1993, with The Toronto-Dominion Bank, Houston Agency, (the "Bank") and certain other parties, pursuant to which the Bank has agreed to issue an irrevocable letter of credit in favor of the Trustee, which letter of credit expires by its terms on November 17, 1996, unless extended or unless earlier terminated in accordance with its terms, to provide for the payment of such amounts as are specified therein with respect to the principal of, premium, if any, and interest on, the Bonds and certain other payments with respect to the Bonds; and WHEREAS, all acts, conditions and things necessary or required by the Constitution and statutes of the State of New York or otherwise, to exist, happen, and be performed as prerequisites to the execution and delivery of the Indenture, do exist, have happened, and have been performed; and WHEREAS, the Authority has determined that the Bonds issuable hereunder and the certificate of authentication by the Trustee to be endorsed on such Bonds shall be, respectively, substantially in the following forms with such variations, omissions and insertions as are required or permitted by the Indenture: 49 3. [Form of Bonds] [MONEY MARKET MUNICIPAL RATE LEGEND Last Day of Money Market Interest Rate Municipal Rate Period ----- ----- Interest due at end of Money Market Number of Municipal Rate Period Days ]* ----- ----- NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY ELECTRIC FACILITIES REVENUE BOND (LONG ISLAND LIGHTING COMPANY PROJECT) 1993 SERIES B
NO. NYBR-1 $50,000,000* MATURITY DATE ORIGINAL ISSUE DATE CUSIP - ------------- ------------------- ----- NOVEMBER 1, 2023 NOVEMBER 17, 1993 649841 BU6 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: FIFTY MILLION DOLLARS
NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY (the "Authority"), a body corporate and politic, constituting a public benefit corporation, organized and existing under and by virtue of the laws of the State of New York, for value received, hereby promises to pay solely from the sources hereinafter provided, to the Registered Owner specified above, or registered assigns, on the Maturity Date specified above, unless redeemed prior thereto as hereinafter provided, upon the presentation and surrender hereof, the Principal Amount specified above and to pay solely from such sources interest on said Principal Amount from the date hereof at the rates and at the times provided herein, until said Principal Amount is paid. This bond shall be subject to mandatory purchase by the Tender Agent as hereinafter described. The principal of and premium, if any, on this bond are payable at - ---------------------------------- *Such legend to appear only on face of Bonds bearing interest at a Money Market Municipal Rate. 50 4. the corporate trust office of Chemical Bank, New York, New York, the Trustee hereinafter mentioned and as paying agent. The interest on this bond, when due and payable, shall be paid to the Registered Owner hereof (or of any bond or bonds previously outstanding in exchange, transfer or substitution for which this bond was issued) as of the close of business on the Record Date (hereinafter referred to) for each interest payment date by check, mailed to such Person at such Person's address appearing as of the close of business on such Record Date on the Bond Register (hereinafter referred to). On and prior to the date a Fixed Rate (as hereinafter defined) becomes effective as hereinafter provided, in the event that less than all of the Bonds are held under a book-entry-only system, any owner of not less than $1,000,000 (or $100,000 during any Money Market Municipal Rate Period) aggregate principal amount of Bonds not held under a book-entry-only system may request that interest on the Bonds be paid by wire transfer within the continental United States; provided, however, that during a Money Market Municipal Rate Period, interest on a Bond is payable only upon presentation and surrender thereof to the Tender Agent upon purchase thereof pursuant to the Indenture, and if such presentation and surrender is made by 12:00 noon (New York City time) such payment shall be by wire transfer. Interest not so paid shall be paid in accordance with the provisions of Article X of the Indenture (as hereinafter defined). All such payments shall be made in such coin or currency of the United States of America, which at the respective times of payment, are legal tender for payment of public and private debts. This bond is one of a duly authorized issue of bonds of the Authority designated as "Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series B" (the "Bonds"), issued in the aggregate principal amount of $50,000,000 pursuant to the Constitution and laws of the State of New York, particularly the New York State Energy Research and Development Authority Act, Title 9 of Article 8 of the Public Authorities Law of the State of New York, as amended (the "Act"), and a resolution adopted by the Authority on January 25, 1993. The Bonds are issued and secured under and pursuant to an Indenture of Trust dated as of November 1, 1993, between the Authority and Chemical Bank, as Trustee (the "Indenture"). The Bonds are issued for the purpose of financing a portion of the cost of acquisition, construction and installation of certain facilities of Long Island Lighting Company (the "Company") to be used for the local furnishing of electric energy (the "Project") pursuant to a Participation Agreement dated as of November 1, 1993, between the Authority and the Company (hereinafter, as it may be amended or supplemented from time to time, called the "Participation Agreement"). All terms used but not defined herein are used as defined in the Indenture. 51 5. *1. Copies of the Indenture are on file at the corporate trust office of Chemical Bank, New York, New York, as Trustee under the Indenture or its successor as Trustee (the "Trustee"), and reference is made to the Indenture for the provisions relating, among other things, to the terms and security of the Bonds, the rights and remedies of the owners of the Bonds, and the terms and conditions upon which Bonds are issued thereunder. 1 *2. The Bonds are not general obligations of the Authority, and shall not constitute an indebtedness of or a charge against the general credit of the Authority or give rise to any pecuniary liability of the Authority. The liability of the Authority under the Bonds shall be enforceable only to the extent provided in the Indenture, and the Bonds shall be payable solely from payments to be made by the Company to the Trustee and any other funds held by the Trustee under the Indenture (including, but not limited to, funds drawn under the Letter of Credit) and available for such payment. In order to provide security for the payment of the principal of and premium, if any, and interest on all the Bonds in accordance with their terms and the terms of the Indenture, the Authority has in the Participation Agreement directed the Company to execute and deliver its Company Note to the Trustee as evidence of the obligation of the Company to the Authority to repay the advance of the proceeds of the Bonds by the Authority and the Authority has under the Indenture pledged and assigned all its right, title and interest in and to the payments under such Company Note to the Trustee for the benefit of the owners from time to time of the Bonds. The Bonds are further secured by a pledge and assignment of (i) the rights and interest of the Authority under the Participation Agreement (except the rights and interest of the Authority under Article III and Sections 4.04, 4.08, 4.09, 4.10 and 5.16 thereof and subject to the provisions of the Participation Agreement relating to the amendment thereof), (ii) the rights and interest of the Authority under the Tax Regulatory Agreement, dated the date of the original issuance of the Bonds, between the Authority and the Company (subject to a reservation by the Authority of the right to independently enforce the obligations of the Company thereunder and to the provisions of the Tax Regulatory Agreement relating to the amendment thereof) (iii) the proceeds of sale of the Bonds and (iv) all funds held by the Trustee under the Indenture and available for the payment of the Bonds under the terms of the Indenture (expressly not including in such funds, the Rebate Fund) and the income earned by the investment of such funds held under the Indenture. In addition, the Authority has granted the Trustee the same power as the Authority to enforce from time to time the rights of the Authority set forth in Article III and Section 5.16 of the Participation Agreement, subject to the provisions of the Participation Agreement relating to the amendment thereof. 52 6. *3. Interest Rate. Interest on the Bonds will initially be payable at a Medium-Term Rate of two and eighty-five one-hundredths per centum (2.85%) per annum from the initial delivery date to and including October 31, 1994 (the "First Interest Period"). Subsequent to such period and prior to the Fixed Rate Conversion Date, interest on this Bond will be paid at the lowest of (a) a Weekly Rate, a Money Market Municipal Rate, a Semi-Annual Rate or a Medium-Term Rate as from time to time selected and determined in accordance with the Indenture, (b) 15% and (c) the maximum interest rate specified in the Letter of Credit with respect to coverage for the payment of interest or the interest component of Purchase Price; thereafter, interest will be paid at the Fixed Rate, determined in accordance with the Indenture, which shall not exceed 18%. Each such rate will be set by the Remarketing Agents in accordance with the applicable standards provided in the Indenture; provided that each such rate will not be greater than 110% of the rate index for such rate (the "Rate Index"). The Rate Index will be selected by an Indexing Agent for such rate, appointed pursuant to the Indenture. If such rate is not established by the Remarketing Agents, no Remarketing Agent shall be serving or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law, then such rate will be 100% of the related Rate Index. Interest will continue to be payable at a Medium-Term Rate for a one-year period commencing on November 1, 1994 and every November 1, thereafter, determined in accordance with the Indenture, unless and until a different Interest Rate Determination Method is selected or a different Length of Medium-Term Rate Period is selected, in either case, in accordance with the Indenture. The Company may change the Interest Rate Determination Method from time to time in accordance with the Indenture; provided, however, that if the Company changes the Interest Rate Determination Method to a Fixed Rate, it may not thereafter change the Interest Rate Determination Method and the Fixed Rate shall be the rate of interest on the Bonds from the Fixed Rate Conversion Date to the Maturity Date. The Company may direct the Trustee to change the Interest Rate Determination Method applicable to all or a portion of the Bonds. Except as specifically provided otherwise in the Indenture, the conditions and procedures for such change in the Interest Rate Determination Method for a portion of the Bonds shall be the same as the conditions and procedures for a change in the Interest Rate Determination Method for the entire series of Bonds. If the Company directs the Trustee to change the Interest Rate Determination Method from one Rate to another for less than all of the Bonds then outstanding, the Trustee shall select Bonds to be converted by lot or by such other method as the Trustee shall deem appropriate. In the event the Company wishes to convert less than all the Bonds then outstanding, the Company shall notify the Trustee of such decision not less than 40 days or more than 60 days 53 7. before the effective date of the proposed conversion. On the Conversion Date the portion of the Bonds which are being converted shall be redesignated in such a way as to identify a separate Subseries and thereby avoid confusion of such Subseries with any other Subseries. The Company may also determine to similarly redesignate the portion of the Bonds which are not being converted on the Conversion Date. The holders of Bonds which are being redesignated may be required to deliver such Bonds to the Trustee in order to receive a new Bond of the applicable designation, in the same principal amount. In the event holders are not required to surrender such Bonds, the Trustee shall appropriately designate any Bonds subsequently issued in exchange therefor. If less than all of the Bonds are to be converted, all references herein to the Bonds shall be deemed to refer to the Bonds of each Subseries separately. *Interest on this Bond will accrue and will be payable as provided in the Indenture. Except as otherwise provided in the Indenture, the Interest Payment Dates are: (i) during any Weekly Rate Period, the first Business Day of each calendar month; (ii) each Conversion Date; (iii) during any Semi-Annual Rate Period or Medium-Term Rate Period, the first day of each of two months which are six months apart, as specified in a certificate of an Authorized Officer delivered to the Trustee prior to the Conversions to a Semi-Annual Rate Period or Medium-Term Rate Period, provided, however, if the last such day occurring in any Semi-Annual Rate Period is not a Business Day then the first Business Day thereafter shall be the Interest Payment Date, provided, further, however, if any Interest Payment Date in a Semi-Annual Rate Period, determined as set forth above, would cause such Semi-Annual Rate Period to extend for a period in excess of 182 days, the Interest Payment Date for such Semi-Annual Rate Period shall be the last Business Day occurring within such Semi-Annual Rate Period that does not cause such Semi-Annual Rate Period to exceed 182 days in duration; (iv) during the Fixed Rate Period, each May 1 and November 1; (v) during each Money Market Municipal Rate Period, the first Business Day after any Calculation Period; and (vi) the Maturity Date. With respect to the First Interest Period, interest will be payable on May 1, 1994 and November 1, 1994. If prior to the conversion to a Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, an Officer's Certificate shall be delivered to the Trustee specifying different Interest Payment Dates for such Rate Period together with an Opinion of Bond Counsel to the effect that such adjustment will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes, then the Interest Payment Dates for such Rate Period shall be so adjusted; provided, however, that no such adjustment shall result in the establishment of 54 8. Interest Payment Dates between which more than six months would pass. *The Record Dates with respect to the various Interest Payment Dates are: (i) during any Weekly Rate Period or Money Market Municipal Rate Period, the day next preceding such Interest Payment Date, regardless of whether such day is a Business Day; and (ii) during any Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, the Trustee's close of business on the fifteenth day of the calendar month next preceding such Interest Payment Date, regardless of whether such day is a Business Day. *During any Weekly Rate Period or Money Market Municipal Rate Period, interest on the Bonds will be computed on the basis of a 365 or 366-day year, as the case may be, for the actual number of days elapsed. During any Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, interest on the Bonds will be computed on the basis of a 360-day year of twelve 30-day months. *4. Letter of Credit. The Bonds are initially supported by a letter of credit issued by The Toronto-Dominion Bank, Houston Agency (such bank or any issuer of any alternate credit facility as described herein being hereinafter referred to as the "Bank"), in favor of the Trustee. This letter of credit expires on November 17, 1996, unless extended in accordance with its terms, or on the earlier occurrence of events specified in it. The initial letter of credit or any alternate credit facility meeting the requirements of Section 6.07 of the Indenture and Section 4.12 of the Participation Agreement during the time it is in effect is hereinafter called the "Letter of Credit." The Letter of Credit shall be in effect at all times prior to the Fixed Rate Conversion Date, except any period during which all of the outstanding Bonds are owned by the Company. The Letter of Credit shall entitle the Trustee to draw up to (a) an amount equal to the principal amount of the Bonds then outstanding to pay the principal amount of the Bonds (or the portion of the Purchase Price of the Bonds corresponding to principal); plus (b) an amount equal to 210 days' accrued interest on the Bonds at a maximum rate specified therein, which shall in no event exceed 15%, to pay interest on the Bonds. Such maximum rate for the initial letter of credit is 15%. If the Bonds shall be redeemable at a premium during a period during which a Letter of Credit is in effect, no redemption may be made unless the Letter of Credit or other Available Moneys are available to pay such premium. *Except as otherwise provided herein, the Bonds shall become subject to mandatory tender for purchase (see "Mandatory Tender for Purchase" below) on the twentieth calendar day next preceding the scheduled expiration date of the Letter of Credit. 55 9. Within five calendar days after the Bonds become subject to such mandatory tender for purchase, the Trustee shall notify the owners of the Bonds by first class mail of the expiration of the Letter of Credit and the name of the issuer of the successor Letter of Credit, if applicable. *5. Tender of Bonds for Purchase. *Optional Tender. During any Weekly Rate Period or any Semi-Annual Rate Period the owners of the Bonds shall have the right to tender any Bond (or portion thereof in an authorized denomination) to the Tender Agent for purchase on any Optional Tender Date prior to the Conversion Date, but only upon: (1) giving or delivery to the Tender Agent at its principal office, during the times specified below, of a telephonic or facsimile confirmed in writing notice which states (i) the aggregate principal amount of the Bond to be purchased and (ii) that such Bond (or portion thereof in an authorized denomination) shall be purchased on such Optional Tender Date pursuant to the Indenture; and (2) delivery of such Bond (with an appropriate instrument of transfer duly executed in blank) to the Tender Agent at its principal office at or prior to 12:00 noon, New York City time, on such Optional Tender Date; provided, however, that no Bond (or portion thereof in an authorized denomination) shall be purchased unless the Bond so delivered to the Tender Agent shall conform in all respects to the description thereof in the aforesaid notice. During any Weekly Rate Period, irrevocable notice must be given on a Business Day not later than the close of business on the seventh calendar day prior to the Optional Tender Date; and during any Semi-Annual Rate Period irrevocable notice must be given not earlier than the thirtieth calendar day and not later than the close of business on the fifteenth calendar day next preceding the Optional Tender Date. *Any election of a Bondowner to tender a Bond (or portion thereof as aforesaid) for purchase on the Optional Tender Date in accordance with the Indenture shall be irrevocable and shall be binding on the Bondowner making such election and on any transferee of such Bondowner. *Mandatory Tender for Purchase. All Bonds are subject to mandatory tender and purchase, with no right of owners to retain Bonds, as more fully provided in the Indenture on each Conversion Date and each Medium-Term Adjustment Date. 56 10. *Any Bond bearing a Money Market Municipal Rate shall be subject to mandatory tender for purchase in accordance with the Indenture on the Business Day immediately following each Calculation Period for such Bond at a price equal to the principal amount thereof and owners of any Bond bearing interest at a Money Market Municipal Rate shall have no right to elect to retain such Bond subsequent to such Business Day. *Each Bond shall be subject to mandatory tender and purchase on each Mandatory Purchase Date established pursuant to Section 2.05(e) of the Indenture. *Upon the Bonds becoming subject to mandatory tender for purchase on a Mandatory Purchase Date, the Trustee shall give telephonic notice to the Remarketing Agents, the Authority and the Tender Agent and give notice by mail to the Bondowners in accordance with Section 2.05(e)(2) of the Indenture. *Failure to mail the notice described in Section 2.05(e)(2) of the Indenture or any defect therein, shall not extend the period for tendering any of the Bonds for purchase, and the Trustee shall not be liable to any Bondowner by reason of its failure to mail such notice or any defect therein. *The Bonds shall be tendered for purchase as provided in Section 2.05(e) of the Indenture. *All Bonds (or portion thereof in an authorized denomination) which are not delivered to the Tender Agent shall be deemed to have been properly tendered to the Tender Agent (such Bond being hereinafter referred to as an "Untendered Bond"), and, to the extent that there shall be on deposit with the Tender Agent on the applicable Purchase Date, an amount sufficient to pay the Purchase Price thereof, such Untendered Bond shall cease to constitute or represent a right to payment of principal or interest thereon and shall constitute and represent only the right to the payment of Purchase Price payable on such date. The foregoing shall not limit the entitlement of any Bondowner on any Record Date to receipt of interest due on such date unless such interest is paid as part of the Purchase Price. *Purchase of Tendered Bonds. On each Optional Tender Date and Purchase Date there shall be purchased (but solely from funds received by the Tender Agent in accordance with the terms of the Indenture) the Bond or Bonds (or portions thereof in authorized denominations) tendered (or deemed to have been tendered) to the Tender Agent for purchase in accordance with Section 2.05 of the Indenture at the applicable Purchase Price. Funds for the payment of the Purchase Price of such Bond or Bonds (or portions thereof in 57 11. authorized denominations) shall be paid by the Tender Agent solely from the sources and in the order of priority specified in Section 2.05(h) of the Indenture. Bonds (or portions thereof in authorized denominations) purchased as provided above shall be delivered as provided in Section 2.07 of the Indenture. *The owners of the Bonds shall not have the right or be required, as the case may be, to tender any Bond or Bonds (or portions thereof in authorized denominations) for purchase on any Optional Tender Date or the Purchase Date, if on any such date an Event of Default under Section 10.01(f) or (g) of the Indenture shall have occurred and be continuing thereunder with respect to the Bonds. *All Bonds shall be subject to mandatory tender and purchase, with no right of owners to retain Bonds, upon a date established by the Trustee after receipt by the Trustee of a written notice from the Bank of the occurrence and continuance of an event that would constitute an Event of Default pursuant to Section 10.01(f) or (g) of the Indenture except that the Bank shall have directed mandatory tender and purchase pursuant to Section 2.05(j) of the Indenture rather than acceleration of the Bonds. *6. Redemptions. *Optional Redemption. At any time during a Weekly Rate Period or Money Market Municipal Rate Period, the Bonds will be subject to redemption, by the Authority at the direction of the Company, in whole on any Business Day or in part on any Interest Payment Date at a redemption price equal to the principal amount thereof plus accrued interest, if any, to the redemption date. During a Semi-Annual Rate Period or during a Medium-Term Rate Period equal to one calendar year (or, in the case of the First Interest Period, of less than one calendar year), each Bond is subject to redemption, by the Authority at the direction of the Company, in whole or in part on the last Business Day of such Rate Period in effect on the applicable redemption date, at a redemption price equal to the principal amount of the Bond or Bonds to be redeemed plus accrued and unpaid interest thereon to the redemption date. During a Medium-Term Rate Period of greater than one calendar year but less than or equal to three calendar years, each Bond will be subject to optional redemption by the Authority at the direction of the Company on the dates and at the redemption prices set forth in the following table plus accrued and unpaid interest to the redemption date: 58 12.
Redemption Date Redemption Prices --------------- ----------------- Earliest Optional Redemption Date 100.5% through the last day prior to the First Anniversary of the Earliest Optional Redemption Date First Anniversary of the Earliest 100 Optional Redemption Date, if applicable, and thereafter
As used in the immediately preceding table "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is one year after the commencement of any such Medium-Term Rate Period. During a Medium-Term Rate Period of greater than three calendar years but less than or equal to five calendar years, each Bond will be subject to optional redemption by the Authority at the direction of the Company on the dates and at the redemption prices set forth in the following table plus accrued and unpaid interest to the redemption date:
Redemption Date Redemption Prices --------------- ----------------- Earliest Optional Redemption Date through 101% the last day prior to the First Anniversary of the Earliest Optional Redemption Date First Anniversary of the Earliest Optional 100.5 Optional Redemption Date through the last day prior to the Second Anniversary of the Earliest Optional Redemption Date Second Anniversary of the Earliest 100 Optional Redemption Date and thereafter
As used in the preceding table "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is two years after the commencement of any such Medium-Term Rate Period. During a Medium-Term Rate Period of greater than five but less than or equal to ten calendar years, the Bonds will be subject to optional redemption by the Authority at the direction of the Company on the dates and at the redemption prices set forth in the following table plus accrued and unpaid interest to the redemption date: 59 13.
Redemption Date Redemption Prices --------------- ----------------- Earliest Optional Redemption Date 101.5% through the last day prior to the First Anniversary of the Earliest Optional Redemption Date First Anniversary of the Earliest 101 Optional Redemption Date through the last day prior to the Second Anniversary of the Earliest Optional Redemption Date Second Anniversary of the Earliest 100.5 Optional Redemption Date through the last day prior to the Third Anniversary of the Earliest Optional Redemption Date Third Anniversary of the Earliest 100 Optional Redemption Date and thereafter
As used in the immediately preceding table "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is four years after the commencement of any such Medium-Term Rate Period. *During a Medium-Term Rate Period of greater than ten calendar years, the Bonds will be subject to optional redemption by the Authority at the direction of the Company on the dates and at the redemption prices set forth in the next succeeding table; provided that, with respect to such a Medium-Term Rate Period, "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is eight years after the Conversion Date or Medium-Term Adjustment Date. *After the Fixed Rate Conversion Date, the Bonds will be subject to optional redemption by the Authority at the direction of the Company on or after the Earliest Optional Redemption Date (as defined below), in whole on any Business Day or in part on any Interest Payment Date, during the periods and at the respective redemption prices (expressed as a percentage of principal amount) set forth in the following table plus accrued and unpaid interest to the redemption date: 60 14.
Redemption Date Redemption Prices --------------- ----------------- Earliest Optional Redemption 102% Date through the last day prior to the First Anniversary of the Earliest Optional Redemption Date First Anniversary of the 101 Earliest Optional Redemption Date through the last day prior to the Second Anniversary of the Earliest Optional Redemption Date Second Anniversary of the 100 Earliest Optional Redemption Date and thereafter
*As used in the preceding table, "Earliest Optional Redemption Date" means the anniversary of the Conversion Date occurring in the year which is ten years after the Fixed Rate Conversion Date. *Subject to the provisions of the Indenture, if prior to a Medium-Term Rate Conversion Date or the Fixed Rate Conversion Date the Remarketing Agents certify to the Trustee, the Authority and the Company in writing that any of the foregoing redemption schedules are not consistent with then prevailing market conditions, with the approval of the Authority and the Company, the foregoing Earliest Optional Redemption Dates or premiums may be revised in accordance with the best professional judgment of the Remarketing Agents to reflect then prevailing market conditions; provided, that the Company causes to be delivered to the Trustee an Opinion of Bond Counsel stating to the effect that such revision is permitted by the Indenture and will not cause the interest on the Bonds to be includible in gross income for federal income tax purposes. *Mandatory Redemption Upon State Furnishing Funds. The Bonds are subject to redemption as a whole, at a redemption price equal to the applicable optional redemption price described herein or, if no such optional redemption price shall be applicable, 105% of the principal amount thereof during the Fixed Rate Period or 100% of the principal amount thereof prior to the Fixed Rate Conversion Date, together with unpaid interest accrued thereon to the date fixed for redemption, on any Interest Payment Date not less than twenty years after the date of the original issuance of 61 15. the Bonds if the State of New York furnishes funds therefor, all as more fully described in the Indenture. *Extraordinary Optional Redemption. The Bonds may be redeemed at the option of the Authority exercised at the direction of the Company, as a whole or in part at any time, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date fixed for redemption, upon the occurrence of any of the following events: (i) All or substantially all of the Project shall have been damaged or destroyed or title to, or the temporary use of, all or a substantial portion of the Project shall have been taken under the exercise of the power of eminent domain by any governmental authority, or Person, firm or corporation acting under governmental authority, as in each case renders the Project unsatisfactory to the Company for its intended use; (ii) Unreasonable burdens or excessive liabilities shall have been imposed upon the Authority or the Company with respect to all or substantially all of the Project, including without limitation the imposition of federal, state or other ad valorem property, income or other taxes other than taxes in effect on the date of original issuance of the Bonds levied upon privately owned property used for the same general purpose as the Project; or (iii) Any court or regulatory or administrative body shall enter or adopt, or fail to enter or adopt, a judgment, order, approval, decree, rule or regulation, as a result of which the Company elects to cease operation of all or substantially all of the Project. *Special Optional Redemptions. The Bonds will also be subject to redemption at the option of the Authority exercised at the direction of the Company, in whole at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to the redemption date if the Company reasonably concludes and certifies to the Trustee that the business, properties, condition (financial or otherwise), operations or business prospects of the Company will be materially and adversely affected unless the Company takes or omits to take a specified action and that the Company has been advised in writing by Bond Counsel that either (x) the specified action or omission would adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds afforded by Section 103 of the Code, or (y) that the matter is subject to such doubt that such Bond Counsel is unable to advise the Company that the specified action or omission 62 16. would not adversely affect such exclusion. Such conclusion and certification shall be evidenced by delivery to the Trustee of a written certificate of an Authorized Company Representative to the effect that the Company has reached such conclusion, together with a copy of such advice of Bond Counsel. *During any Medium-Term Rate or the Fixed Rate Period, the Bonds will also be subject to redemption at the option of the Authority exercised at the direction of the Company at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon to the redemption date if the Company reasonably concludes and certifies to the Trustee that the business, properties, condition (financial or otherwise), operations or business prospects of the Company will be materially and adversely affected unless the Company takes or omits to take a specified action and that the specified action or omission would cause the use of the Project to be such that, pursuant to Section 150 of the Code, the Company would not be entitled to deduct the interest on the Bonds for purposes of determining the Company's federal taxable income, for a period of not less than ninety consecutive or nonconsecutive days during a twelve-month period. Such conclusion and certification shall be evidenced by delivery to the Trustee of a written certificate of an Authorized Company Representative to the effect that the Company has reached such conclusion, together with a copy of written advice of Bond Counsel. In the event that the Bonds become subject to redemption as provided in this paragraph, the Bonds will be redeemed in whole unless redemption of a portion of the Bonds outstanding would, in the opinion of Bond Counsel, have the result that interest payable on the Bonds remaining outstanding after such redemption would be deductible for purposes of determining the federal taxable income of the Company, and, in such event, the Bonds shall be redeemed (in the principal amount equal to the current minimum authorized denomination or an integral multiple thereof) from time to time by lot or in such other manner as the Trustee shall in its discretion deem proper in order to assure each owner of Bonds a fair opportunity to have such owner's Bond or Bonds or portions thereof selected, in such amount as is necessary to accomplish that result. *Mandatory Redemption on Determination of Taxability. The Bonds will be redeemed in whole (or in part as provided below), at a redemption price equal to the principal amount thereof plus accrued and unpaid interest accrued thereon to the redemption date, on the first day of a month selected by the Authority at the direction of the Company (such direction also being delivered to the Trustee) within 180 days after the Company receives written notice from a Bondowner or former Bondowner or the Trustee of a final determination by the Internal Revenue Service or a court of competent jurisdiction that, as a result of a failure by the 63 17. Company to perform any of its agreements in the Participation Agreement or the inaccuracy, the failure to perform or breach of any of the representations, warranties, covenants or agreements of the Company in the Tax Regulatory Agreement or any requisition submitted pursuant to the Indenture, the interest paid or to be paid on any Bond (except to a "substantial user" of the Project or a "related person" within the meaning of Section 147(a) of the Internal Revenue Code of 1986, as amended) is or was included in the gross income of the Bond's owner for federal income tax purposes. No such determination will be considered final unless the Bondowner or former Bondowner involved in the determination gives the Company, the Authority and the Trustee prompt written notice of the commencement of the proceedings resulting in the determination and offers the Company, subject to the Company's agreeing to pay all expenses of the proceeding and to indemnify the owner against all liabilities that might result from it, including additional income tax liabilities as a result of interest accruing on the Bonds following commencement of such proceedings, the opportunity to control the defense of the proceeding and either the Company does not agree within 30 days to pay the expenses, indemnify the owner and control the defense or the Company exhausts or chooses not to exhaust available procedures to contest or obtain review of the result of the proceedings. Fewer than all the Bonds may be redeemed if, in the opinion of Bond Counsel, redemption of fewer than all would result in the interest payable on the Bonds remaining outstanding being not included in the gross income for federal income tax purposes of any owner other than a "substantial user" of the Project or a "related person." If fewer than all of the Bonds are redeemed, the Trustee will select the Bonds to be redeemed as provided in the Indenture. IF THE LIEN OF THE INDENTURE IS DISCHARGED AS DESCRIBED IN SECTION 10 BELOW PRIOR TO THE OCCURRENCE OF A FINAL DETERMINATION OF TAXABILITY AS DESCRIBED ABOVE, THE BONDS WILL NOT BE REDEEMED AS DESCRIBED IN THIS PARAGRAPH. *Notice of Redemption. At least 30 days before each redemption, the Trustee will mail a notice of redemption by first-class mail to each Bondowner at the owner's registered address. Failure to give any required notice of redemption as to any particular Bonds will not affect the validity of the call for redemption of any Bonds in respect of which no such failure occurs. Any notice mailed as provided in this paragraph will be conclusively presumed to have been given whether or not actually received by the addressee. *Effect of Notice of Redemption. When notice of redemption is required and given, Bonds called for redemption become due and payable on the redemption date at the applicable redemption price, except as otherwise provided herein; in such case 64 18. when funds are deposited with the Trustee sufficient for redemption or for the purchase of Bonds otherwise subject to redemption, interest on the Bonds to be redeemed or purchased ceases to accrue as of the date of redemption or purchase whether or not such Bond is delivered to the Trustee on such date. *7. Denominations, Transfer, Exchange. The Bonds are issued in registered form without coupons in denominations of $5,000 or any integral multiple of $5,000, except that when the Bonds bear interest at a Weekly Rate Period or Money Market Municipal Rate Period, they will be issuable in denominations of $100,000 or any integral multiples thereof. Notwithstanding the foregoing, prior to the commencement of any Semi-Annual Rate Period or Medium-Term Rate Period or the Fixed Rate Period, the Authority at the request of the Company may direct the Trustee to authenticate Bonds only in denominations of $100,000 or any integral multiple of $100,000 during such Rate Period in accordance with the Indenture. An owner may register the transfer of or exchange Bonds in accordance with the Indenture. The Trustee may require an owner, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. After the Fixed Rate Conversion Date, the Trustee need not register the transfer of or exchange any Bond for the period beginning 15 days before mailing a notice of redemption of such Bond and ending on the redemption date. *The Depository Trust Company, New York, New York ("DTC") initially will act as Securities Depository for the Bonds. The ownership of one fully registered Bond in the aggregate principal amount of the Bonds will be registered in the name of Cede & Co., as nominee of DTC. Such Bond will be held in trust until its redemption or until such time as DTC or its nominee is no longer the registered owner of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as nominee of DTC, references herein to the Bondowners or registered owners of the Bonds, shall mean Cede & Co. and shall not mean the beneficial owners of the Bonds. In the event that the book-entry-only system through DTC (or a successor securities depository) is discontinued as provided in the Indenture and the beneficial owners become registered owners of the Bonds, the provisions applicable to such registered owners, as set forth herein and in the Indenture, will apply. In the event that a book-entry-only system is reinstituted after discontinuance, Registered Owners will not be able to register the transfer of or tender their Bonds without first registering such Bonds in the book-entry-only system. *8. Persons Deemed Owners. The Registered Owner of this Bond may be treated by the Authority, the Company, the Trustee, the 65 19. Tender Agent and the Paying Agents as the owner of this Bond for all purposes. *9. Unclaimed Money. On or after the Fixed Rate Conversion Date and solely with respect to moneys not resulting from a draw on the Letter of Credit and not constituting remarketing proceeds, if money for the payment of principal, premium, interest or Purchase Price remains unclaimed for two years, the Trustee will, upon request of the Company, pay the money to or for the account of the Company. After that, owners entitled to the money must look only to the Company and not to the Trustee or the Bank for payment unless an applicable abandoned property law designates another person. *10. Discharge Before Redemption or Maturity. If at any time there shall have been delivered to the Trustee for cancellation all the Bonds (other than any Bonds which have been mutilated, lost, stolen or destroyed and which shall have been replaced or paid as provided in the Indenture, except for any such Bonds as are shown by proof satisfactory to the Trustee to be held by bona fide owners), or with respect to all the Bonds not theretofore delivered to the Trustee for cancellation, the whole amount of the principal and the interest and the premium, if any, due and payable on such Bonds then outstanding shall be paid or deemed to be paid as set forth in the Indenture, and provision shall also be made for paying all other sums payable thereunder, including the Authority's, the Indexing Agent's, Remarketing Agents', Paying Agent's, Trustee's and Tender Agent's fees and expenses, then the Bonds shall be deemed paid and the Trustee, in such case, on demand of the Authority or the Company, shall acknowledge the discharge of the Authority's obligations under the Indenture with respect to such Bonds and under the Bonds and deliver to the Company the Company Note and deliver to the Bank the Letter of Credit, and shall execute such documents as may be reasonably required by the Authority and the Company to evidence such discharge, all as more fully set forth in Article XIV of the Indenture. If the Company at any time deposits with the Trustee money or Investment Obligations sufficient to pay at redemption or maturity principal of and interest on or the Purchase Price of the outstanding Bonds, and if the Company also pays all other sums then payable by the Company under the Indenture, the Indenture (except for the Rebate Fund established pursuant to the Indenture) will be discharged. After discharge, Bondowners may look only to the deposited money and securities for payment. Investment Obligations are securities backed by the full faith and credit of the United States or securities evidencing ownership interest in such full-faith-and-credit securities. 66 20. *11. Amendment, Supplement, Waiver. Subject to certain exceptions, the Indenture, the Participation Agreement or the Bonds may be amended or supplemented with the consent of the owners of not less than two-thirds in aggregate principal amount of the Bonds, and any past default or noncompliance with any provision may be waived with the consent of the owners of a majority in aggregate principal amount of the Bonds. Without the consent of any Bondowner, the Authority may amend or supplement the Indenture, the Participation Agreement or the Bonds as described in the Indenture in order to, among other things, cure any ambiguity, omission, defect or inconsistency, provide for uncertificated Bonds in addition to or in place of certificated Bonds, to the extent permitted by law, or make any change that does not materially adversely affect the rights of any Bondowner. *12. Defaults and Remedies. The Indenture provides that the occurrences of certain events constitute Events of Default. An Event of Default and its consequences may be waived as provided in the Indenture. Bondowners may not enforce the Indenture or the Bonds except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Bonds unless it receives indemnity satisfactory to it. Subject to certain limitations, owners of a majority in principal amount of the Bonds may direct the Trustee in its exercise of any trust or power. *13. Abbreviations. Customary abbreviations may be used in the name of a Bondowner or an assignee, such as TEN COM (= tenants in common), TEN ENT (= Tenants by the entireties), JT WROS (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). *14. Remarketing Agents; Indexing Agent; Tender Agent. The Authority has appointed Dillon, Read & Co. Inc. and Lehman Brothers Inc., as the initial Remarketing Agents under the Indenture. The Authority may from time to time, at the request of the Company, remove or replace one or more of the Remarketing Agents. The Authority has appointed Kenny Information Systems Inc. as Indexing Agent under the Indenture. The Authority may from time to time, at the request of the Company, remove the Indexing Agent and appoint a different nationally recognized municipal securities evaluation service to serve as Indexing Agent. The Authority has appointed Chemical Bank as Tender Agent under the Indenture. The Authority may from time to time, at the request of the Company, remove or replace the Tender Agent. This Bond shall not be entitled to any benefit under the Indenture or be valid or become obligatory for any purpose until 67 21. this Bond shall have been authenticated by the execution by the Trustee or the Tender Agent of the Certificate of Authentication hereon. No covenant or agreement contained in this Bond or the Indenture shall be deemed to be a covenant or agreement of any member or employee of the Authority in his or her individual capacity, and neither the members of the Authority nor any officer thereof executing this Bond shall be liable personally on this Bond or be subject to any personal liability or accountability by reason of the issuance of this Bond. The Bonds are not a debt of the State of New York and the State of New York shall not be liable thereon. It is hereby certified and recited that all conditions, acts and things required by law and the Indenture to exist, to have happened and to have been performed precedent to and for the issuance of this Bond, exist, have happened and have been performed, and that the issuance of this Bond and the issue of which it forms a part are within every debt and other limit prescribed by the laws of the State of New York. 68 22. IN WITNESS WHEREOF, the Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its Chair, Vice-Chair, President or Treasurer and its seal or a facsimile thereof to be impressed, imprinted or otherwise reproduced hereon and attested by the manual or facsimile signature of its Secretary or an Assistant Secretary, as of the date set forth below. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By --------------------------- Chair Attest: - ---------------------- Secretary Dated: [Form of Trustee's or Tender Agent's Authentication on Bonds] CERTIFICATE OF AUTHENTICATION This Bond is one of the Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series B, described in the within-mentioned Indenture. Chemical Bank Chemical Bank as Trustee as Tender Agent By By ------------------------ ------------------------ 69 23. The Authority may, in its discretion, cause any or all of the paragraphs preceded by the symbol "*" to be printed on the reverse of the Bonds, in which event the face of the Bonds shall state the following: THE TERMS AND PROVISIONS OF THIS BOND ARE CONTINUED ON THE REVERSE SIDE HEREOF AND SUCH CONTINUED TERMS AND CONDITIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. In the event that some but not all of such paragraphs are printed on the reverse of the Bonds, the numbering of such paragraphs may be revised accordingly. The language contained in the preceding paragraph and the paragraphs preceded by the symbol "*" may be deleted for Bonds issued in temporary form or delivered to a Securities Depository for book-entry-only registration and the language to be contained on the reverse side of definitive Bonds and Bonds not in book-entry-only form may be incorporated by reference, in which event the Bonds shall state the following after the second paragraph of the Bonds: REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH IN THE FORM OF BONDS IN THE INDENTURE, WHICH PROVISIONS COMPRISE THE PARAGRAPHS IDENTIFIED BY THE INDENTURE AS APPEARING ON THE REVERSE OF THE BONDS AND SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE. [END OF BOND FORM] 70 24. WHEREAS, the Trustee has accepted the trusts created by the Indenture and in evidence thereof has joined in the execution hereof; GRANTING CLAUSE NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in consideration of the premises, of the acceptance by the Trustee of the trusts hereby created, and of the purchase and acceptance of the Bonds by the owners thereof, and also for and in consideration of the sum of One Dollar ($1.00) to the Authority in hand paid by the Trustee at or before the execution and delivery of the Indenture, the receipt of which is hereby acknowledged, and for the purpose of fixing and declaring the terms and conditions upon which the Bonds are to be issued, authenticated, delivered, secured and accepted by all Persons who shall from time to time be or become owners thereof, and in order to secure the payment of all the Bonds at any time issued and outstanding hereunder and the interest and the redemption premiums, if any, thereon according to their tenor, purport and effect, and in order to secure the performance and observance of all the covenants, agreements and conditions therein or herein contained, the Authority has executed and delivered the Indenture, has caused the Company to deliver to the Trustee the Company Note executed by the Company pursuant to the Participation Agreement and the Company has caused the Bank (hereinafter referred to) to deliver the Letter of Credit (hereinafter referred to) to the Trustee, and the Authority does hereby assign and pledge to the Trustee, for the benefit of such Bondowners, as security for the payment of the principal of and premium, if any, and interest on the Bonds in accordance with their terms and the provisions of the Indenture, subject only to the provisions of the Indenture, permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, (i) the rights and interest of the Authority under the Participation Agreement (except the rights and interest of the Authority under Article III and Sections 4.04, 4.08, 4.09, 4.10 and 5.16 of the Participation Agreement and subject to the provisions of the Participation Agreement relating to the amendment thereof), (ii) the rights and interest of the Authority under the Tax Regulatory Agreement (as defined herein), subject to a reservation by the Authority of a right to independently enforce the obligations of the Company thereunder and to the provisions of the Tax Regulatory Agreement relating to the amendment thereof, (iii) the proceeds of sale of the Bonds and (iv) all funds held by the Trustee under the Indenture and available for the payment of Bonds under the terms of the Indenture (expressly not including in such Funds the Rebate Fund) and the income earned by the investment of such funds held under the Indenture; in addition, the Authority hereby grants the Trustee the same power as the Authority to enforce from time to 71 25. time the rights of the Authority set forth in Article III and Section 5.16 of the Participation Agreement, subject to the provisions of the Participation Agreement relating to the amendment thereof. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that all Bonds from time to time issued and secured hereunder are to be issued, authenticated and delivered, and all said property, rights and interest, including, without limitation, the amounts hereby assigned and pledged, are to be dealt with and disposed of subject to the terms of the Indenture, and the Authority agrees with the Trustee and with the respective owners, from time to time, of said Bonds or any part thereof as follows: 72 26. ARTICLE I DEFINITIONS; LIABILITY UNDER BONDS; INDENTURE TO CONSTITUTE CONTRACT Section 1.01. Definitions. The terms defined in this Section 1.01 shall for all purposes of the Indenture have the meanings herein specified, unless the context clearly otherwise requires: Act shall mean the New York State Energy Research and Development Authority Act, Title 9 of Article 8 of the Public Authorities Law of the State of New York, as from time to time amended and supplemented. Act of Bankruptcy shall mean the filing of a petition commencing a case by or against the Company or any of its Affiliates or the Authority under the United States Bankruptcy Code, Title 11, United States Code, as the same may be amended from time to time, or any successor law, or the filing of a petition or the seeking of relief by or against the Company or the Authority under any state bankruptcy or insolvency law. Administration Fees shall mean the amounts payable by the Company to the Authority pursuant to Section 4.04 of the Participation Agreement to defray a portion of the expenses incurred by the Authority in conducting and administering its special energy project programs and the amount payable to the State of New York as a bond issuance charge in connection with the Bonds. Affiliate of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Alternate Credit Facility shall mean any instrument satisfactory to the Authority, such as a letter of credit, committed line of credit, insurance policy, surety bond or standby bond purchase agreement, or any combination of the foregoing, and issued by a bank or banks, insurance company or companies, other financial institution or institutions, or any combination of the foregoing, which Alternate Credit Facility provides for the payment of (i) the purchase price equal to the principal of and accrued interest on Bonds delivered to the Remarketing Agents or any 73 27. depository or other party pursuant to the provisions hereof or of a Remarketing Agreement and discount, if any, incurred in remarketing such Bonds, and/or (ii) principal of and interest on all Bonds coming due and payable during the term thereof, and is issued in substitution for and having, in all material respects, the same terms as the Letter of Credit in accordance with, and pursuant to, Section 4.12 of the Participation Agreement. Authority shall mean New York State Energy Research and Development Authority, the public benefit corporation created by the Act, and its successors and assigns. Authorized Company Representative shall mean any officer or other employee of the Company at the time designated to act on behalf of the Company by written certificate furnished to the Authority and the Trustee containing the specimen signature of such person and signed on behalf of the Company by its President or a Vice President and its Treasurer, Assistant Treasurer, Secretary or an Assistant Secretary. authorized denomination means (a) during any Weekly Rate Period or any Money Market Municipal Rate Period, $100,000 or any larger integral multiple of $100,000, and (b) during any Semi-Annual Rate Period, any Medium-Term Rate Period or the Fixed Rate Period, $5,000 or any integral multiple thereof. Notwithstanding the foregoing, at the time of any conversion to a Semi-Annual Rate Period, Medium-Term Rate Period or the Fixed Rate Period, the Authority at the request of the Company may direct the Trustee to authenticate and deliver Bonds only in denominations of $100,000 or any larger integral multiple of $100,000 during such Rate Period. Authorized Officer means the Chair, Vice-Chair, President, Treasurer, Assistant Treasurer or Secretary of the Authority. Available Moneys shall mean (a) with respect to any date for the payment of principal, premium, interest or Purchase Price on the Bonds occurring during the term of the Letter of Credit, moneys which have been on deposit with the Trustee, the Tender Agent or the Paying Agent in the Bond Fund or in a separate and segregated account for the purpose of purchasing or redeeming Bonds for at least 123 days during and prior to which no Act of Bankruptcy, as evidenced by a certificate of the Company and the Authority respectively, shall have occurred unless the proceeding arising from such Act of Bankruptcy shall have been dismissed and such dismissal shall be final and not subject to appeal, and the proceeds from the investment thereof, and (b) with respect to any date for the payment of principal, interest or premium, if any, on the Bonds not occurring during the term of the Letter of Credit, 74 28. any moneys furnished to the Trustee and the proceeds from the investment thereof. Bank means The Toronto-Dominion Bank, Houston Agency, the issuer of the initial Letter of Credit, in its capacity as issuer of the Letter of Credit, the issuer of any Alternate Credit Facility and each of their successors in such capacity. Bond or Bonds shall mean any bond or bonds or all the bonds, as the case may be, of the Authority executed, authenticated and delivered under the Indenture. Bond Counsel shall mean an attorney or firm or firms of attorneys, satisfactory to the Authority and the Trustee, experienced in laws relating to tax exemption of interest on bonds of states and their political subdivisions. Bond Fund shall mean the Bond Fund created in Section 6.01. Bond Register shall have the meanings specified in Section 2.11. Bond Year shall mean each one-year period (or shorter period from the issue date) that ends at the close of business each November 1. Business Day means any day other than (1) Saturday or Sunday, (2) a day of the year on which banks located in (i) The City of New York, New York, (ii) the city in which the Corporate Trust Office of the Trustee is located are authorized or obligated by law or executive order to remain closed, or (3) any other day not defined as a "business day" under the Letter of Credit. Calculation Period shall mean during any Money Market Municipal Rate Period, any period or periods from and including a Business Day to and including any day not more than 364 (during any year other than a "leap year") or 365 (during any "leap year") days, as the case may be, thereafter which is a day immediately preceding a Business Day established by the Remarketing Agents pursuant to Section 2.03(d). Code shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder or officially proposed to be promulgated thereunder. Company shall mean Long Island Lighting Company, or any corporation which is the surviving, resulting or transferee 75 29. corporation in any merger, consolidation or transfer of assets permitted under the Participation Agreement. Company Indenture shall mean collectively, (i) the Indenture of Mortgage and Deed of Trust, dated as of September 1, 1951, from the Company to IBJ Schroder Bank and Trust Company (formerly J. Henry Schroder Bank & Trust Company) as trustee, as amended and supplemented and (ii) the General and Refunding Indenture dated as of June 1, 1975, from the Company to United States Bank & Trust Company of New York (as successor trustee), as amended and supplemented. Company Note shall mean the promissory note of the Company executed and delivered to the Trustee as provided in Section 4.01 of the Participation Agreement. Company Note Payments shall mean the amounts payable by the Company under the Company Note. completed or completion, when used with reference to the Project as of a stated date, shall mean that the Project has been constructed substantially in accordance with the description thereof (notwithstanding that substantial additions or modifications thereto are planned, and notwithstanding that additional licensing or testing may be required with respect to the Project), and that the Company does not intend to submit any further requisitions pursuant to Section 3.03 of the Participation Agreement with respect to the Project. Completion Date shall mean the date specified by an Authorized Company Representative pursuant to Section 3.05 of the Participation Agreement. Component Issuers means issuers of securities, the interest on which is excluded from gross income for federal income tax purposes, selected by the Indexing Agent in accordance with the Indenture. Computation Period shall have the meaning ascribed to such term in the Tax Regulatory Agreement. construction, when used with respect to the Project, shall include, without limitation, the construction, acquisition and installation of the Project. Conversion Date means each day on which the Interest Rate Determination Method applicable to the Bonds shall be converted from one Interest Rate Determination Method to a different Interest Rate Determination Method or each day on which the interest rate on 76 30. the Bonds shall be converted from a Medium-Term Rate applicable for a Medium-Term Rate Period of one duration to a Medium-Term Rate applicable for a Medium-Term Rate Period of a different duration, as the case may be, in accordance with Section 2.04. With respect to notices, time periods and requirements in connection with the proceedings for such conversion, "Conversion Date" means the day on which it is proposed that such conversion occur. Conversion Notice shall have the meaning set forth in Section 2.04(a)(1). Corporate Trust Office, when used in connection with the Trustee, shall mean the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 450 West 33rd Street, 15th Floor, New York, New York 10001, Attention: Corporate Trustee Administration Department and when used in connection with the Tender Agent shall mean its principal office located at 55 Water Street, Room 234, North Building, New York, New York 10041, Attention: Corporate Tellers. Cost of Construction shall mean all costs incurred by the Company at any time prior to or after delivery of the Bonds for or in connection with the construction of the Project and shall include, but not be limited to, (a) obligations of the Company incurred for labor, services, materials and other expenses and to contractors, builders and materialmen in connection with the construction of the Project; (b) the cost of acquiring necessary land or rights in land and any costs incidental thereto; (c) the cost of contract bonds and of insurance of all kinds that may be required or necessary prior to the Completion Date which is not paid by the contractor or contractors or otherwise provided for; (d) expenses of the Company (including overhead charges) in connection with the preparation of plans and specifications for the Project (including any architectural, engineering or other professional fees or the cost of any preliminary investigations for the Project), and for supervising construction, as well as for the performance of all other duties required by or appropriate to the construction of the Project; (e) the fees, compensation and expenses (including reasonable counsel fees) of the Trustee, the Tender Agent, any Paying Agent, the Bank, the Indexing Agent and the Remarketing Agents incurred prior to the Completion Date of the Project and the legal, accounting, financial (including compensation to underwriters), printing, bond rating and other fees and expenses incurred in connection with the issuance, purchase and sale of the Bonds or any other obligations issued or incurred by the Authority pursuant to an agreement with the Company in connection with the Project, including, but not limited to, the Administration Fees or any other fees of the Authority; (f) taxes, 77 31. assessments and other charges, if any, payable in connection with the construction and owning of the Project prior to the Completion Date; (g) interest due and payable on the Bonds or any other obligations issued or incurred by the Authority pursuant to an agreement with the Company or by the Company in connection with the Project from the date of issuance thereof to the Completion Date of the Project; (h) the costs of testing the Project and obtaining any required permit, consent, license or approval for the Project, to the extent such costs shall have been incurred prior to the Completion Date; (i) any amount payable to the United States of America in connection with the Bonds pursuant to Section 148(f) of the Code; and (j) any sums required to reimburse the Company for advances and payments made by it at any time prior to or after delivery of the Bonds for any of the above items, or for any other cost incurred or work done by the Company with respect to the Project. Debt Service Account shall mean the account in the Bond Fund so designated and created pursuant to Section 6.01. description, when used with reference to the Project, shall mean the description of the Project set forth in Exhibits A and B to the Participation Agreement, as such description may be amended in accordance with the Participation Agreement. Determination Date shall mean the first day of each Calculation Period. Electric Facilities shall mean facilities of the Company for the furnishing of electric energy which are required by the public interest in development, health, recreation, safety, conservation of natural resources or aesthetics or which constitute "special energy projects" within the meaning of the Act and which constitute facilities for the local furnishing of electric energy or other "exempt facilities" within the meaning of Section 142(a)(8) of the Code. Event of Default shall mean any event of default specified in Section 10.01. First Interest Period means the period described as such in Section 2.03(a). Fixed Rate means the Fixed Rate established in accordance with Section 2.03(f). Fixed Rate Period means the period from and including the Fixed Rate Conversion Date to and including the date of maturity of the Bonds. 78 32. Fixed Rate Conversion Date means the Conversion Date on which the interest rate on the Bonds shall be converted to the Fixed Rate. Fixed Rate Index means the average of the yield evaluations (on the basis of full coupon securities trading at par with a term approximately equal to the Fixed Rate Period) of securities (whether or not actually issued), the interest on which is not included in gross income for federal income tax purposes, of not fewer than twenty component issues, which shall be issues of bonds selected by the Indexing Agent and which have a rating by a Rating Agency in the same rating category as the bonds of the Authority secured by unsecured promissory notes of the Company are rated at the time by such rating agency (or if the Bonds are to be supported by some form of credit enhancement, which have a rating by a Rating Agency in the same rating category as the Bonds of the Authority supported by such credit enhancement are rated at the time by such Rating Agency) or, if no such bonds are so rated, shall be debt which, in the judgment of the Indexing Agent, is of credit quality comparable to that of such bonds, computed by the Indexing Agent on the day described in Section 2.03(f). In the event that the Indexing Agent fails to compute the Fixed Rate Index and no other qualified municipal securities evaluation service can be appointed Indexing Agent by the Authority, the Fixed Rate Index shall be determined by the Remarketing Agents and shall be 90% of the average yield shown for the most recent calendar month for United States Treasury Notes or Bonds having the same number of years to maturity as the number of 12-month periods (or months if the Fixed Rate Period is less than one year) in the Fixed Rate Period, as published in the Federal Reserve Bulletin in the last issue before the Computation Date. If that issue does not contain such a yield, the Fixed Rate Index will be determined by linear interpolation between the yields shown in that issue for United States Treasury Notes and Bonds having the next shorter and next longer number of years (or months) to maturity. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority may designate a new method of setting the Fixed Rate Index in the event any of the above-described methods are unavailable, impracticable or unrealistic in the market place. Indenture shall mean the Indenture of Trust, as from time to time amended or supplemented in accordance with the terms hereof. 79 33. Indexing Agent shall mean the indexing agent appointed in accordance with Section 15.03, and its successor or successors appointed pursuant to the provisions of the Indenture. Interest Payment Date means (i) during any Weekly Rate Period, the first Business Day of each calendar month; (ii) each Conversion Date; (iii) during any Semi-Annual Rate Period or Medium-Term Rate Period the first day of each of two months which are six months apart, as specified in a certificate of an Authorized Officer delivered to the Trustee prior to the Conversions to a Semi-Annual Rate Period or Medium-Term Rate Period, provided, however, if the last such day occurring in any Semi-Annual Rate Period is not a Business Day then the first Business Day thereafter shall be the Interest Payment Date, provided, further, however, if any Interest Payment Date in a Semi-Annual Rate Period, determined as set forth above, would cause such Semi-Annual Rate Period to extend for a period in excess of 182 days, the Interest Payment Date for such Semi-Annual Rate Period shall be the last Business Day occurring within such Semi-Annual Rate Period that does not cause such Semi-Annual Rate Period to exceed 182 days in duration; (iv) during the Fixed Rate Period, each May 1 and November 1; (v) during each Money Market Municipal Rate Period, the first Business Day after any Calculation Period; and (vi) the Maturity Date. With respect to the First Interest Period, interest will be payable on May 1, 1994 and November 1, 1994. If prior to the conversion to a Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, an Officer's Certificate shall be delivered to the Trustee specifying different Interest Payment Dates for such Rate Period together with an Opinion of Bond Counsel to the effect that such adjustment will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes, then the Interest Payment Dates for such Rate Period shall be so adjusted; provided, however, that no such adjustment shall result in the establishment of Interest Payment Dates between which more than six months would pass. Interest Period means the period from and including any Interest Payment Date to and including the day next preceding the following Interest Payment Date. Interest Rate Determination Method means any of the methods of determining the interest rate on the Bonds described in Section 2.03. Issue Date means the date on which the Bonds are delivered to the purchaser or purchasers thereof upon original issuance. 80 34. Investment Obligations shall have the meaning assigned to that term in Section 14.01.2. Letter of Credit shall mean that irrevocable letter of credit issued and delivered to the Trustee pursuant to, and in the form of Exhibit A to, the Reimbursement Agreement (including any extensions of such letter of credit) and, upon the issuance and delivery of an Alternate Credit Facility, "Letter of Credit" shall mean such Alternate Credit Facility. Letter of Credit Account shall mean the account in the Bond Fund so designated and created pursuant to Section 6.01. Mandatory Purchase Date means a date on which the Bonds are required to be purchased in accordance with Section 2.05(e). Maturity Date shall mean November 1, 2023. Medium-Term Adjustment Date means the first day of each Medium-Term Rate Period that does not occur on a Conversion Date and as of which a new interest rate is established pursuant to Section 2.03(e). Medium-Term Rate means the interest rate on the Bonds established from time to time under Section 2.03(e). Medium-Term Rate Index means the average of the yield evaluations at par, determined by the Indexing Agent, of securities (whether or not actually issued), having a term approximately equal to the Medium-Term Rate Period or which are subject to optional or mandatory tender by the owner thereof at the end of a term approximately equal to the Medium-Term Rate Period, the interest on which is not included in gross income for federal income tax purposes, of at least twenty Component Issuers selected by the Indexing Agent, computed by the Indexing Agent as of the Business Day preceding each date on which the Medium-Term Rate is determined by the Remarketing Agents. When the Bonds are rated by a Rating Agency or shall be subject to the benefits of a Letter of Credit and the Bank has issued letters of credit to support other debt obligations rated by a Rating Agency in one of its two highest long-term debt rating categories, each Component Issuer must have outstanding securities rated by a Rating Agency in one of its two highest long-term debt rating categories. If the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by a Rating Agency in a rating category that is lower than its two highest long-term debt rating categories (and the Bonds or other debt obligations supported by letters of credit issued by the Bank are not rated in one of the two highest such categories by the other Rating Agency), each Component Issuer must 81 35. have outstanding securities rated by a Rating Agency in the same long-term debt rating category as the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by that Rating Agency. The Indexing Agent may change the Component Issuers from time to time in its discretion, subject to the foregoing requirements. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority may designate a new method of setting the Medium-Term Rate Index in the event any of the above-described methods are unavailable, impracticable or unrealistic in the market place. Medium-Term Rate Period means Medium-Term Rate Period as defined in Section 2.03(e). Money Market Municipal Rate shall mean an interest rate established pursuant to Section 2.03(d). Money Market Municipal Rate Index shall mean with respect to the first day of each Calculation Period during a Money Market Municipal Rate Period, the average of yield evaluations at par, determined by the Indexing Agent, of securities (whether or not actually issued) all of which shall have a term as near as practicable to such Calculation Period or which are subject to optional or mandatory tender by the owner thereof at the end of a term as near as practicable to such Calculation Period, the interest on which is not included in gross income for federal income tax purposes, of no fewer than twenty Component Issuers selected by the Indexing Agent, including issuers of commercial paper, project notes, bond anticipation notes and tax anticipation notes, computed by the Indexing Agent on and as of such day. If the Bonds are rated by a Rating Agency or are subject to the benefits of a Letter of Credit and the issuer of such Letter of Credit has issued letters of credit to support other debt obligations rated by a Rating Agency in its highest note or commercial paper rating category or one of its two highest long-term debt rating categories, each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its highest note or commercial paper rating category or (b) not have outstanding notes or commercial paper rated by a Rating Agency but have outstanding securities rated by a Rating Agency in one of its two highest long-term debt rating categories. If the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by a Rating Agency in a rating category that is lower than its highest note or commercial paper rating category or its two highest long-term debt rating categories (and the Bonds or other debt obligations supported by letters of credit issued by the 82 36. Bank are not rated in one of such categories by the other Rating Agency), each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its note or commercial paper rating category which is the same or correlative, in the Indexing Agent's judgment, to the note or commercial paper rating category or the long-term debt rating category of the Bonds or the other debt obligations supported by letters of credit issued by the Bank or (b) have outstanding securities rated by a Rating Agency in the same long-term debt rating category as the Bonds or the other debt obligations supported by letters of credit issued by the Bank are rated by that Rating Agency and not have any outstanding notes or commercial paper rated by such Rating Agency. The Indexing Agent may change the Component Issuers from time to time in its discretion, subject to the foregoing requirements. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that, under then-existing statutes and court decisions, such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority, with the consent of the Company, may designate a new method of setting the Money Market Municipal Rate Index in the event any of the above-described methods are determined by the Authority to be unavailable, impracticable or unrealistic in the market place. Money Market Municipal Rate Period means Money Market Municipal Rate Period as defined in Section 2.03(d). Money Market Municipal Rate Period Record Date shall mean, with respect to each Interest Payment Date during a Money Market Municipal Rate Period, the Business Day next preceding such Interest Payment Date. Moody's shall mean Moody's Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company, by written notice to the Trustee, the Company, the Remarketing Agents and the Indexing Agent. Officer's Certificate shall mean a certificate signed by an Authorized Officer. Opinion of Bond Counsel shall mean a written opinion of Bond Counsel. 83 37. Optional Retention Date means each day which is one Business Day prior to each Mandatory Purchase Date established pursuant to Section 2.05(e). Nothing in the Indenture shall be deemed to provide any Bondowner the right contrary to Section 2.05(e)(4) to retain Bonds subject to mandatory purchase under Section 2.05(e). Optional Retention Notice Date means the fifth Business Day prior to a Mandatory Purchase Date. Optional Tender Date means (i) during any Weekly Rate Period, any Business Day; provided that such Business Day is at least seven days after notice of such tender is delivered in accordance with Section 2.05(a), and (ii) during any Semi-Annual Rate Period, each Interest Payment Date; provided that notice of such tender has been given in accordance with Section 2.05(b). Other Facilities shall mean the facilities described in Exhibit B to the Participation Agreement. outstanding, when used with reference to Bonds, shall mean, as of any particular date, the aggregate of all Bonds authenticated and delivered under the Indenture, except (a) Bonds cancelled by the Trustee or delivered to the Trustee for cancellation at or prior to such date; (b) Bonds for the payment or redemption of which Available Moneys in the necessary amount have been theretofore deposited with the Trustee or any Paying Agent for the owners of such Bonds, provided that if such Bonds are to be redeemed, notice of such redemption has been duly given pursuant to the Indenture or provision therefor satisfactory to the Trustee has been made; (c) Bonds paid or deemed to be paid as provided in Section 14.01; (d) Bonds in lieu of or in substitution for which other Bonds shall have been authenticated and delivered pursuant to the Indenture, unless proof satisfactory to the Trustee shall be presented that any such Bond shall be held by a bona fide purchaser (as such term is defined in the Uniform Commercial Code of the State of New York); and (e) Bonds deemed to be tendered for purchase pursuant to Section 2.03(h) and not delivered to the Trustee (but not Bonds issued in replacement thereof and 84 38. remarketed or delivered in respect thereof pursuant to Section 2.07); provided, however, that in determining whether the owners of the requisite principal amount of Bonds outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Bonds held by the Tender Agent or held by or for the account of the Company shall be disregarded and deemed not to be outstanding, except, that in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Bonds which a Responsible Officer of the Trustee knows to be so held shall be so disregarded. Bonds so held which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Bonds and that the pledgee is not the Company and that the pledgee is not holding for the account of the Company. Owner or Bondowner or, when used with respect to an owner of Bonds, owner shall mean the Registered Owner of any Bond. Participation Agreement shall mean the Participation Agreement dated as of November 1, 1993, between the Authority and the Company, as amended and supplemented by Supplemental Participation Agreements from time to time. Paying Agent shall mean any paying agent or co-paying agent for the Bonds (and may include the Trustee) and its successor or successors appointed pursuant to the provisions of the Indenture. Person shall mean an individual, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. Project shall mean the Electric Facilities described in Exhibit A to the Participation Agreement and the Other Facilities. Project Fund shall mean the Project Fund created in Section 5.01. Purchase Date means any Mandatory Purchase Date, Conversion Date, Medium-Term Adjustment Date or any date on which Bonds are subject to mandatory tender for purchase pursuant to Section 2.05(g) or Section 2.05(j). 85 39. Purchase Price means an amount equal to 100% of the principal amount of any Bond tendered or deemed tendered to the Tender Agent for purchase pursuant to Section 2.05 (or an amount equal to any applicable optional redemption price on such date if such Bonds are to be purchased on a Conversion Date occurring during a Medium-Term Rate Period in accordance with Section 2.04), plus accrued and unpaid interest thereon to the date of purchase; provided, however, if the date of such purchase occurs after the Record Date applicable to the interest accrued on such Bond from the last occurring Interest Payment Date, then the Purchase Price shall not include accrued and unpaid interest, which shall be paid to the owner of record on the applicable Record Date. Rate means the Weekly Rate, Money Market Municipal Rate, Semi-Annual Rate, Medium-Term Rate or Fixed Rate. Rate Index means the Weekly Rate Index, the Semi-Annual Rate Index, the Medium-Term Rate Index, the Money Market Municipal Rate Index or the Fixed Rate Index. Rate Period means any Weekly Rate Period, Semi-Annual Rate Period, Medium-Term Rate Period, Money Market Municipal Rate Period or Fixed Rate Period. Rating Agency means Moody's or S&P. Rating Category shall mean one of the generic rating categories of a Rating Agency, without regard to any refinement or gradation of such rating category by a numerical modifier, plus or minus sign, or otherwise. Rebate Amount shall have the meaning ascribed to such term in the Tax Regulatory Agreement. Rebate Fund shall mean the Rebate Fund created in Section 5.07. Record Date means with respect to each Interest Payment Date (i) during any Weekly Rate Period or Money Market Municipal Rate Period, the Business Day next preceding such Interest Payment Date, and (ii) during any Semi-Annual Rate Period or Medium-Term Rate Period or Fixed Rate Period, the Trustee's close of business on the fifteenth day of the calendar month next preceding such Interest Payment Date. Registered Owner shall mean the Person or Persons in whose name or names the particular Bond shall be registered on the Bond Register. 86 40. Reimbursement Agreement means the Letter of Credit and Reimbursement Agreement dated as of November 1, 1993, between the Company, and The Toronto-Dominion Bank, Houston Agency, and any and all modifications, alterations, amendments and supplements thereto and, upon the issuance and delivery of an Alternate Credit Facility, "Reimbursement Agreement" shall mean the letter of credit and reimbursement agreement (or other document performing a similar function) relating to such Alternate Credit Facility. Remarketing Agents means the remarketing agent or agents appointed in accordance with Section 15.01, and any successor or successors appointed pursuant to the provisions of the Indenture. Remarketing Agreement shall mean the Remarketing Agreement with respect to a particular Interest Rate Determination Method then in effect between the Company and the Remarketing Agents. Responsible Officer, when used with respect to the Trustee, means an officer of the Trustee assigned to the Corporate Trustee Administration Department of the Trustee to whom any matter is referred because of his or her knowledge of and familiarity with the particular subject. S&P shall mean Standard & Poor's Corporation, a corporation organized and existing under the laws of the State of New York, its successors and their assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Authority, with the approval of the Company, by notice to the Trustee, the Company, the Remarketing Agents and the Indexing Agent. Securities Depository means a Bondowner acting as a central securities depository as provided in Section 2.11(b). Semi-Annual Adjustment Date means Semi-Annual Adjustment Date as defined in Section 2.03(c). Semi-Annual Rate means the interest rate on the Bonds established from time to time pursuant to Section 2.03(c). Semi-Annual Rate Index means the average of six-month yield evaluations at par, determined by the Indexing Agent, of securities (whether or not actually issued), the interest on which is not included in gross income for federal income tax purposes, of at least twenty Component Issuers selected by the Indexing Agent, including issuers of commercial paper, project notes, bond 87 41. anticipation notes and tax anticipation notes, computed by the Indexing Agent as of the Business Day next preceding each date on which the Semi-Annual Rate is determined by the Remarketing Agents. When the Bonds are rated by a Rating Agency or shall be subject to the benefits of a Letter of Credit and the Bank has issued letters of credit to support other debt obligations rated by a Rating Agency in its highest note or commercial paper rating category or one of its two highest long-term debt rating categories, each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its highest note or commercial paper rating category or (b) not have outstanding notes or commercial paper rated by a Rating Agency but have outstanding securities rated by a Rating Agency in one of its two highest long-term debt rating categories. If the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by a Rating Agency in a rating category that is lower than its highest note or commercial paper rating category or its two highest long-term debt rating categories (and the Bonds or other debt obligations supported by letters of credit issued by the Bank are not rated in one of such categories by the other Rating Agency), each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its note or commercial paper rating category which is the same or correlative, in the Indexing Agent's judgment, to the note or commercial paper rating category or the long-term debt rating category of the Bonds or other debt obligations supported by letters of credit issued by the Bank or (b) have outstanding securities rated by a Rating Agency in the same long-term debt rating category as the Bonds or the other debt obligations supported by letters of credit issued by the Bank are rated by that Rating Agency and not have any outstanding notes or commercial paper rated by such Rating Agency. The Indexing Agent may change the Component Issuers from time to time in its discretion, subject to the foregoing requirements. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority may designate a new method of setting the Semi-Annual Rate Index in the event any of the above-described methods are unavailable, impracticable or unrealistic in the market place. Semi-Annual Rate Period means Semi-Annual Rate Period as defined in Section 2.03(c). Subseries means any Subseries of Bonds established pursuant to Section 2.01 and references to the Bonds of any Subseries shall include all Bonds at any particular point in time designated as the Bonds of such Subseries in accordance with the provisions of the Indenture. 88 42. Supplemental Indenture shall mean any indenture supplementary or amendatory to the Indenture now or hereafter duly executed and delivered in accordance with the provisions hereof. Supplemental Participation Agreement shall mean an agreement supplementing or amending the Participation Agreement. Tax Regulatory Agreement shall mean the Tax Regulatory Agreement dated the date of the original issuance of the Bonds between the Authority and the Company and any and all modifications, alterations, amendments and supplements thereto. Tender Agent shall mean Chemical Bank, a banking corporation organized under the laws of the State of New York, having its principal office in The City of New York, New York, and its successor or successors as Tender Agent under the Indenture. Trustee shall mean Chemical Bank, a banking corporation organized under the laws of the State of New York, having its principal corporate trust office in New York, New York, in its capacity as trustee under the Indenture, and its successor or successors as trustee under the Indenture. Untendered Bond means any Untendered Bond as defined in Section 2.05(f). Weekly Rate means the interest rate on the Bonds established pursuant to Section 2.03(b). Weekly Rate Index means the average of 30-day yield evaluations at par, determined by the Indexing Agent, of securities (whether or not actually issued), the interest on which is not included in gross income for federal income tax purposes, of at least twenty Component Issuers selected by the Indexing Agent, including issuers of commercial paper, project notes, bond anticipation notes and tax anticipation notes, computed by the Indexing Agent as of the Business Day next preceding each day a Weekly Rate is determined by the Remarketing Agents. When the Bonds are rated by a Rating Agency or shall be subject to the benefits of a letter of credit and the Bank has issued letters of credit to support other debt obligations rated by a Rating Agency in its highest note or commercial paper rating category or one of its two highest long-term debt rating categories, each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its highest note or commercial paper rating category or (b) not have outstanding notes or commercial paper rated by a Rating Agency but have outstanding securities rated by a Rating Agency in one of its two highest long-term debt rating categories. If the Bonds or other debt obligations supported by letters of 89 43. credit issued by the Bank are rated by a Rating Agency in a rating category that is lower than its highest note or commercial paper rating category or its two highest long-term debt rating categories (and the Bonds or other debt obligations supported by letters of credit issued by the Bank are not rated in one of such categories by the other Rating Agency), each Component Issuer must (a) have outstanding securities rated by a Rating Agency in its note or commercial paper rating category which is the same or correlative, in the Indexing Agent's judgment, to the note or commercial paper rating category or the long-term debt rating category of the Bonds or other debt obligations supported by letters of credit issued by the Bank or (b) have outstanding securities rated by a Rating Agency in the same long-term debt rating category as the Bonds or other debt obligations supported by letters of credit issued by the Bank are rated by that Rating Agency and not have any outstanding notes or commercial paper rated by such Rating Agency. The Indexing Agent may change the Component Issuers from time to time in its discretion, subject to the foregoing requirements. In addition, at the request of the Company and upon delivery to the Trustee of an Opinion of Bond Counsel that, under then existing statutes and court decisions, such action will not adversely affect the exclusion of interest on the Bonds from gross income of the owners thereof for federal income tax purposes, the Authority may designate a new method of setting the Weekly Rate Index in the event any of the above-described methods are unavailable, impracticable or unrealistic in the market place. Weekly Rate Period means Weekly Rate Period as defined in Section 2.03(b). Section 1.02. Rules of construction. Unless the context clearly indicates to the contrary, the following rules shall apply to the construction of the Indenture: (a) Words importing the singular number shall include the plural number and vice versa. (b) Words importing the redemption or calling for redemption of Bonds shall not be deemed to refer to or connote the payment of Bonds at their stated maturity or upon the acceleration of the principal thereof by the Trustee under Article X. (c) All references herein to particular articles or sections are references to articles or sections of the Indenture. (d) The captions and headings herein are solely for convenience of reference and shall not constitute a part 90 44. of the Indenture nor shall they affect its meaning, construction or effect. (e) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in the Indenture refer to the Indenture in its entirety and not the particular article or section of the Indenture in which they appear, and the term "hereafter" means after, and the term "heretofore" means before, the date of the Indenture. (f) All references to Medium-Term Rate Period of "similar duration" refer to Medium-Term Rate Periods of equal duration as measured in months taking into account any portion of a month as the entire month. Section 1.03. Liability under Bonds. The Bonds shall not be general obligations of the Authority, and shall not constitute an indebtedness of or a charge against the general credit of the Authority or give rise to any pecuniary liability of the Authority. The liability of the Authority under the Bonds shall be enforceable only to the extent provided in the Indenture, and the Bonds shall be payable solely from the Company Note Payments and any other funds held by the Trustee under the Indenture and available for such payment (including, but not limited to any funds drawn under the Letter of Credit). The Bonds shall not be a debt of the State of New York and the State of New York shall not be liable thereon. 91 45. ARTICLE II DESCRIPTION; AUTHORIZATION; MANNER OF EXECUTION; AUTHENTICATION; REGISTRATION AND TRANSFER OF BONDS Section 2.01. Issuance of Bonds; Designation of Bonds; Certain Particulars and Form of Bonds. The Bonds shall be issued in one series in the aggregate principal amount of $50,000,000 and shall be designated as "Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series B." In order to distinguish between Bonds which are subject to different Interest Rate Determination Methods, Bonds may be designated and redesignated (as herein provided) in such a way as to identify several Subseries. Such Subseries may be designated as Subseries B-1, Subseries B-2, and so forth. Each Bond shall bear upon the face thereof such designation or redesignation, if any. The Bonds shall be issuable in the form of registered bonds without coupons in authorized denominations except as provided in Section 2.08 with respect to lost, stolen, destroyed or undelivered Bonds. The Bonds shall be numbered consecutively from NYBR-1 upwards bearing numbers not then contemporaneously outstanding (in order of issuance) according to the records of the Trustee. If the Bonds are redesignated to identify several Subseries, the Bonds shall be numbered in accordance with their Subseries designation, i.e. NYB1R-1, NYB2R-2, and so forth. Bonds shall be substantially in the form set forth in the recitals to the Indenture, with such appropriate variations, omissions and insertions as are permitted or required by the Indenture and may have endorsed thereon such legends or text as may be necessary or appropriate to conform with the Indenture or to any applicable rules and regulations of any governmental authority or any usage or requirement of law with respect thereto. Section 2.02. Additional Particulars of Bonds. The Bonds initially shall be dated the Issue Date but, thereafter, each Bond shall be dated the date of its authentication. Each Bond shall bear interest from the last Interest Payment Date on which interest on such Bond has been paid or, if no interest has been paid, from the Issue Date. The Bonds will mature (subject to the right of prior redemption at the prices and dates and upon the terms and conditions hereinafter set forth) on the Maturity Date. Only such Bonds as shall have endorsed thereon a certificate of authentication substantially in the form set forth in the Form of Bond duly executed by the Trustee or the Tender Agent shall be entitled to any right or benefit under the Indenture. No Bond shall be valid or obligatory for any purpose 92 46. unless and until such certificate of authentication shall have been duly executed by the Trustee or the Tender Agent, and such executed certificate of the Trustee or the Tender Agent upon any such Bonds shall be conclusive evidence that such Bond has been authenticated and delivered under the Indenture. The certificate of authentication of the Trustee or the Tender Agent on any Bond shall be deemed to have been executed by it, respectively, if signed with an authorized signature of the Trustee or the Tender Agent, but it shall not be necessary that the same party or the same person sign the certificate of authentication on all of the Bonds Jissued hereunder. The principal and the Purchase Price of and the redemption premium, if any, and the interest on the Bonds shall be payable in lawful money of the United States of America. The principal and the Purchase Price of and the redemption premium, if any, on all Bonds shall be payable at the principal office of the Paying Agent upon the presentation and surrender of the Bonds as the same become due and payable. The interest on the Bonds shall be paid by check or draft drawn upon the Paying Agent and mailed to the persons in whose names the Bonds are registered on the registration books maintained by the Trustee at the close of business on the Record Date next preceding each Interest Payment Date; provided, that in the event that less than all of the Bonds are held under a book-entry-only system any Registered Owner of a Bond or Bonds not held under a book-entry-only system in an aggregate principal amount of not less than $1,000,000 (or $100,000 during any Money Market Municipal Rate Period) may, by prior written instructions filed with the Paying Agent (which instructions shall remain in effect until revoked by subsequent written instructions), request that interest payments for any period prior to the Fixed Rate Conversion Date be made by wire transfer or other means acceptable to the Paying Agent to an address in the continental United States; and provided, further, that during a Money Market Municipal Rate Period, interest on a Bond is payable only upon presentation and surrender thereof to the Tender Agent upon purchase thereof pursuant to the Indenture, and if such presentation and surrender is made by 12:00 noon (New York City time) such payment shall be by wire transfer. If any payment of interest or principal or redemption premium on the Bonds is due on a date which is not a Business Day, payment shall be made on the next succeeding Business Day with the same force and effect as if made on the date which is fixed for such payment, and no interest shall accrue on such amount for the period after such due date. 93 47. Section 2.03. Interest Rates on Bonds. [2.03] (a) Generally; Initial Rates. Interest accrued on the Bonds shall be paid on each Interest Payment Date. The interest rate on the Bonds will be determined as provided in this Section, provided, that in any event (i) no Weekly Rate, Money Market Municipal Rate, Semi-Annual Rate or Medium-Term Rate shall exceed the lesser of: (a) fifteen per centum (15%) per annum and (b) the maximum interest rate specified in the Letter of Credit with respect to coverage for the payment of interest or the interest component of Purchase Price and (ii) the Fixed Rate shall not exceed eighteen per centum (18%) per annum and, provided, further, no rate as so determined shall exceed the maximum rate permitted by applicable law. Interest on the Bonds will initially be payable at a Medium-Term Rate of two and eighty-five one-hundredths per centum (2.85%) per annum for the period from November 17, 1993, to and including October 31, 1994 (the "First Interest Period"). Thereafter, unless and until the Interest Rate Determination Method is changed as described in Section 2.04, the Bonds will bear interest at a Medium-Term Rate. The Company may direct the Remarketing Agents to change the Interest Rate Determination Method applicable to all or a portion of the Bonds, except that no Bonds may be converted to bear interest at a Fixed Rate unless all Bonds are converted to bear interest at a Fixed Rate. Except as specifically provided otherwise herein, the conditions and procedures for such change in the Interest Rate Determination Method for a portion of the Bonds shall be the same as the conditions and procedures for a change in the Interest Rate Determination Method for the entire series of Bonds. If less than all of the Bonds are to be converted, the Bonds which are being converted shall, pursuant to Section 2.01, be redesignated in such a way as to identify a separate Subseries, and, in such event, all references herein to the Bonds shall be deemed to refer to the Bonds of each Subseries separately. During any Weekly Rate Period or Money Market Municipal Rate Period, interest on the Bonds will be computed on the basis of a 365 or 366-day year, as the case may be, for the actual number of days elapsed. During any Semi-Annual Rate Period, Medium-Term Rate Period or Fixed Rate Period, interest on the Bonds will be computed on the basis of a 360-day year of twelve 30-day months. [2.03] (b) Weekly Rate. During any period commencing on the date that the Interest Rate Determination Method is converted to a mode where the Bonds bear interest at a Weekly Rate pursuant to Section 2.04 to, but not including, the next Conversion Date (a "Weekly Rate Period"), the Bonds will bear interest at the Weekly Rate. With respect to any Weekly Rate Period, the Remarketing 94 48. Agents will set a rate (a "Weekly Rate") by 12:00 noon New York City time: (i) on the first Business Day before any Conversion Date immediately after which the Bonds will bear interest at a Weekly Rate for the period commencing on the Conversion Date through and including the next Tuesday that is at least six days from such Conversion Date and (ii) on each Wednesday thereafter (or the first Business Day before such Wednesday, if such Wednesday is not a Business Day) for the seven day period from such Wednesday through and including the next Tuesday. Each Weekly Rate shall be the rate of interest which, if borne by the Bonds, would, in the judgment of the Remarketing Agents, having due regard to the prevailing financial market conditions for tax-exempt revenue bonds or other tax-exempt securities of the same general nature as the Bonds or tax-exempt securities which are competitive as to credit and maturity (or period for tender) with the credit and maturity (or period for tender) of the Bonds, be the interest rate necessary, but would not exceed the interest rate necessary, to enable the Remarketing Agents to remarket the Bonds at a price of par (plus accrued interest, if any) on such Wednesday; provided that the Weekly Rate shall not be greater than 110% of the Weekly Rate Index. If for any reason the Weekly Rate for any Weekly Rate Period is not established as aforesaid by the Remarketing Agents, no Remarketing Agent shall be serving as such hereunder or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law with respect to any day, then the Weekly Rate for such Weekly Rate Period shall be 100% of the Weekly Rate Index on the date such interest rate was (or would have been) determined as provided above. The Indexing Agent shall establish the Weekly Rate Index on the Business Day next preceding each day on which a Weekly Rate is determined by the Remarketing Agents. Notwithstanding the foregoing, in the event that the Remarketing Agents, in their judgment, shall determine that the Weekly Rate Index so established is sufficiently non-representative of current market conditions that the Bonds may not be remarketed at par if the Weekly Rate is set at a rate not greater than 110% of the applicable Weekly Rate Index, the Remarketing Agents may establish a new Weekly Rate Index in accordance with the procedures and standards set forth in this paragraph and in the preceding paragraph and for purposes of the Weekly Rate Index so established, all references to Indexing Agent in the Indenture shall be deemed to refer to the Remarketing Agents; provided that the Remarketing Agents shall select securities (whether or not actually issued) having a term equal to the Weekly Rate Period or which are subject to optional or mandatory tender by the owner thereof at the end of a term equal to the Weekly Rate Period. 95 49. [2.03] (c) Semi-Annual Rate. During any period commencing on the date that the Interest Rate Determination Method is converted to a mode where the Bonds bear interest at a Semi-Annual Rate pursuant to Section 2.04 to, but not including, the next Conversion Date (a "Semi-Annual Rate Period"), the Bonds will bear interest at the Semi-Annual Rate. With respect to any Semi-Annual Rate Period, the Remarketing Agents will set a rate (a "Semi-Annual Rate") not later than 5:00 p.m. New York City time: (i) on or before the first Business Day before any Conversion Date immediately after which the Bonds will bear interest at a Semi-Annual Rate for the period commencing on the Conversion Date through but not including the next Interest Payment Date (each such date occurring during a Semi-Annual Rate Period being referred to herein as a "Semi-Annual Adjustment Date") and (ii) on or before the first Business Day before each Semi-Annual Adjustment Date for the period commencing on such Semi-Annual Adjustment Date through but not including the next Semi-Annual Adjustment Date. Each Semi-Annual Rate shall be the rate of interest which, if borne by the Bonds, would, in the judgment of the Remarketing Agents, having due regard for the prevailing financial market conditions for tax-exempt revenue bonds or other tax-exempt securities of the same general nature as the Bonds or tax-exempt securities which are competitive as to credit and maturity (or period for tender) with the credit and maturity (or period for tender) of the Bonds, be the interest rate necessary, but would not exceed the interest rate necessary to enable the Remarketing Agents to remarket the Bonds at a price of par (plus accrued interest, if any) on the next succeeding Interest Payment Date (or, if any such day is not a Business Day, on the next succeeding Business Day); provided that the Semi-Annual Rate shall not be greater than 110% of the Semi-Annual Rate Index. If for any reason the Semi-Annual Rate for any Semi-Annual Rate Period is not established as aforesaid by the Remarketing Agents, no Remarketing Agent shall be serving as such hereunder or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law with respect to any Semi-Annual Period, then the Semi-Annual Rate for such Semi-Annual Rate Period shall be 100% of the Semi-Annual Rate Index on the date such interest rate was (or would have been) determined as provided above. The Indexing Agent shall establish the Semi-Annual Rate Index during the Semi-Annual Rate Period on the Business Day next preceding each day on which a Semi-Annual Rate is determined by the Remarketing Agents. [2.03] (d) Money Market Municipal Rates. During any period commencing on the date that the Interest Rate Determination Method is converted to a mode where the Bonds bear interest at Money Market Municipal Rates pursuant to Section 2.04 to, but not 96 50. including, the next Conversion Date (a "Money Market Municipal Rate Period"), the Bonds will bear interest at the various Money Market Municipal Rates for the various Calculation Periods established herein. During any Money Market Municipal Rate Period, any Bond may have a different Calculation Period and a different Money Market Municipal Rate from any other Bond, all as established by the Remarketing Agents as provided below. [2.03 (d)] (i) Establishment of Calculation Periods. During any Money Market Municipal Rate Period, at or prior to 12:00 noon New York City time on any Conversion Date immediately after which the Bonds will bear interest at the Money Market Municipal Rate and each day immediately after the end of a Calculation Period, the Remarketing Agents shall establish Calculation Periods with respect to Bonds for which no Calculation Period is currently in effect. In determining Calculation Periods, the Remarketing Agents shall take the following factors into account: (1) existing short-term taxable and tax-exempt market rates and indices of such short-term rates, (2) the existing market supply and demand for short-term tax-exempt securities, (3) existing yield curves for short-term and long-term tax-exempt securities or obligations having a credit rating that is comparable to the Bonds, (4) general economic conditions, (5) economic and financial factors present in the securities industry that may affect or that may be relevant to the Bonds and (6) any information available to the Remarketing Agents pertaining to the Bank or the Company regarding any events or anticipated events which could have a direct impact on the marketability of or interest rates on the Bonds. The Remarketing Agents shall select the Calculation Periods and the applicable Money Market Municipal Rates that, together with all other Calculation Periods and related Money Market Municipal Rates, in the sole judgment of the Remarketing Agents, will result in the lowest overall borrowing cost on the Bonds or are otherwise in the best financial interests of the Company, as determined in consultation with the Company. Any Calculation Period established hereunder may not extend beyond any Conversion Date, the second Business Day next preceding the scheduled expiration date of the Letter of Credit or the day prior to the maturity date of the Bonds, and the maximum length of the Calculation Period shall not exceed the number of days of interest coverage under the Letter of Credit minus 30 days of interest coverage. [2.03 (d)] (ii) Setting of Rates. On the first day of each Calculation Period, the Remarketing Agents shall set rates ("Money Market Municipal Rates") by 12:00 noon New York City time for each Calculation Period. With respect to Bonds 97 51. for each Calculation Period, the Money Market Municipal Rate shall be the rate of interest which, if borne by such Bonds, would, in the judgment of the Remarketing Agents, having due regard to the prevailing financial market conditions for tax-exempt revenue bonds or other tax-exempt securities which are competitive as to credit and maturity (or period of tender) with the credit and maturity (or period of tender) of such Bond, be the interest rate necessary, but would not exceed the interest rate necessary, to enable the Remarketing Agents to remarket such Bond at a price of par on the date such rate is set; provided that the Money Market Municipal Rates shall not be greater than 110% of the Money Market Municipal Rate Index. The Authority, at the request of the Company, may place such limitations upon the establishment of Calculation Periods pursuant to the preceding paragraph (i) as may be set forth in a written direction from the Authority, which direction must be received by the Trustee and the Remarketing Agents prior to 10:00 a.m. (New York City time) on the day prior to any Determination Date to be effective on such date, but only if the Trustee receives an Opinion of Bond Counsel to the effect that such action is authorized by the Indenture, is permitted under the Act, and will not have an adverse effect on the exclusion of interest on the Bonds from gross income for federal income tax purposes. The Indexing Agent shall establish the Money Market Municipal Rate Index. [2.03] (e) Medium-Term Rate. During any period (a "Medium-Term Rate Period") commencing on the date that the Interest Rate Determination Method is converted to a method where the Bonds bear interest at a Medium-Term Rate pursuant to Section 2.04 to, but not including the earliest to occur of, the next Conversion Date or the next Medium-Term Adjustment Date and any period commencing on a Medium-Term Adjustment Date, to but not including, the earliest to occur of the next Conversion Date or the next Medium-Term Adjustment Date, the Bonds shall bear interest at the Medium-Term Rate. [2.03(e)] (i) Selection of Period. The length of each Medium-Term Rate Period shall be selected by the Company with the intention of yielding the lowest overall interest expense on the Bonds over the term of such Medium-Term Rate Period, taking into account (1) general economic conditions and economic and market conditions relevant to the Bonds and (2) such other facts, circumstances and conditions as the Company determines to be relevant. The Company shall select a Medium-Term Rate Period so that: (1) such period ends on the day preceding an Interest Payment Date, (2) the Medium-Term 98 52. Period (other than the First Interest Period) is at least one year in duration, and (3) such period will end not later than two Business Days prior to the expiration of the Letter of Credit then in effect. In addition, if the Company is converting from a Weekly Rate Period, a Money Market Municipal Rate Period or a Semi-Annual Rate Period, the Company shall not select a Medium-Term Period that ends after the Interest Payment Date immediately preceding final maturity of the Bonds unless it has provided an Opinion of Bond Counsel that, under then existing statutes and court decisions, such conversion of interest on the Bonds will not cause interest on the Bonds to be included in gross income for federal income tax purposes. The Company shall give written notice of the term of any Medium-Term Rate Period to the Trustee, the Tender Agent, the Authority, the Indexing Agent and the Remarketing Agents not later than 35 days prior to the commencement of any Medium-Term Rate Period. In the event that no specific term of a Medium-Term Rate Period shall have been so specified by the Company, the term of a subsequent Medium-Term Rate Period shall be the same as the term of the Medium-Term Rate Period immediately preceding it. [2.03(e)] (ii) Setting of Rate. With respect to any Medium-Term Rate Period, the Remarketing Agents will set a rate no later than 10:00 a.m. New York City time on or before the first Business Day before any Conversion Date immediately after which the Bonds will bear interest at a Medium-Term Rate and the first Business Day before any Medium-Term Adjustment Date for the applicable Medium-Term Rate Period. Each Medium-Term Rate shall be the rate of interest which, if borne by the Bonds, would, in the judgment of the Remarketing Agents, having due regard for prevailing market conditions for tax-exempt revenue bonds or other tax-exempt securities which are competitive as to credit and maturity, with the credit and maturity of the Bonds, be the interest rate necessary, but would not exceed the interest rate necessary, to enable the Remarketing Agents to remarket the Bond(s) or portion(s) thereof as aforesaid tendered (or deemed to have been tendered) for purchase at a price of par (plus accrued interest, if any) on the first day of such Medium-Term Period; provided that the Medium-Term Rate shall not be greater than 110% of the Medium-Term Rate Index. If for any reason the applicable Medium-Term Rate is not established as aforesaid by the Remarketing Agents, no Remarketing Agent shall be serving as such hereunder or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law with respect to any Medium- 99 53. Term Rate Period, the interest rate to be borne by all Bonds outstanding under the Indenture from the first day of the applicable Medium-Term Rate Period to the last day of the applicable Medium-Term Rate Period shall be equal to 100% of the Medium-Term Rate Index calculated for such Medium-Term Rate Period. The Indexing Agent shall establish the Medium-Term Rate Index on the Business Day next preceding each day on which a Medium-Term Rate is determined by the Remarketing Agents. [2.03] (f) Fixed Rate. During the period commencing on the date that the Interest Rate Determination Method is converted to a method where the Bonds bear interest at the Fixed Rate pursuant to Section 2.04 to (subject to the right of prior redemption at the prices and dates and upon the terms and conditions hereinafter set forth) the Maturity Date of the Bonds (the "Fixed Rate Period"), the Bonds shall bear interest at the Fixed Rate. With respect to the Fixed Rate Period, the Remarketing Agents will set a rate (the "Fixed Rate") not later than 10:00 a.m. New York City time one Business Day prior to any Fixed Rate Conversion Date. The Fixed Rate shall be the interest rate which, if borne by the Bonds, would, in the judgment of the Remarketing Agents having due regard for prevailing financial market conditions for tax-exempt revenue bonds or other tax-exempt securities which are competitive as to credit and maturity with the credit and maturity of the Bonds, be the interest rate necessary, but would not exceed the interest rate necessary, to enable the Remarketing Agents to remarket the Bonds(s) or portion(s) thereof as aforesaid tendered (or deemed to have been tendered) for purchase at a price of par (plus accrued interest, if any) on the Fixed Rate Conversion Date, provided that the Fixed Rate shall not be greater than 110% of the Fixed Rate Index. If for any reason the applicable Fixed Rate is not established as aforesaid by the Remarketing Agents, no Remarketing Agent shall be serving as such hereunder or the rate so established is held to be invalid or unenforceable by a final judgment of a court of law, the interest rate to be borne by all Bonds outstanding under the Indenture from the Fixed Rate Conversion Date to the date of payment in full of the Bonds shall be equal to 100% of the Fixed Rate Index as of such Computation Date. The Indexing Agent shall establish the Fixed Rate Index on or before the Business Day next preceding the Fixed Rate Conversion Date. 100 54. [2.03] (g) Notice of Rates. Promptly following the determination of any Weekly Rate, Semi-Annual Rate, Medium-Term Rate, Money Market Municipal Rate or Fixed Rate, the Remarketing Agents shall give notice to the Trustee, the Authority, the Company and the Tender Agent in writing and, promptly thereafter, except in the case of the Semi-Annual Rate and Weekly Rate, the Trustee shall give each Bondowner notice of the new rate. [2.03] (h) [Intentionally Omitted.] [2.03] (i) Absence of Remarketing Agents. If no Remarketing Agent shall be serving hereunder at the time of the determination of the Weekly Rate, Semi-Annual Rate, Medium-Term Rate, the Fixed Rate or the Money Market Municipal Rate, the Rate shall be the Weekly Rate Index, Semi-Annual Rate Index, Medium-Term Rate Index, the Fixed Rate Index or Money Market Manual Rate Index, as the case may be, then in effect until a new Remarketing Agent is selected by the Company to make such Rate determination. Any determination of the Weekly Rate, Semi-Annual Rate, the Medium-Term Rate, the Fixed Rate or the Money Market Municipal Rate by the Remarketing Agents, or pursuant to the preceding sentence, shall be conclusive and binding upon the Authority, the Company, the Tender Agent, the Trustee, the Paying Agent, the Remarketing Agents and the Bondowners. [2.03] (j) No Liability. In determining the interest rate that the Bonds shall bear as provided in this Section, the Remarketing Agents and, as aforesaid, the Trustee shall have no liability to the Authority, the Company, the Tender Agent, the Trustee, the Paying Agent or any Bondowner except for its willful misconduct. [2.03] (k) Legend Authorized. Any Bond issued upon registration of transfer or exchange on or after any Fixed Rate Conversion Date shall contain a prominent legend on the face thereof, to be specified by the Authority and placed thereon by the Trustee, to the effect that the Letter of Credit has expired, that the Bonds are no longer entitled to the benefit of any Letter of Credit, that the Bonds are not subject to mandatory purchase by the Tender Agent and that the interest rate on the Bonds has been converted to another Interest Rate Determination Method, in which case such method shall be specified. Section 2.04. Conversion of Interest Rate on Bonds. (a)(1) During any Rate Period other than the Fixed Rate Period, at any time, subject to the conditions set forth below, the Company may direct a change in the Interest Rate Determination Method from one Rate to another by so directing the Trustee in writing (such being hereinafter referred to as a "Conversion Notice") with copies 101 55. to the Remarketing Agents, the Tender Agent, the Authority, the Indexing Agent and, during the term of the Letter of Credit, the Bank, delivered at least thirty (30) days (where the Bonds bear interest at a Weekly Rate, Money Market Rate or Semi-Annual Rate) or thirty-five (35) days (where the Bonds bear interest at a Medium-Term Rate) but, in either case, not more than sixty (60) days prior to the Conversion Date, accompanied by an Opinion of Bond Counsel stating that, under then existing statutes and court decisions, such conversion of interest on the Bonds to the other Rate will not cause the interest on the Bonds to be included in gross income for federal income tax purposes. The Company's notice must specify (i) the Conversion Date, (ii) the new Interest Rate Determination Method to take effect, (iii) if the new Interest Rate Determination Method is a Medium-Term Rate Period, the length of the Medium-Term Rate Period, (iv) if the new Interest Rate Determination Method is a Money Market Municipal Rate Period, the maximum length of Calculation Periods, and (v) if the new Interest Rate Determination Method is to apply to less than all of the Bonds then outstanding, the aggregate principal amount of Bonds to which the new Interest Rate Determination Method is to apply. If the Company directs the Trustee to change the Interest Rate Determination Method from one Rate to another for less than all of the Bonds then outstanding, the Trustee shall select Bonds to be converted by lot or by such other method as the Trustee may select. In the event the Company wishes to convert less than all the Bonds then outstanding, the Company shall notify the Trustee of such decision not less than 40 days or more than 60 days before the effective date of the proposed conversion. On the Conversion Date the portion of the Bonds which are being converted shall be redesignated in such a way as to identify a separate Subseries and thereby to avoid confusion of such Subseries with any other Subseries. The Company may also determine to similarly redesignate the portion of the Bonds which are not being converted on the Conversion Date. The holders of Bonds which are being redesignated may be required to deliver such Bonds to the Trustee in order to receive a new Bond of the applicable designation, in the same principal amount. In the event holders are not required to surrender such Bonds, the Trustee shall appropriately designate any Bonds subsequently issued in exchange therefor. The Trustee shall not be liable to any Bondholder for the method selected and employed by the Trustee or by the Company's selection of a partial redemption. [2.04(a)] (2) Any change in the Interest Rate Determination Method must comply with the following to the extent applicable: 102 56. (i) Except in the case of a change in the Interest Rate Determination Method from a Medium-Term Rate Period to another Rate Period, all Conversion Dates shall occur on Business Days. (ii) If the Semi-Annual Rate or a Medium-Term Rate is then in effect, the Conversion Date shall be an Interest Payment Date (or if the Semi-Annual Rate is then in effect the immediately succeeding Business Day, if such Interest Payment Date is not a Business Day) or any Business Day on which the Bonds are subject to optional redemption. (iii) If a Medium-Term Rate is then in effect, the Conversion Date shall occur only during the period during which the Bonds are subject to optional redemption at a redemption price of 100% of the principal amount thereof unless the Letter of Credit then in effect provides for payment of Purchase Price equal to such redemption price above par or Available Moneys have been provided in an amount sufficient, together with any amounts available under the Letter of Credit, to pay such Purchase Price in full; provided, that if the Bonds are subject to optional redemption at a redemption price above par, the Purchase Price on the Conversion Date shall include the optional redemption premium. (iv) No conversion of the interest rate on the Bonds shall occur under this Section if at the time of such conversion an Event of Default shall have occurred hereunder and be continuing with respect to the Bonds. (v) No Rate Period other than the Fixed Rate Period shall extend to a date later than the first Business Day next preceding the scheduled expiration of the Letter of Credit in effect at the beginning of such Rate Period. (vi) If the Rate Period in effect after the conversion is a Money Market Municipal Rate Period, the maximum length of the Calculation Period shall not exceed the number of days of interest coverage under the Letter of Credit minus 30 days of interest coverage. [2.04(a)] (3) Any change in the Interest Rate Determination Method shall not be effective unless by 10:00 a.m., New York City time, on the Conversion Date the Company delivers a supplemental Opinion of Bond Counsel to the Trustee stating that under the laws existing on the Conversion Date the conversion to the other Rate will not cause the interest on the Bonds to be included in gross income for federal income tax purposes. 103 57. [2.04(a)] (4) Notwithstanding any other provision of the Indenture, after the Interest Rate Determination Method is changed to the Fixed Rate, such method may not thereafter be changed and such Fixed Rate shall be the rate of interest on the Bonds from the Fixed Rate Conversion Date until the Maturity Date. (b) Upon receipt of a Conversion Notice from the Company, the Trustee shall no later than twenty-five (25) days (if the Bonds then bear interest at a Weekly Rate, Money Market Rate or Semi-Annual Rate) or thirty (30) days (if the Bonds then bear interest at a Medium-Term Rate) prior to the Conversion Date give notice by mail to the Bondowners, which notice shall state in substance: [2.04(b)] (1) that the interest rate on the Bonds shall be converted to a Weekly Rate, a Semi-Annual Rate, a Medium-Term Rate, a Money Market Municipal Rate or the Fixed Rate, as the case may be; [2.04(b)] (2) the Conversion Date; [2.04(b)] (3) if applicable, that the Company has delivered to the Trustee an Opinion of Bond Counsel stating that under the statutes and court decisions existing on the date of the Conversion Notice, the conversion of the interest rate on the Bonds to the applicable rate will not cause the interest on the Bonds to be included in gross income for federal income tax purposes; [2.04(b)] (4) if applicable, that the interest rate on the Bonds shall not be converted unless the Company delivers to the Trustee on the applicable Conversion Date a supplemental Opinion of Bond Counsel stating that under the statutes and court decisions existing on the Conversion Date, (A) the conversion of the interest rate on the Bonds will not cause the interest on the Bonds to be included in gross income for federal income tax purposes; and (B) the rate to be in effect after the conversion does not exceed the maximum rate permitted by the Indenture and by applicable law; provided, however, that if the Company fails to deliver such supplemental Opinion of Bond Counsel on such date, the interest rate on the Bonds shall not be converted on the applicable Conversion Date, and all Bonds tendered (or deemed to have been tendered) for purchase shall not be purchased on the applicable Conversion Date as provided herein and the Bonds shall continue to bear interest in accordance with the Interest Rate Determination Method in effect prior to the proposed Conversion Date; 104 58. [2.04(b)] (5) that all Bonds (or portions thereof in authorized denominations) tendered (or deemed to have been tendered) for purchase by the owners thereof shall be purchased on the applicable Conversion Date at the Purchase Price; [2.04(b)] (6) that, to the extent that there shall be on deposit with the Tender Agent, the Paying Agent or the Trustee on or before the applicable Conversion Date an amount of money sufficient to pay the Purchase Price thereof, all Bonds, whether or not actually delivered for purchase on such date, shall be deemed to have been properly tendered for purchase and shall cease to constitute or represent a right on behalf of the owner thereof to the payment of principal and/or interest thereon and shall represent and constitute only the right to payment of the Purchase Price thereof, without interest accruing thereon, on deposit with the Tender Agent, the Paying Agent or the Trustee; [2.04(b)] (7) the name of the Tender Agent and the address of the principal office of the Tender Agent; [2.04(b)] (8) that, if the conversion is to a Fixed Rate, the Letter of Credit will expire no later than the close of business on the first Business Day following the applicable Fixed Rate Conversion Date; [2.04(b)] (9) that, in the case of conversion to the Fixed Rate, the rating assigned by the Rating Agency then rating the Bonds, if any, to the Bonds, either may be or is expected to be lowered or eliminated as a result of such conversion; [2.04(b)] (10) that, if the conversion is to the Fixed Rate, from and after the Fixed Rate Conversion Date, the Bonds will no longer be subject to purchase as provided in Section 2.05 or, if the conversion is to a Medium-Term Rate, the Bonds will not be subject to tender until the expiration of the applicable Rate Period; and [2.04(b)] (11) that, if the conversion is to a Medium-Term Rate Period of greater than three years duration, the short term rating, if any, assigned by any Rating Agency to the Bonds will be withdrawn as a result of such conversion. [2.04] (c) If the Company fails to deliver to the Trustee by 10:00 a.m. New York City time on the Conversion Date, the supplemental Opinion of Bond Counsel as and if required by subsection (a) of this Section, the interest rate on the Bonds 105 59. shall not be converted to the Weekly Rate, Semi-Annual Rate, Medium-Term Rate, Money Market Municipal Rate or Fixed Rate on the Conversion Date, as the case may be, and Bonds tendered (or deemed to have been tendered) for purchase on the Conversion Date shall not be purchased on the Conversion Date and the Bonds shall continue to bear interest at the rate determined in accordance with the Interest Rate Determination Method in effect prior to the proposed Conversion Date. In such event, all rights of the Authority, the Trustee and the Company hereunder shall continue as if no such proceedings for the conversion of the interest rate on the Bonds had been taken and the Bonds shall be available for remarketing under Section 2.06. The Trustee shall promptly notify the Authority and the Bondowners by mail (and shall promptly notify the Tender Agent, the Paying Agent, the Bank and the Remarketing Agents by telephone) in the event that the interest rate on the Bonds is not converted on the Conversion Date as provided herein. [2.04] (d) Failure to mail the notice described in subsection (a) or (b), or any defect therein, shall not affect the validity of any interest rate or change in the Interest Rate Determination Method on any of the Bonds or extend the period for tendering any of the Bonds for purchase, and the Trustee shall not be liable to any Bondowner by reason of its failure to mail such notice or any defect therein. [2.04] (e) The Letter of Credit shall not be available to pay the principal or Purchase Price of or interest on any Bonds after the earlier of the first Business Day following the Fixed Rate Conversion Date or the date a drawing is made under the Letter of Credit in connection therewith. The Letter of Credit shall be returned to the Bank for cancellation promptly upon the expiration thereof on or after such Fixed Rate Conversion Date. Section 2.05. Optional and Mandatory Tender of Bonds for Purchase. (a) During any Weekly Rate Period, the owners of the Bonds shall have the right to tender any Bond (or portion thereof in an authorized denomination) to the Tender Agent for purchase on any Optional Tender Date, but only upon: (1) giving or delivery to the Tender Agent at its principal office, on a Business Day, not later than the seventh calendar day prior to the Optional Tender Date, of a written or telephonic notice, confirmed in writing, which states (i) the number and aggregate principal amount of each Bond to be purchased and (ii) that such Bond (or portion thereof in an authorized denomination) shall be purchased on such Optional Tender Date pursuant to the Indenture; and 106 60. (2) delivery of such Bond (with an appropriate instrument of transfer duly executed in blank) to the Tender Agent at its principal office at or prior to 12:00 noon, New York City time, on such Optional Tender Date; provided, however, that no Bond (or portion thereof in an authorized denomination) shall be purchased unless the Bond so delivered to the Tender Agent shall conform in all respects to the description thereof in the aforesaid notice. Any election of a Bondowner to tender a Bond (or portion thereof as aforesaid) for purchase on the Optional Tender Date in accordance with this subsection (a) shall be irrevocable and shall be binding on the Bondowner making such election and on any transferee of such Bondowner and any Bond with respect to which such an election has been made which is not properly delivered by the owner thereof to the Tender Agent shall be deemed to have been properly tendered to the Tender Agent, and, to the extent that there shall be on deposit with the Tender Agent on or before the Optional Tender Date, an amount sufficient to pay the Purchase Price thereof, such Bond shall cease to constitute or represent a right to payment of principal or interest thereon and shall constitute and represent only the right to payment of the Purchase Price payable on such date. [2.05] (b) During any Semi-Annual Rate Period, the owners of the Bonds shall have the right to tender any Bond (or portion thereof in an authorized denomination) to the Tender Agent for purchase on any Optional Tender Date prior to a Conversion Date, but only upon: (1) giving or delivery to the Tender Agent at its principal office, not earlier than the thirtieth calendar day and not later than the fifteenth calendar day next preceding such Optional Tender Date of a written or telephonic notice confirmed in writing which states (i) the number and aggregate principal amount of each Bond to be purchased and (ii) that such Bond (or portion thereof in an authorized denomination) shall be purchased on such Optional Tender Date pursuant to the Indenture; and (2) the delivery of such Bond (with an appropriate instrument of transfer duly executed in blank) to the Tender Agent at its principal office at or prior to 12:00 noon, New York City time, on such Optional Tender Date; provided, however, that no Bond (or portion thereof in an authorized denomination) shall be purchased unless the Bond so delivered to the Tender Agent shall conform in all respects to the description thereof in the aforesaid notice. 107 61. Any election of a Bondowner to tender a Bond (or portion thereof as aforesaid) for purchase on the Optional Tender Date in accordance with this subsection (b) shall be irrevocable and shall be binding on the Bondowner making such election and on any transferee of such Bondowner and any Bond with respect to which such an election has been made which is not properly delivered by the owner thereof to the Tender Agent shall be deemed to have been properly tendered to the Tender Agent, and, to the extent, that there shall be on deposit with the Tender Agent on or before the Optional Tender Date, an amount sufficient to pay the Purchase Price thereof, such Bond shall cease to constitute or represent a right to payment of principal or interest thereon and shall constitute and represent only the right to payment of the Purchase Price payable on such date. [2.05] (c) The Tender Agent shall give the Trustee, the Company, the Remarketing Agents, the Paying Agent and the Bank prompt notice by telephone confirmed promptly in writing of the receipt of any notice in accordance with clause (1) of subsection (a) or (b) above. During any Semi-Annual Rate Period, the Trustee shall give notice by mail to Bondowners not more than forty-five or less than thirty calendar days before each Optional Tender Date, which notice shall state in substance: (i) the next Optional Tender Date, and (ii) that the Bonds are subject to tender at the option of the owner thereof in the manner set forth in subsection (b) of this section. [2.05] (d) All Bonds are subject to mandatory tender and purchase on each Conversion Date and each Medium-Term Adjustment Date. [2.05] (e) All Bonds shall be subject to mandatory tender and purchase on each Mandatory Purchase Date unless the owner exercises his or her right to retain the Bonds (in certain circumstances) pursuant to this subsection (e) as hereinafter provided: [2.05(e)] (1) The owners of the Bonds shall tender all Bonds (with appropriate instruments of transfer duly executed in blank) to the Tender Agent at its principal office for purchase on the applicable Mandatory Purchase Date, which date shall be established pursuant to clause (iii) of paragraph (2) of this subsection (e), at the Purchase Price due on such Mandatory Purchase Date. A Mandatory Purchase Date shall be established for the Bonds if: (A) The Company fails to deliver to the Trustee on or prior to the thirty-seventh calendar day next preceding the effective date of an Alternate Credit Facility 108 62. (including, without limitation, any Alternate Credit Facility issued as contemplated by (B) below) (i) such Alternate Credit Facility, (ii) an Opinion of Bond Counsel as described in Section 6.07.2(b) and (iii) if applicable, written evidence as described in Section 6.07.2(c); or (B) The Company fails to deliver to the Trustee on or prior to the thirty-seventh calendar day next preceding the scheduled expiration date of the Letter of Credit then in effect either (i) written evidence that the Letter of Credit then in effect will be extended or renewed for a period of at least one year beyond such expiration date and will end not sooner than the second Business Day following the Interest Payment Date for such Interest Period or (ii) the items set forth in Section 6.07.2(a), (b) and, if applicable, (c). [2.05(e)] (2) Upon the Bonds becoming subject to mandatory tender for purchase as provided in clause (1) above, the Trustee shall within five (5) calendar days give telephonic notice to the Remarketing Agents, the Authority and the Tender Agent and give notice by mail to the Bondowners, which notice shall state in substance: (i) the name of the bank issuing the Alternate Credit Facility, if any, and the effective date thereof; (ii) the Optional Retention Date, if applicable; (iii) the Mandatory Purchase Date, which in the case of (1)(A) above shall be the effective date of the Alternate Credit Facility, or, if no Alternate Credit Facility is delivered to the Trustee, the twentieth calendar day next preceding the scheduled expiration date of the Letter of Credit and in the case of (1)(B) above shall be a date that is two Business Days prior to such expiration date; (iv) in the case of (1)(A) above, that in connection with the issuance of the Alternate Credit Facility, the Trustee has not received a letter from the Rating Agency then rating the Bonds stating that such Rating Agency has reviewed the terms of the Alternate Credit Facility and the bank issuing the same and that issuance of the Alternate Credit Facility for the benefit of the Bondowners will not result in a lowering of the rating then assigned by such Rating Agency to the Bonds; 109 63. (v) in the case of (1)(B) above, that the Letter of Credit will expire no later than the close of business on the second Business Day following the Mandatory Purchase Date; (vi) if the Bonds are then rated, that the rating assigned by the Rating Agency to the Bonds may be lowered or eliminated as a result of the issuance of the Alternate Credit Facility, in the case of (1)(A) above, or as a result of the expiration of the Letter of Credit, in the case of (1)(B) above; (vii) that all Bonds (or portions thereof in authorized denominations) tendered shall be purchased on the Mandatory Purchase Date at the applicable Purchase Price; (viii) that, to the extent that there shall be on deposit with the Tender Agent, the Paying Agent or the Trustee on or before the Mandatory Purchase Date an amount of money sufficient to pay the Purchase Price thereof, all Bonds, whether or not actually delivered for purchase on such date, (or portions thereof in authorized denominations) not delivered to the Tender Agent on the Optional Retention Date shall be deemed to have been properly tendered for purchase and shall cease to constitute or represent a right on behalf of the owner thereof to the payment of principal and/or interest thereon and shall represent and constitute only the right to payment of the Purchase Price thereof, without interest accruing thereon, on deposit with the Tender Agent, the Paying Agent or the Trustee; provided that Bonds (or portions thereof in authorized denominations) the owner of which shall have elected to retain and not to tender in accordance with clause (4) below shall not be deemed to have been tendered for purchase and shall constitute and continue to represent the right of the owner thereof to payment of principal and interest, if any, thereon in accordance with the terms of such Bond; and (ix) the name of the Tender Agent and the address of the principal office of the Tender Agent. [2.05(e)] (3) Failure to mail the notice described in clause (2) or any defect therein, shall not extend the period for tendering any of the Bonds for purchase, and the Trustee shall not be liable to any Bondowner by reason of its failure to mail such notice or any defect therein. [2.05(e)] (4) The Bonds shall be tendered for purchase as provided in this subsection (e), except for any Bond or Bonds (or portions thereof in authorized denominations) the owner of which shall deliver to the Tender Agent at its principal office no later than the applicable Optional Retention Notice Date, a written notice, substantially in the form of EXHIBIT B to the Indenture, 110 64. appropriately completed; provided that such owners shall have the right to retain only those Bonds to be secured by a Letter of Credit meeting the requirements of Section 4.12 of the Participation Agreement following the Mandatory Purchase Date and any Bonds not meeting those requirements shall be deemed tendered and shall be subject to subsection (f) of this Section notwithstanding any election to retain such Bonds; provided, however, that the expiry of the Letter of Credit shall be automatically extended until such date as all Bonds are tendered by the owners thereof (or deemed tendered hereunder) and a Redemption/Mandatory Purchase Drawing (as defined in the Letter of Credit) has been made under the Letter of Credit. [2.05] (f) Any election by a Bondowner to retain any Bond (or portion thereof in an authorized denomination) and not to tender such Bond (or portion thereof in an authorized denomination) for purchase on an Optional Retention Date in accordance with subsection (e), shall be irrevocable and shall be binding on the Bondowner making such election and on any transferee of such Bondowner. If a Bondowner fails to give notice of such an election with respect to any Bond (or portion thereof in an authorized denomination) on the applicable Optional Retention Notice Date and thereafter fails to deliver such Bond to the Tender Agent on or before the applicable Optional Retention Date, such Bond (or portion thereof in an authorized denomination) which is not delivered to the Tender Agent shall be deemed to have been properly tendered to the Tender Agent (such Bond being hereinafter referred to as an "Untendered Bond"), and, to the extent that there shall be on deposit with the Tender Agent on or before the Purchase Date, an amount sufficient to pay the Purchase Price thereof, such Untendered Bond shall cease to constitute or represent a right to payment of principal or interest thereon and shall constitute and represent only the right to the payment of Purchase Price payable on such date. The foregoing shall not limit the entitlement of any Bondowner on any Record Date to receipt of interest due on such date unless such interest is paid as part of Purchase Price. The Tender Agent will inform the Remarketing Agents and the Trustee by telephone promptly after the applicable Optional Retention Notice Date of the principal amount of Bonds which will be tendered or deemed to have been tendered on the applicable Optional Retention Date. [2.05] (g) During any Money Market Municipal Rate Period, each Bond shall be subject to mandatory tender for purchase on the Business Day immediately following each Calculation Period, at a price equal to the principal amount thereof. Owners of such Bonds shall have no right to elect to retain such Bonds. 111 65. [2.05] (h) On each Optional Tender Date and Purchase Date, there shall be purchased (but solely from funds received by the Tender Agent in accordance with the terms hereof) the Bond or Bonds (or portions thereof in authorized denominations) tendered (or deemed to have been tendered) to the Tender Agent for purchase in accordance with this Section at the applicable Purchase Price. Funds for the payment of the Purchase Price of such Bond or Bonds (or portions thereof in authorized denominations) shall be paid by the Tender Agent solely from the following sources and in the following order of priority: (i) moneys drawn under the Letter of Credit by the Trustee pursuant to Section 6.07.1; (ii) proceeds of the remarketing of such Bond or Bonds (or portions thereof in authorized denominations) pursuant to Section 2.06 which have been transferred to the Tender Agent pursuant to said Section; and (iii) any other moneys furnished by the Company for purchase of Bonds. The Trustee shall draw moneys under the Letter of Credit for the payment of Purchase Price to the extent that moneys are obtainable thereunder, and moneys described under clauses (ii) and (iii) above shall be used for payment of Purchase Price only to the extent that sufficient moneys are not obtainable under the Letter of Credit. To the extent that moneys drawn under the Letter of Credit have been used for payment of Purchase Price, moneys described under clause (ii) above may be paid to the Bank upon reinstatement of the related amount under the Letter of Credit. Bonds (or portions thereof in authorized denominations) purchased as provided above shall be delivered as provided in Section 2.07. The Tender Agent shall hold any such moneys, uninvested, in trust for the purposes set forth in the Indenture. [2.05] (i) The owners of the Bonds shall not have the right or be required, as the case may be, to tender any Bond or Bonds (or portions thereof in authorized denominations) for purchase on any Optional Tender Date or the Optional Retention Date, if on any such date an Event of Default under Section 10.01(f) or (g) shall have occurred and be continuing hereunder with respect to the Bonds. [2.05] (j) All Bonds shall be subject to mandatory tender and purchase, with no right of owners to retain Bonds, upon a date established by the Trustee after receipt by the Trustee and the Tender Agent of a written notice from the Bank of the occurrence 112 66. and continuance of an event that would constitute an Event of Default pursuant to Section 10.01(f) or (g) except that the Bank shall have directed mandatory tender and purchase pursuant to this provision rather than acceleration of the Bonds; provided, however, that in the case of any event that would constitute an Event of Default pursuant to Section 10.01(g) such notice must have been received on or before the tenth calendar day after a drawing under the Letter of Credit in respect of interest on the Bonds. Upon receipt of such notice, the Trustee (i) within two Business Days shall give notice thereof to the Authority, the Company, the Tender Agent, the Remarketing Agents, and the Bank, (ii) within two Business Days shall select a date (occurring on or before the tenth day next succeeding the Trustee's receipt of such notice, which date shall be a Business Day) for the mandatory tender and purchase of the Bonds, and (iii) within three Business Days shall give notice by mail to all Bondowners, which shall include the circumstances leading to mandatory tender and purchase, the absence of any right to retain Bonds, the date set therefor and directions for the tender and purchase of such Bonds. On the date selected by the Trustee, all Bonds shall be tendered by the owners thereof in exchange for the Purchase Price thereof. Any Bonds not tendered by the owners thereof shall be deemed tendered and interest shall cease to accrue on such Bonds. [2.05] (k) In the event that any Bond is subject at any time to tender and purchase pursuant to more than one provision of the Indenture, provisions relating to the timing of notices of options to retain Bonds and options to tender Bonds and the irrevocability of certain actions and notices shall be interpreted as though only one such tender and purchase provision applied to such Bond to the extent that such interpretation will prevent a conflict between such provisions. For purposes of the foregoing sentence, a mandatory tender provision without a right of owners to retain Bonds shall take precedence over all other tender provisions, and a mandatory tender provision shall take precedence over any optional tender provision. [2.05] (l) If an agreement with a Securities Depository as described in Section 2.11 hereof is then in effect, tenders of Bonds shall be governed by the procedures of such Securities Depository as may be set forth in or described in an agreement between the Authority and such Securities Depository. The Depository Trust Company ("DTC") shall act as Securities Depository for the Bonds upon the initial issuance of the Bonds. So long as the Bonds are held in the DTC book-entry-only system, tenders of Bonds shall be governed by the DTC procedures described in the DTC Letter of Representations, which is hereby incorporated by reference. 113 67. Section 2.06. Remarketing of Bonds. (a) Upon receipt of any notice given pursuant to Section 2.05 that any Bonds will be or are required to be tendered for purchase in accordance with Section 2.05, the Remarketing Agents shall use their best efforts to remarket such Bonds (or portions thereof in authorized denominations) on any Optional Tender Date or Purchase Date at the Purchase Price. By 2:00 p.m., New York City time, on the Business Day prior to each Optional Tender Date or Purchase Date, the Remarketing Agents shall give notice by telecopy or telephone (confirmed in writing) of the principal amount of such Bonds (or portions thereof in authorized denominations) and the registration information concerning the new Bondowners, for which they have arranged a remarketing and for which the Remarketing Agents hold remarketing proceeds on hand, to the Trustee, the Tender Agent, the Paying Agent and the Bank and, by 12:00 noon, New York City time, on each Optional Tender Date or Purchase Date shall transfer to the Tender Agent the proceeds of the remarketing of such Bonds for delivery to the Bank upon verification that sufficient amounts relating to such Bonds have been paid under the Letter of Credit and upon reinstatement of the related amount under the Letter of Credit. [2.06] (b) In remarketing any Bonds tendered for purchase pursuant to the Indenture, the Remarketing Agents shall determine, in accordance with Section 2.03, the Semi-Annual Rate, the Weekly Rate, the Medium-Term Rate, the Money Market Municipal Rate or the Fixed Rate, as the case may be, on the Bonds. [2.06] (c) The Remarketing Agents shall not remarket any Bonds pursuant to this Section if they have received written notice from the Trustee that an Event of Default (other than an Event of Default set forth in Section 6.01(d) of the Participation Agreement) shall have occurred and be continuing hereunder with respect to the Bonds. [2.06] (d) The Remarketing Agents shall not knowingly remarket any Bonds to the Company or any of its Affiliates or to the Authority pursuant to this Section prior to the expiration or earlier termination of the Letter of Credit unless, prior to such remarketing, the Trustee and the Remarketing Agents shall have received an unqualified Opinion of Bond Counsel experienced in bankruptcy matters and satisfactory to the Trustee and to Moody's, if Moody's shall then be rating the Bonds, to the effect that such remarketing would not result in a preferential payment pursuant to the provisions of Section 547 of the United States Bankruptcy Code, 11 U.S.C. Section Section 101, et seq. [2.06] (e) The Remarketing Agents may remarket any Bonds tendered for purchase as provided in Section 2.05(e) only if 114 68. (1) the Company delivers to the Trustee a Letter of Credit and the requirements of Section 4.12 of the Participation Agreement have been met or (2) the Company changes the Interest Rate Determination Method to the Fixed Rate in accordance with Section 2.04. The Remarketing Agents may remarket any Bonds tendered for purchase as provided in Section 2.05(j) only if the Trustee and Remarketing Agents have received notice from the Bank that the event referred to in the written notice from the Bank delivered under Section 2.05(j) has been cured or waived and the Letter of Credit has been reinstated in full. [2.06] (f) The Remarketing Agents, with respect to any Bond for which a redemption date has been established and which the Remarketing Agents are attempting to remarket, shall provide to any purchaser notice of the applicable redemption terms at the time of or before purchase by such purchaser. [2.06] (g) The Tender Agent, with respect to any Bond for which the Tender Agent or Trustee has received notification from the Remarketing Agent that it has found a purchaser or purchasers to whom the Remarketing Agent can remarket Bonds tendered for purchase, shall so notify the Bank in writing. Section 2.07. Delivery of Purchased Bonds. (a) Bonds (or portions thereof in authorized denominations) purchased pursuant to Section 2.05 (other than on a Fixed Rate Conversion Date) shall be delivered as follows: [2.07(a)] (i) Bonds (or portions thereof in authorized denominations) purchased with moneys described in clause (i) (to the extent that the Trustee has received notice of reinstatement of the Letter of Credit in an amount equal to the Purchase Price of the Bonds and has so notified the Tender Agent) and in clause (ii) of Section 2.05(h) shall be delivered by the Tender Agent to the purchasers thereof upon receipt of payment thereof. Prior to such delivery, the Tender Agent shall surrender such Bonds, if so requested by the purchasers thereof, to the Trustee for registration of transfer. Bonds, portions of which in authorized denominations shall have been purchased with such moneys, shall be surrendered by the Tender Agent to the Trustee for registration of transfer with respect to principal amounts thereof so purchased and for registration of transfer with respect to the principal amounts thereof not so purchased as provided in clause (ii) below or for cancellation as provided in clause (iii) below; [2.07(a)] (ii) Bonds (or portions thereof in authorized denominations), any portion of the Purchase Price of which 115 69. shall have been paid with moneys drawn under the Letter of Credit, shall, if and to the extent that the Trustee has not received notice of reinstatement of the Letter of Credit in an amount equal to the Purchase Price of the Bonds (or portion thereof), be surrendered by the Tender Agent to the Trustee for registration of transfer to the Company and upon such registration of transfer, the Bonds issued in respect thereof shall be delivered to and held by the Tender Agent for the account of the Company and shall not be released, pledged or otherwise transferred or disposed of unless prior to or simultaneously with the release of the Bonds by the Tender Agent to the Remarketing Agents for remarketing, the amount to be drawn under the Letter of Credit shall have been correspondingly reinstated and written notice of such reinstatement shall have been delivered by the Trustee or the Bank to the Tender Agent, or in the case of a purchase pursuant to Section 2.05(e), an Alternate Credit Facility meeting the requirements of Section 6.07 has been provided; provided, further, that, upon receipt by the Tender Agent of either (A) notice of the establishment of a Mandatory Purchase Date pursuant to Section 2.05(e) or (B) notice from the Bank directing mandatory tender and purchase of the Bonds pursuant to Section 2.05(j), then any Bonds theretofore or thereafter purchased with such moneys drawn under the Letter of Credit shall be surrendered by the Tender Agent to the Trustee for registration of transfer to the Bank and upon such registration of transfer, the Bonds issued in respect thereof shall be delivered to and held by the Tender Agent for the account of the Bank and shall not be released, pledged or otherwise transferred or disposed of (except to the Bank) other than in accordance with the Remarketing Agreement, and the Tender Agent shall notify the Bank that it is holding such Bonds for the Bank's account; and [2.07(a)] (iii) Bonds (or portions thereof in authorized denominations) purchased with any other moneys pursuant to Section 2.05(h) shall be delivered to the Trustee for cancellation as to the principal amount thereof so purchased and for registration of transfer and delivery pursuant to (i) or (ii) above as to the remainder thereof. [2.07] (b) Bonds (or portions thereof in authorized denominations) purchased pursuant to Section 2.05(d)(1) (only insofar as such subsection relates to a Fixed Rate Conversion Date) shall be delivered to the Trustee for cancellation and Bonds shall be issued in exchange therefor in accordance with Section 2.03(k), which shall be delivered: (i) to the purchasers thereof, with respect to the Bonds (or portions thereof in authorized denominations) purchased with moneys described in 116 70. Section 2.07(a)(i) or (ii) to the Tender Agent, with respect to Bonds (or portions thereof in authorized denominations) purchased with moneys as described in Section 2.07(a)(ii) and shall be held for the account of the Company, except as otherwise provided in such Section 2.07(a)(ii), will not be entitled to the benefits of the Letter of Credit and shall (x) have a legend stating "This Bond is not entitled to the benefits of the Letter of Credit referred to herein", affixed thereto by the Tender Agent until released and delivered pursuant to the following paragraph (c), and (y) shall be held by the Tender Agent and shall be disposed of solely pursuant to the terms of the following clause (c). Bonds so purchased with any other moneys shall be delivered to the Trustee for cancellation and no replacement Bonds shall be issued in respect thereof. [2.07] (c) The Tender Agent shall authenticate and deliver new Bonds in replacement of any Bonds held pursuant to the preceding clause (ii) to or upon the order of the Remarketing Agents, only upon receipt by the Tender Agent from any Person other than the Company following any remarketing of such new Bonds of payment in immediately available funds in respect of the principal amount of such Bonds (including accrued interest, if any). Such funds shall be received by the Tender Agent solely for the account of the Bank and shall be promptly transmitted to or upon the written order of the Bank. Upon such delivery, such Bonds shall be entitled to the benefits of the Letter of Credit. Section 2.08. Mutilated, Lost, Stolen or Destroyed Bonds. In the event any outstanding Bond, whether temporary or definitive, is mutilated, lost, stolen or destroyed, the Authority may execute and, upon its request, the Trustee may authenticate a new Bond of like tenor as the mutilated, lost, stolen or destroyed Bond; provided that, in the case of any mutilated Bond, such mutilated Bond shall first be surrendered to the Trustee, and in the case of any lost, stolen or destroyed Bond, there shall be first furnished to the Trustee evidence of the ownership thereof and of such loss, theft or destruction in form satisfactory to the Trustee, together with an indemnity satisfactory to it which indemnity shall name the Authority as an additional indemnified party. In the event any such Bond shall have matured, instead of issuing a substitute Bond the Authority may authorize the payment of the same. The Authority and the Trustee may charge the owner of such Bond with their reasonable fees and expenses in this connection. Any Bond issued under the provisions of this Section in lieu of any Bond alleged to be destroyed, lost or stolen shall constitute an original additional contractual obligation on the part of the Authority, whether or not the Bond so alleged to be destroyed, lost or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of the Indenture with all other Bonds issued hereunder to the same 117 71. extent as the Bonds in substitution for which such Bonds were issued. Section 2.09. Temporary Bonds. Until Bonds in definitive form are ready for delivery, the Authority may execute, and upon its request in writing, the Trustee shall authenticate and deliver in lieu of any thereof, and subject to the same provisions, limitations, and conditions, one or more printed, lithographed or typewritten Bonds in temporary form, substantially of the tenor of the Bonds hereinbefore described, and with appropriate omissions, variations and insertions. Bonds in temporary form will be for such principal amounts as the Authority shall determine. Until exchanged for Bonds in definitive form, such Bonds in temporary form shall be entitled to the security and benefit of the Indenture. The Authority shall, without unreasonable delay, prepare, execute and deliver to the Trustee, and thereupon, upon the presentation and surrender of the Bond or Bonds in temporary form to the Trustee at the Corporate Trust Office, the Trustee shall authenticate and deliver, in exchange therefor, a Bond or Bonds, in definitive form in the authorized denomination, and for the same principal amount, as the Bond or Bonds in temporary form surrendered. Such exchange shall be made without making any charge to the Bondowners therefor. Section 2.10. Execution of Bonds; Effect of Change of Officers. All the Bonds shall, from time to time, be executed on behalf of the Authority by, or bear the facsimile signature of, its Chair, Vice Chair, President or Treasurer, and its corporate seal (which may be facsimile) shall be thereunto affixed (or imprinted or engraved if facsimile) and attested by the signature of its Secretary or an Assistant Secretary (which may be facsimile). If any of the officers who shall have signed or sealed any of the Bonds or whose facsimile signature shall be upon the Bonds shall cease to be such officer of the Authority before the Bonds so signed and sealed shall have been actually authenticated by the Trustee or delivered by the Authority, such Bonds nevertheless may be authenticated, issued and delivered with the same force and effect as though the person or persons who signed or sealed such Bonds or whose facsimile signature shall be upon the Bonds had not ceased to be such officer or officers of the Authority; and also any such Bond may be signed and sealed on behalf of the Authority by those persons who at the actual date of the execution of such Bond shall be the proper officers of the Authority, although at the date of such Bond any such person shall not have been such officer of the Authority. Section 2.11. Registration of Bonds; Transfers; Securities Depository. (a) All the Bonds issued under the 118 72. Indenture shall be negotiable, subject to the provisions for registration of transfer contained in the Indenture and in the Bonds. The Trustee shall be the registrar for the Bonds. So long as any of the Bonds shall remain outstanding, the Trustee shall maintain and keep at its Corporate Trust Office the Bond Register for the registration of transfer of Bonds. Upon presentation thereof for such purpose at said office, the Trustee shall register or cause to be registered therein under such reasonable regulations as it may prescribe, the transfer of any Bond. The registration of transfer of any Bond shall be made only upon the Bond Register at such Corporate Trust Office at the written request of the Registered Owner thereof or his or her representative duly authorized in writing, upon surrender thereof, together with a written instrument of transfer satisfactory to the Trustee duly executed by the Registered Owner or his or her representative duly authorized in writing. Upon the registration of transfer of any Bond, the Authority shall issue in the name of the transferee, in authorized denominations, one or more Bonds of the same aggregate principal amount as the surrendered Bonds. The Trustee shall not register any transfer of any Bond (or portion thereof), except pursuant to Bondowner tender, after notice calling such Bond (or portion thereof) for redemption or partial redemption has been given and prior to such redemption. In connection with any such transfer pursuant to Bondowner tender, the Trustee shall deliver to the transferee a copy of the applicable call for redemption. The Trustee or the Tender Agent shall, in addition, authenticate and register in the name and in the manner directed by the recipient thereof Bonds in replacement for Bonds deemed to be tendered for purchase pursuant to Section 2.05 for delivery in accordance therewith. [2.11] (b) DTC shall act as Securities Depository for the Bonds upon the initial issuance of the Bonds. The ownership of one fully registered Bond in the aggregate principal amount of the Bonds shall be registered in the name of Cede & Co., as nominee of DTC. Each such Bond shall be held in trust until its redemption or until such time as DTC or its nominee is no longer the Registered Owner of the Bonds, as provided below. For so long as the Bonds are held in a book-entry-only system and so long as a Securities Depository or its nominee is the Registered Owner of the Bonds, references herein to the Bondowners or Registered Owners of the Bonds shall mean such Securities Depository or its nominee and shall not mean the beneficial owners ("Beneficial Owners") of the Bonds. For so long as a Securities 119 73. Depository or its nominee is the Registered Owner of the Bonds, principal, Purchase Price, redemption price, including premium, if any, and interest payments on the Bonds shall be made to such Securities Depository or its nominee, as Registered Owner of the Bonds, and the Authority and the Trustee shall recognize such Securities Depository or its nominee as the Bondowner for all purposes, and such Securities Depository or its nominee shall be considered the only owner of such Bonds for all purposes, including receipt of notice, voting and requesting or directing the Trustee, the Remarketing Agents, the Paying Agent, the Tender Agent or any other fiduciary to take or not to take any action under the Indenture. Conveyance of notices and other communications by a Securities Depository to Beneficial Owners will be governed by arrangements among them, subject to any statutory and regulatory requirements as may be in effect from time to time. THE AUTHORITY, THE COMPANY, THE TRUSTEE, THE PAYING AGENT AND THE REMARKETING AGENTS WILL NOT HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY A SECURITIES DEPOSITORY; (II) THE PAYMENT BY A SECURITIES DEPOSITORY OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL, PURCHASE PRICE, INCLUDING PREMIUM, IF ANY, OR INTEREST ON THE BONDS; (III) ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO BENEFICIAL OWNERS OR (IV) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY A SECURITIES DEPOSITORY OR ITS NOMINEE AS BONDOWNER. The Authority may elect to discontinue such book-entry-only system and upon the discontinuance of such book-entry-only system, Bond certificates are required to be delivered in physical and registered form to the Bondowners or their designees, according to the terms of the Indenture. Upon the institution of any Rate Period after such discontinuance, the Authority upon the direction of the Company may direct that the Bonds shall be held as book-entry-only Bonds by notification to the Trustee, the Paying Agent, Tender Agent and the Remarketing Agents of its intention to reinstitute the book-entry-only system. Upon receipt of such notice, the Trustee shall notify owners of such Bonds that such Bonds shall be registered in a book-entry-only system with DTC or its nominee or such alternative Securities Depository as the Authority shall appoint. Upon or before the date specified in such notice, such owners shall surrender their Bond certificates to the Trustee or Tender Agent to have their beneficial ownership interest in the Bonds registered under the book-entry-only system described herein. If any Bondowner fails to surrender any such certificate to the Trustee or Tender Agent, such Bondowner shall remain the Registered Owner of such Bond; provided, however, that such Registered Owner shall have no right to transfer or tender such 120 74. Bond without first surrendering such Bond for registry in the book-entry-only system. If, during any period that a Securities Depository, including DTC or its nominee, is the Registered Owner of the Bonds, (a) such Securities Depository determines to discontinue providing its service with respect to the Bonds by giving notice to the Authority and the Trustee and discharging its responsibilities with respect thereto under applicable laws, and the Authority fails to appoint a successor Securities Depository for the Bonds, or (b) the Authority at the direction of the Company determines to discontinue the book-entry-only system through such Securities Depository, then Bond certificates are required to be delivered in physical and registered form to the Beneficial Owners or their designees, according to the terms of the Indenture. Each Beneficial Owner, upon delivery of certificates held in the Beneficial Owner's name, will become the Registered Owner of that portion of the Bonds. In the event that the book-entry-only system is discontinued and the Beneficial Owners become Registered Owners of the Bonds, the provisions applicable to such Registered Owners shall apply. In connection with any notice or other communication to be provided to Bondowners pursuant to the Indenture by the Authority or the Trustee with respect to any consent or other action to be taken by Bondowners, the Authority or the Trustee, as the case may be, shall establish a record date for such consent or other action and give the nominee or Securities Depository notice of such record date not less than fifteen calendar days in advance of such record date to the extent possible. The Authority and the Trustee are hereby authorized to enter into any arrangements determined necessary or desirable with any Securities Depository in order to effectuate this Section and both of them shall act in accordance with the Indenture and any such agreement. Without limiting the generality of the foregoing, any such arrangements may alter the manner of effecting delivery of Bonds and the transfer of funds for the payment of Bonds to the Securities Depository. Section 2.12. Persons Treated as Owners. The Authority, the Trustee, the Tender Agent and any Paying Agent may, for all purposes, deem and treat the Registered Owner of any Bond as the absolute owner of such Bond whether or not such Bond is overdue, and neither the Authority nor the Trustee nor the Tender Agent nor any Paying Agent shall be affected by any notice to the contrary. 121 75. Payment made to the Registered Owner of any Bond for the purpose of such payment in accordance with the provisions of this Section 2.12 shall be valid and effectual, to the extent of the sum or sums so paid, to satisfy and discharge the liability upon such Bond in respect of which such payment was made. Section 2.13. Exchange of Bonds. So long as any of the Bonds remain outstanding, the Authority shall make all necessary provisions to permit the exchange of Bonds at the Corporate Trust Office of the Trustee. Bonds, upon surrender thereof at the Corporate Trust Office of the Trustee with a written instrument requesting such exchange satisfactory to the Trustee duly executed by the Registered Owner or his or her representative duly authorized in writing, may be exchanged for an equal aggregate principal amount of Bonds of any other authorized denominations, in an aggregate principal amount equal to the principal amount of the Bonds so surrendered. Section 2.14. Payment For and Limitations on Exchanges and Transfers. In all cases in which the right of exchanging or registering the transfer of Bonds is exercised, the Authority shall execute and the Trustee shall authenticate and deliver Bonds in accordance with the provisions hereof. All Bonds surrendered for registration of transfer or exchange shall forthwith be cancelled by the Trustee. For every such registration of transfer or exchange of Bonds, the Trustee may charge an amount sufficient to reimburse it for any tax, fee or other governmental charge required to be paid with respect to such registration of transfer or exchange which, if not resulting in a change in Bondowner, shall be paid by the Company pursuant to the Participation Agreement. The cost of preparing each new Bond upon each registration of transfer or exchange, and any other expenses (except any applicable tax, fee or other governmental charge) of the Authority or the Trustee incurred in connection with such registration of transfer or exchange shall be paid by the Company pursuant to the Participation Agreement. Section 2.15. Endorsement of Certificate of Authentication on Bonds. No Bond shall be secured hereby or entitled to the benefit of the Indenture or be valid or obligatory for any purpose unless there shall be endorsed on such Bond a certificate of authentication, substantially in the form prescribed in the Indenture, executed by the Trustee or the Tender Agent; and such certificate on any Bond issued by the Authority shall be conclusive evidence and the only competent evidence that such Bond has been duly authenticated and delivered hereunder. The Trustee's certificate of authentication on any Bond shall be deemed to have 122 76. been executed by it if signed by an authorized officer of the Trustee or the Tender Agent, but it shall not be necessary that the same officer sign the certificate of authentication on all of the Bonds issued hereunder. Section 2.16. Cancellation of Bonds. Upon the surrender to the Trustee of any temporary or mutilated Bonds, or Bonds transferred or exchanged for other Bonds, or Bonds paid at maturity or upon defeasance in accordance with Article XIV or otherwise delivered to the Trustee for cancellation, the same shall forthwith be cancelled and may be destroyed by the Trustee in such manner as it deems appropriate and the Trustee shall, if such Bonds are so destroyed, deliver its certificate as to such destruction to the Authority. Section 2.17. Redemption of Bonds. The Bonds shall be subject to optional and mandatory redemption at the times and at the redemption prices set forth in the form of Bonds in the preamble hereto. 123 77. ARTICLE III SECURITY FOR BONDS; ISSUANCE OF BONDS Section 3.01. Pledge and Assignment Effected by Indenture; Bonds Equally and Ratably Secured. In accordance with the provisions of subsection 8 of Section 1860 of the Act, the pledge and assignment effected by the Indenture shall be valid and binding from the date of execution and delivery of the Indenture, the moneys so pledged and assigned and hereafter received by the Authority shall be subject to the lien of such pledge and assignment without any physical delivery thereof or further act, and such lien shall be a continuing, irrevocable and exclusive first lien and shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the Authority irrespective of whether such parties have notice thereof. In addition to the pledges and assignments set forth above, the Authority hereby further grants to the Trustee the same power as the Authority to enforce from time to time the rights of the Authority set forth in Article III and Section 5.16 of the Participation Agreement, subject to the provisions of the Participation Agreement relating to the amendment thereof. All Bonds issued and to be issued hereunder are, and are to be, to the extent provided in the Indenture, equally and ratably secured by the Indenture without preference, priority or distinction on account of the actual time or times of the authentication or delivery of the Bonds, or any of them, so that, subject to the provisions of Section 9.05, all Bonds at any time outstanding hereunder shall have the same right, lien and preference under and by virtue of the Indenture and shall all be equally and ratably secured hereby with like effect as if they had all been executed, authenticated and delivered simultaneously on the date hereof; provided, however, that Bonds registered in the name of the Company or held or required to be held by the Tender Agent pursuant to Section 2.07 shall not be entitled to any benefit of the Letter of Credit. Section 3.02. Issuance of Bonds. The Bonds shall forthwith be executed by the Authority and delivered to the Trustee for authentication and upon the written request and authorization to the Trustee signed by an Authorized Officer the Bonds shall be authenticated by the Trustee or the Tender Agent and shall be delivered to or upon the written order of an Authorized Officer, but only upon the receipt by the Trustee of proceeds (including accrued interest, if any) of sale of the Bonds, of which (i) a sum equal to the accrued interest, if any, paid by the initial purchasers of such Bonds shall be deposited in the Bond Fund and (ii) the balance thereof shall be deposited in the Construction Account of the Project Fund. Prior to, or simultaneously with, the 124 78. authentication and delivery of the Bonds, the Trustee shall also receive the following: (a) A copy, certified by the Secretary of the Authority, of the resolution or resolutions adopted by the Authority authorizing the execution and delivery of the Indenture and the Participation Agreement and the issuance, sale, execution and delivery of the Bonds; (b) An original executed counterpart of the Participation Agreement and the Indenture; (c) The Company Note; (d) The Letter of Credit; (e) A copy of resolutions authorizing the execution and delivery of the Participation Agreement, and the issuance, execution and delivery of the Company Note, by the Company, certified by the Secretary or an Assistant Secretary of the Company, under its corporate seal, to have been duly adopted by the Board of Directors of the Company, or the Executive and Finance Committee thereof, and to be in full force and effect on the date of such certification; (f) A copy of the opinion of counsel to the Company delivered to the initial purchasers of the Bonds, together with a letter to the effect that the Trustee may rely on such opinion as if it were addressed to it; (g) An opinion of counsel, who shall be satisfactory to the Trustee, experienced in laws relating to the issuance of bonds of states and their political subdivisions, to the effect that the issuance of the Bonds has been duly authorized and that all conditions precedent to the issuance thereof have been fulfilled; and (h) A copy of an opinion of counsel to the Bank to the effect that the Letter of Credit has been duly authorized, executed and delivered and is a valid and binding obligation of the Bank, together with a letter to the effect that the Trustee may rely on such opinion as if it were addressed to it. 125 79. ARTICLE IV PARTICIPATION AGREEMENT AND COMPANY NOTE Section 4.01. Amendments to Participation Agreement not Requiring Consent of Bondowners. The Authority may, without the consent of the Trustee and without notice to or consent of the Bondowners, enter into any amendment or modification of the rights and interest of the Authority under Article III of the Participation Agreement or Sections 4.04, 4.08, 4.09, 4.10 and 5.16 of the Participation Agreement upon the delivery to the Trustee of an Opinion of Bond Counsel, satisfactory to the Trustee, to the effect that the proposed amendment or modification will not impair the exclusion from gross income for federal income tax purposes of interest on any of the Bonds theretofore issued or otherwise adversely affect the rights and/or interests of the Trustee or any of the owners of the Bonds. The Authority may, without the consent of or notice to the Bondowners, amend or modify any other provision of the Participation Agreement as may be required (i) for the purpose of curing any ambiguity or formal defect or omission in the Participation Agreement; or (ii) in connection with any other change therein which is not prejudicial to the interests of the Trustee or the owners of the Bonds, including but not limited to any change necessary to obtain or maintain a rating of the Bonds from Moody's or S&P. Prior to the expiration of the Letter of Credit, no amendment or modification of the Participation Agreement shall be effective without the prior written consent of the Bank, which consent shall not be unreasonably withheld. Section 4.02. Amendments to Participation Agreement Requiring Consent of Bondowners. Except for amendments or modifications as provided in Section 4.01, the Authority shall not enter into any amendment or modification of the Participation Agreement without the written consent of the Trustee and the owners of not less than two-thirds in aggregate principal amount of the Bonds then outstanding and affected by such modification or amendment. Such consent of Bondowners shall be given and procured in the same manner as provided in Section 13.02 with respect to Supplemental Indentures. No modification or amendment requiring the consent of Bondowners shall be effective unless the required consent of Bondowners is obtained and such modification is not prejudicial to the interests of the Trustee. 126 80. Notwithstanding anything to the contrary contained in the Indenture or the Participation Agreement, the Authority shall not agree to any amendment, change or modification of, or any waiver, discharge or termination of, any of the provisions of the Participation Agreement in any respect which would impair the exclusion from gross income for federal income tax purposes of interest on any of the Bonds. Prior to the expiration of the Letter of Credit, no amendment or modification of the Participation Agreement shall be effective without the prior written consent of the Bank, which consent shall not be unreasonably withheld. Section 4.03. Amendments to Company Note. Except for such amendments or modifications of the Company Note as may be required for the purpose of curing any ambiguity or formal defect or omission in the Company Note, or in connection with any other change therein which, in the judgment of the Trustee, is not prejudicial to the interests of the Trustee or the Bondowners, the Trustee shall not enter into any amendment or modification of the Company Note without obtaining the prior written consent of the owners of not less than two-thirds in aggregate principal amount of the Bonds then outstanding. No such modification or amendment shall be made which will affect the times, amounts and currency of payment of the principal of and premium, if any, and interest on the Company Note without the consent of the owners of all Bonds then outstanding. The Trustee shall consent to any such proposed action requiring the consent of the owners of the Bonds if the required consent of the owners of the Bonds is obtained; provided that the Trustee may, but shall not be obligated to consent to any such proposed action which affects its own rights, powers, duties or obligations hereunder. Such consent of Bondowners shall be given and procured in the same manner as provided in Section 13.02 with respect to Supplemental Indentures. Prior to the expiration of the Letter of Credit, the Trustee shall not consent to any amendment or modification of the Company Note without the prior written consent of the Bank, which consent shall not be unreasonably withheld. Section 4.04. Amendments to Tax Regulatory Agreement. The Authority may, without the consent of the Trustee and without notice to or consent of the Bondowners, enter into any amendment or modification of the Tax Regulatory Agreement upon the delivery to the Trustee of an Opinion of Bond Counsel to the effect that the proposed amendment or modification will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. 127 81. ARTICLE V PROJECT FUND; REBATE FUND Section 5.01. Creation and Custody of Project Fund. 1. There is hereby created a Project Fund, which shall be held by the Trustee. There shall be paid into the Project Fund the amount required to be so paid by the provisions of Section 3.02. 2. There is hereby established within the Project Fund two (2) separate trust accounts to be known as the "Construction Account" and the "Investment Proceeds Account." All income or gain on moneys deposited in the Construction Account or the Investment Proceeds Account shall be deposited in the Investment Proceeds Account. Section 5.02. Application of Moneys in the Project Fund. 1. The moneys in the Construction Account, until applied in payment of any item of the Cost of Construction of the Project, shall be held by the Trustee and, pending such application, shall be subject to a claim and charge in favor of the owners of the Bonds and for the further security of such owners until paid out as herein provided. The moneys in the Investment Proceeds Account, until applied in accordance with the provisions of Section 5.02.2, shall be held by the Trustee, but shall not be subject to a claim or charge in favor of the Bondowners and shall be applied solely in accordance with the provisions of this Article and shall not be available for the payment of Bonds within the meaning of the Indenture. Pending such application, such moneys may be invested in accordance with the provisions of Article VII. 2. On the first Business Day following each Computation Period, the Trustee shall withdraw from the Investment Proceeds Account and deposit in the Rebate Fund an amount such that the amount held in the Rebate Fund after such deposit, as certified to the Trustee by an Authorized Company Representative, is equal to the Rebate Amount calculated as of the last day of the Computation Period, as certified to the Trustee by an Authorized Company Representative. Any remaining balance in the Investment Proceeds Account shall be deposited in the Construction Account. In the event of any deficiency, the balance required shall be provided by the Company pursuant to Section 7.3 of the Tax Regulatory Agreement. Computations of the amounts on deposit in each fund hereunder, descriptions of each investment held therein, and computations of the Rebate Amount shall be furnished to the Trustee by the Company in accordance with Section 7.3 of the Tax Regulatory Agreement. 128 82. Section 5.03. Construction Account Requisitions. The Trustee is authorized and directed to make payments from the Construction Account to pay the Cost of Construction of the Project, upon the written order of the Company, but only upon receipt from time to time of requisitions signed by an Authorized Company Representative in the form of EXHIBIT C attached hereto upon which the Trustee may conclusively rely, stating with respect to each payment to be made for the Project: (a) the requisition number; (b) the items of the Cost of Construction of the Project to which the disbursement relates or has been allocated and the nature of the disbursement; (c) the payee, with address, which may be the Company in the case of reimbursements for advances and payments made or costs incurred or work done by the Company; (d) the amount of such payment; (e) that the disbursement will be used to pay, or reimburse the Company for, a Cost of Construction of the Project and that it is a proper charge against the Construction Account; (f) that none of the items for which the disbursement is requested has formed the basis for any disbursement theretofore made from the Construction Account; (g) that the disbursement will not be used in a manner that would result in a violation of any representation, warranty or covenant contained in Article III of the Tax Regulatory Agreement or Section 5.04 of the Participation Agreement; (h) that no event of default under the Participation Agreement shall have occurred and be continuing and that no event which with the lapse of time alone would become such a default has occurred and is continuing; and (i) that no event of default under the Indenture shall have occurred and be continuing and that no event which with the lapse of time alone would become such a default has occurred and is continuing. 129 83. Section 5.04. Retention of Requisitions. For seven years from the dates thereof the Trustee shall retain in its possession all requisitions received by it as herein required, subject to the inspection during normal banking hours, of the Authority, its agents and representatives and the Company and, upon reasonable request, inspection during normal banking hours of the Bondowners and their representatives, in any case, at the Corporate Trust Office. Section 5.05. Certification of Completion of the Project. On the date when all Costs of Construction expected to be paid from the Project Fund have been paid, the Trustee and the Authority shall be furnished promptly with a certificate of an Authorized Company Representative, which certificate shall contain an appropriate direction to the Trustee with respect to any amount in the Project Fund which is to be disposed of as provided in Section 5.06. Section 5.06. Disposition of Balance Remaining in Project Fund. All moneys remaining in the Project Fund after the certificate referred to in Section 5.05 is furnished shall, at the written direction of an Authorized Company Representative, be deposited in a segregated account in the Bond Fund, or paid to the Bank to reimburse the Bank for any unreimbursed draw under the Letter of Credit relating to the purchase of Bonds tendered or deemed tendered pursuant to Section 2.05 (and, pending any such application, be invested in securities in accordance with the direction of an Authorized Company Representative delivered pursuant to Article VII, which direction shall confirm that such investment will not be in violation of the covenants and warranties made to the Authority by the Company in Section 7.1 of the Tax Regulatory Agreement), or deposited in the Rebate Fund. Section 5.07. Creation and Custody of Rebate Fund. There is hereby created a Rebate Fund, which shall be held by the Trustee. There shall be paid into the Rebate Fund the amount required to be so paid under Section 5.02.2. All income or gain on moneys deposited in the Rebate Fund shall be deposited in the Rebate Fund. The Rebate Fund and the amounts deposited therein shall not be subject to a claim and charge in favor of the Trustee or any owners of Bonds and shall be applied solely in accordance with the provisions of this Article and shall not be available for the payment of Bonds within the meaning of the Indenture. Section 5.08. Application of Moneys in the Rebate Fund. 1. Amounts deposited in the Rebate Fund shall be applied solely to pay Costs of Construction described in clause (i) of the definition of Costs of Construction in accordance with subsection 2 of this 130 84. Section 5.08 except to the extent otherwise permitted by subsection 3 of this Section 5.08. 2. The Trustee, upon receipt of written instructions from an Authorized Company Representative in accordance with Section 7.3 of the Tax Regulatory Agreement, shall pay to the United States out of amounts in the Rebate Fund (a) not later than thirty (30) days after the end of each five-year period following the date of issuance of the Bonds, an amount certified to the Trustee by an Authorized Company Representative such that, together with amounts previously paid, the total amount paid to the United States is equal to 90% of the Rebate Amount calculated as of the end of the most recent Computation Period, and (b) not later than 30 days after the date on which all of the Bonds have been paid or redeemed, 100% of the Rebate Amount as of the end of the final Computation Period as certified to the Trustee by an Authorized Company Representative. 3. In the event that on the first day of any Bond Year the amount on deposit in the Rebate Fund exceeds the Rebate Amount, the Trustee, upon the receipt of written instructions from an Authorized Company Representative specifying the amount of such excess, shall withdraw such excess amount and prior to the Completion Date, deposit it in the Investment Proceeds Account of the Project Fund, or, after the Completion Date, deposit it in the Bond Fund. Pending such application, such moneys may be invested in accordance with instructions from the Company given in accordance with the provisions of Article VII. 131 85. ARTICLE VI BOND FUND; LETTER OF CREDIT Section 6.01. Creation and Custody of the Bond Fund. There is hereby created a Bond Fund, which shall be held in trust by the Trustee for the benefit of the Bondowners and shall be subject to a lien and charge in favor of the Bondowners. Neither the Company nor the Authority shall have any interest in, or ability to withdraw funds from, the Bond Fund. There are hereby created within the Bond Fund two separate trust accounts to be designated as the Debt Service Account and the Letter of Credit Account. The moneys in each such account shall not in any way be commingled with funds in any other trust account maintained by the Trustee. The Trustee shall maintain such records for deposits made into the Debt Service Account so that the Trustee may at all times ascertain the source and dates of deposit of the moneys in the Debt Service Account. The Authority hereby authorizes and directs the Trustee to withdraw in accordance with Section 6.03 sufficient funds from the Bond Fund to pay the principal of and premium, if any, and interest on the Bonds as the same become due and payable and to make such funds so withdrawn available to the Paying Agents, if any, for the purpose of paying such principal, premium, if any, and interest. Section 6.02. Payments into the Bond Fund. The Trustee shall deposit in the Bond Fund for credit to the Debt Service Account as and when received (1) the amount, if any, of the proceeds of sale of the Bonds, to the extent required by this Indenture, (2) all Company Note Payments, (3) the amounts remaining in the Project Fund after the certificate referred to in Section 5.05 is furnished, (4) all interest and other income received on investments of moneys on deposit in the Bond Fund, as provided in Section 7.03, (5) any funds made available pursuant to Section 8.05, (6) any proceeds of refunding obligations and (7) any amount paid into the Bond Fund pursuant to Section 5.08.3. There shall be deposited in the Letter of Credit Account all moneys drawn by the Trustee under the Letter of Credit and received by the Trustee for the purposes of paying principal of, premium, if any, and interest on, the Bonds. In the event that the Bonds are held by a Securities Depository, moneys drawn under the Letter of Credit may be paid directly to the Securities Depository, in which event, proper notification concerning such payment shall be sent to the Trustee and Paying Agent. 132 86. Section 6.03. Application of Moneys in the Bond Fund. Except as otherwise provided in Sections 6.04 and 14.01.3, moneys on deposit in the Bond Fund shall be used solely for the payment of the principal of and premium, if any, and interest on the Bonds as the same shall become due and payable either at maturity, upon redemption, by declaration or otherwise. Moneys for such payments of the principal of, premium, if any and interest on the Bonds shall be derived from the following sources in the following order of priority: (i) moneys drawn under the Letter of Credit and either deposited in the Letter of Credit Account or, if necessary during any Rate Period when the Bonds are held by a Securities Depository, paid to such Securities Depository; (ii) moneys paid into the Bond Fund pursuant to clause (1) of Section 6.02 in respect of accrued interest which constitute Available Moneys and proceeds from the investment thereof that constitute Available Moneys which moneys shall be used to pay interest on the Bonds; (iii) proceeds of the sale of refunding obligations which constitute Available Moneys and proceeds from the investment thereof that constitute Available Moneys; (iv) moneys deposited into the Bond Fund pursuant to clause (3) or clause (7) of Section 6.02 which constitute Available Moneys and proceeds from the investment thereof that constitute Available Moneys; (v) Company Note Payments which constitute Available Moneys and proceeds from the investment thereof that constitute Available Moneys; (vi) to the extent permitted by Section 8.05, moneys deposited into the Bond Fund pursuant to clause (5) of Section 6.02, and proceeds from the investment thereof that constitute Available Moneys; and (vii) Company Note Payments which do not constitute Available Moneys and proceeds from the investment thereof. The Trustee hereby agrees to draw moneys under the Letter of Credit to be applied to the payment of principal of, premium, if any, or interest on, the Bonds. If and to the extent moneys under clause (i) of the preceding paragraph are insufficient or unobtainable therefor, the Trustee shall apply any other moneys that are available therefor, in the preceding order of priority, including moneys described in clauses (vi) and (vii) of the 133 87. preceding paragraph, to the payment of the principal of, premium, if any, and interest on, the Bonds. After the Letter of Credit has expired, any moneys held by the Trustee in the Bond Fund may be used to make any payment of the principal of, premium, if any, and interest on, the Bonds. Prior to the expiration of the Letter of Credit, moneys under clauses (iii), (iv) and (v) of this Section 6.03 shall not be used to pay the redemption price of any Bond redeemed pursuant to the direction of the Company, unless the Trustee shall have received the written direction specified in Section 8.01 providing for such redemption at least 123 days prior to such redemption date. If on the due date of principal and premium, if any, or interest with respect to Bonds, the amounts on deposit in the Bond Fund (except amounts held by the Trustee pursuant to Section 6.04) are not sufficient to pay in full all such principal of and premium, if any, and interest on the Bonds, such amounts shall be applied to the payment of such principal, premium and interest in accordance with the provisions of Section 10.09. Section 6.04. Non-presentment of Bonds. In the event any Bonds (or any portion thereof) shall not be presented for payment when the principal thereof and redemption premium, if any, thereon becomes due, either at maturity or at the date fixed for redemption thereof (including, for such purpose, any conversion to a Fixed Rate) or otherwise, if funds sufficient to pay such Bonds (or portions thereof) and redemption premiums, if any, shall be held by the Trustee for the benefit of the owner or owners thereof, all liability of the Authority to the owner or owners thereof for the payment of such Bonds (or portions thereof) and redemption premiums, if any, shall forthwith cease, terminate and be completely discharged, and thereupon it shall be the duty of the Trustee to hold such funds (without investment thereof) in the Bond Fund for a period of at least two years, without liability for interest thereon, for the benefit of the owner or owners of such Bonds who shall thereafter be restricted exclusively to such funds for any claim of whatever nature on such owner's or owners' part under the Indenture or on, or with respect to, such Bonds. On November 1 in each year Bonds are outstanding, the Trustee will pay any funds (other than moneys resulting from a draw on the Letter of Credit) which it has then held in respect of Bonds not presented for payment for two years or more to the Company, and thereafter the owners of such Bonds shall look only to the Company for the payment thereof and then only to the extent of the amount so received without any interest thereon, and the Authority, the Trustee and the Paying Agent shall have no responsibility with respect to such moneys. 134 88. Section 6.05. (Intentionally Deleted). Section 6.06. Trustee to Notify Authority and Company of Funds in Bond Fund. The Trustee, upon the written request of the Company or the Authority, shall notify the Company and the Authority of the amount of funds on deposit in the Bond Fund at the time of such request. Section 6.07. Letter of Credit. (1) The Trustee shall draw moneys under the Letter of Credit in accordance with the terms thereof as shall be necessary to make timely payments of principal of, and interest on, the Bonds required to be made from the Bond Fund and to make timely payments required to be made pursuant to, and in accordance with, Section 2.05. In connection with each such drawing, the Trustee shall timely prepare and present all certificates, drafts and other documents which are required by the terms of the Letter of Credit to effect payment thereunder. The Trustee shall give immediate telephonic or facsimile (confirmed in writing) notice to the Company of a draw under the Letter of Credit and the amount thereof. Nothing in this Section 6.07 shall require the Trustee to draw moneys under the Letter of Credit for the payment of Bonds registered in the name of, or held beneficially for, the Company or the Bank or any Bonds held or required to be held by the Tender Agent for the account of the Company or the Bank pursuant to the Indenture to the extent not permitted by the Letter of Credit. (2) If at any time on or prior to the thirty-seventh calendar day next preceding the scheduled expiration date of a Letter of Credit, there shall have been delivered to the Trustee (a) an Alternate Credit Facility, (b) an Opinion of Bond Counsel stating that the delivery of such Alternate Credit Facility to the Trustee is authorized under the Participation Agreement and the Indenture and complies with the terms of the Participation Agreement and the Indenture and (c) written evidence satisfactory to the Trustee from Moody's, if the Bonds are then rated by Moody's, and from S&P, if the Bonds are then rated by S&P, in each case to the effect that such Rating Agency has reviewed the proposed Alternate Credit Facility and that the substitution of the proposed Alternate Credit Facility for the Letter of Credit will not, by itself, result in a reduction or withdrawal of its rating or ratings of the Bonds from those which then prevail, then the Trustee shall accept such Alternate Credit Facility and surrender the previously held Letter of Credit to the Bank, in accordance with the terms of such Letter of Credit, for cancellation. (3) The Company may substitute an Alternate Credit Facility which has the effect of lowering any then prevailing rating on the Bonds or with respect to which the Company will not 135 89. seek a rating from a Rating Agency then rating the Bonds only if (i) notice of mandatory purchase pursuant to Section 2.05(e)(1) shall have been given and such Alternate Credit Facility shall take effect on or prior to the date on which the Bonds are purchased pursuant to Section 2.05(e)(1) and (ii) such substitution will result in a rating of not less than the third highest rating category of a Rating Agency. Upon delivery to the Trustee of: (a) such Alternate Credit Facility, (b) an Opinion of Bond Counsel stating that the delivery of such Alternate Credit Facility is authorized under the Participation Agreement and the Indenture and complies with the terms thereof, and (c) written evidence satisfactory to the Trustee from a Rating Agency that delivery of such Alternate Credit Facility will not result in a rating of less than the third highest rating category of such Rating Agency, currently "A" in each case, the Trustee shall surrender the Letter of Credit previously in effect, promptly following any drawing required to be made on such Letter of Credit on the date the Bonds are so purchased. (4) If at any time, the Letter of Credit shall expire because there shall cease to be any Bonds outstanding hereunder, or because the Fixed Rate Conversion Date shall have occurred, then the Trustee shall surrender the Letter of Credit to the Bank for cancellation after having made any necessary drawing in accordance with this Section 6.07 and with the terms of the Letter of Credit. The Trustee shall comply with the procedures set forth in the Letter of Credit relating to the termination thereof. (5) Prior to the expiration of the Letter of Credit, the Trustee shall give notice, in the name of the Authority, of such expiration, which notice shall (a) specify the date of the expiration of the Letter of Credit and (b) specify the last time and date prior to such expiration on which Bonds must be delivered and the notice given for the purchase of Bonds pursuant to tenders as provided in Section 2.05, and the places where such Bonds must be delivered for such purchase, and (c) either (i) if the requirements of subsection 2 of this Section 6.07 have not been met, state that the Bonds shall be subject to mandatory tender for purchase at the Purchase Price thereof on the Mandatory Purchase Date or (ii) state the name of the issuer of the Alternate Credit Facility. Such notice shall be given by first class mail not later than thirty (30) days prior to the Mandatory Purchase Date to the owners of the Bonds. (6) Notwithstanding anything in the Indenture to the contrary, in the event the Bonds are held by a Securities Depository under Section 2.11(b), the Trustee may instruct the Letter of Credit Bank to pay amounts drawn thereunder directly to the Securities Depository, as Registered Owner of the Bonds, in 136 90. which event, proper notification concerning such payment shall be sent to the Trustee and the Paying Agent. 137 91. ARTICLE VII SECURITY FOR AND INVESTMENT OF MONEYS Section 7.01. Moneys Held in Trust. All moneys from time to time received by the Trustee and held in any fund created under the Indenture (other than the Rebate Fund), or otherwise held for the benefit of the owners, shall, except as otherwise provided herein, be held in trust by the Trustee for the benefit of the owners from time to time of the Bonds entitled to be paid therefrom. Section 7.02. Uninvested Moneys Held by the Trustee. All moneys received by the Trustee hereunder and not invested by the Trustee pursuant to the provisions of this Article VII, to the extent not insured by the Federal Deposit Insurance Company or other federal agency, shall be deposited with a member bank of the Federal Reserve System or with the Trustee, or with a national or state bank or a trust company which has a combined capital and surplus aggregating not less than $100,000,000; provided, however, that any such moneys drawn under the Letter of Credit and any moneys held under Section 6.04 shall be deposited with the Trustee or be fully insured by the Federal Deposit Insurance Company. Section 7.03. Investment of, and Payment of Interest on, Moneys. Moneys on deposit to the credit of the Project Fund or the Rebate Fund may be retained uninvested as trust funds. Such moneys shall, at the written direction of an Authorized Company Representative, be invested by the Trustee in (a) any obligation issued or guaranteed by, or backed by the full faith and credit of, the United States of America (including any certificates or any other evidence of an ownership interest in any such obligation or in specified portions thereof, which may consist of specified portions of the principal thereof or the interest thereon), (b) deposit accounts in, or certificates of deposit issued by, and bankers' acceptances of, any bank, trust company or national banking association which is a member of the Federal Reserve System (which may include the Trustee), having capital stock and surplus aggregating not less than $100,000,000, (c) obligations issued or guaranteed by any Person controlled or supervised by and acting as an instrumentality of the United States of America pursuant to the authority granted by the Congress of the United States, (d) commercial paper rated in the highest investment grade or next highest investment grade by Moody's or S&P, (e) obligations rated not less than "A" or equivalent by Moody's or S&P issued or guaranteed by any state of the United States of America or the District of Columbia, or any political subdivision, agency or instrumentality of any such state or District, or issued by any corporation, (f) obligations of a public housing authority fully 138 92. secured by contracts with the United States of America, rated at least "A" or better by a Rating Agency, (g) shares of a money market fund, the sole assets of which are comprised of obligations described in (a) above or (h) shares of a money market fund which is rated "AAAm" or "AAAm-g" by S&P or "Prime-1" by Moody's. Moneys on deposit to the credit of the Bond Fund, other than moneys on deposit in the Letter of Credit Account, subject to Section 6.04, shall without any instruction from the Company or the Authority be invested in shares of a money market fund, the sole assets of which are comprised of obligations issued or guaranteed by, or backed by the full faith and credit of, the United States of America (including any certificates or any other evidence of an ownership interest in any such obligation or in specified portions thereof, which may consist of specified portions of the principal thereof or the interest thereon and which certificates or other evidence of an ownership interest must be rated by the Rating Agency then rating the Bonds at least as high as the obligations issued or guaranteed by, or backed by the full faith and credit of, the United States of America); provided that to the extent that such investments may be unavailable the Trustee may hold such funds uninvested. Notwithstanding anything in the preceding paragraph, Available Moneys held under the Indenture shall be invested by the Trustee, except to the extent such Available Moneys are permitted to be held uninvested under the Indenture, in any obligation issued or guaranteed by, or backed by the full faith and credit of, the United States of America (including any certificates or any other evidence of an ownership interest in any such obligation or in specified portions thereof, which may consist of specified portions of the principal thereof or the interest thereon and which certificates or other evidence of an ownership interest must be rated by the Rating Agency then rating the Bonds at least as high as the obligations issued or guaranteed by, or backed by the full faith and credit of, the United States of America), which matures on or prior to the redemption date. In no event shall the Trustee invest moneys on deposit to the credit of the Bond Fund in any obligation or security issued or guaranteed by the Company or the Authority or any obligation or security issued or guaranteed by any Person known to a Responsible Officer of the Trustee to be an Affiliate of either the Company or the Authority. Investments of moneys on deposit to the credit of the Project Fund, the Bond Fund and the Rebate Fund pursuant to this Section 7.03 shall have maturity dates, or shall be subject to redemption at the option of the Trustee, on or prior to the 139 93. respective dates on which the moneys invested therein are payable for the purposes of such Funds. The securities purchased with the moneys in each such Fund or in any account or sub-account thereof shall be deemed a part of such Fund or account or sub-account. The interest, including realized increment on securities purchased at a discount, received on all such securities in any Fund or any account or sub-account thereof shall be deposited by the Trustee to the credit of such Fund or account or sub-account, except as otherwise provided in Section 5.01.2. The Trustee shall not be liable or responsible for any loss resulting from any such investment or resulting from the redemption, sale or maturity of any such investment as herein authorized or for monitoring or ensuring the Company's compliance with its covenants contained in the Tax Regulatory Agreement. The Company shall be responsible for, and provide additional funds as necessary in connection with, any and all losses on investment of moneys on deposit in the Bond Fund. If at any time it shall become necessary that some or all of the securities purchased with the moneys in either such Fund be redeemed or sold in order to raise the moneys necessary to comply with the provisions of the Indenture, the Trustee shall effect such redemption or sale, employing in the case of a sale any commercially reasonable method of effecting such sale. Any direction to invest moneys given orally under the terms of the Indenture shall be confirmed in writing. Moneys drawn on the Letter of Credit shall be retained uninvested by the Trustee or the Tender Agent, as appropriate, and shall not bear interest. Section 7.04. Disposition of Amounts After Payment of Bonds. Any amounts determined by the Trustee to be remaining in the funds created under the Indenture, other than amounts held in the Rebate Fund, after payment in full, or provision for payment in full, of principal of and premium, if any, and interest on all the Bonds, in accordance with the provisions of the Indenture, and payment of all the fees, charges and expenses of the Authority, the Trustee, the Tender Agent, the Indexing Agent, the Remarketing Agents and Paying Agent in accordance with the Indenture and the Participation Agreement and any amounts required to be paid to the United States of America pursuant to the Tax Regulatory Agreement, shall be paid to the Bank; provided, however, that on or after the Fixed Rate Conversion Date and solely with respect to moneys not resulting from a draw on the Letter of Credit and not constituting remarketing proceeds, such amounts that would be payable to the Bank pursuant to this Section 7.04 shall, at the written direction of an Authorized Company Representative, be paid to the Company or, if the Bank has not been paid in full under the Reimbursement Agreement, to the Bank. 140 94. Section 7.05. Compliance with Tax Regulatory Agreement in the Event of Partial Redemption of Bonds. Notwithstanding any provision of the Indenture to the contrary, no later than twenty (20) days after any partial redemption of Bonds, the Trustee shall reduce the aggregate amount of all investments held under the Indenture which are subject to the 150 percent limitation described in Section 7.7 of the Tax Regulatory Agreement to the extent required by such Section, all in accordance with the written direction received from an Authorized Company Representative. The Trustee shall act only upon, and be entitled conclusively to rely upon, such written direction. 141 95. ARTICLE VIII REDEMPTION OF BONDS Section 8.01. Bonds to be Redeemed Only in Manner Provided in Article VIII. Any redemption of all or any part of the Bonds which are subject to redemption shall be made in the manner provided in this Article VIII. Bonds which are subject to redemption at the option of the Authority exercised upon the direction of an Authorized Company Representative, shall be called by the Trustee for redemption in the manner provided in this Article VIII upon receipt by the Trustee, at least forty-five (45) days prior to the redemption date, of an executed counterpart of the written direction of an Authorized Company Representative to the Authority and the Trustee providing for such redemption. Such written direction shall specify the principal amount of such Bonds or portions thereof so to be called for redemption, the applicable redemption price, the applicable redemption date and the provision or provisions of the Indenture pursuant to which such Bonds are to be called for redemption. The foregoing provisions of this paragraph shall not apply in the case of any mandatory redemption of Bonds in accordance with the Indenture. The moneys necessary for any redemption of Bonds shall be made available to the Trustee on or prior to the date fixed for redemption. The Trustee is hereby authorized and directed to apply such moneys in accordance with Section 6.03 to the payment of the Bonds or portions thereof called for redemption, together with accrued interest thereon to the redemption date. Upon the giving of notice and the deposit of funds for redemption, interest on the Bonds or portions thereof thus called shall no longer accrue on and after the date fixed for redemption. No payment shall be made by the Trustee upon any Bond or portion thereof called for redemption until such Bond or portion thereof shall have been delivered for payment or cancellation or the Trustee shall have received the items required by Section 2.08 with respect to any mutilated, lost, stolen or destroyed Bond. Notwithstanding anything in the Indenture to the contrary, no redemption at the option of the Authority which requires a redemption price in excess of par to be payable shall be exercisable unless (i) a Letter of Credit providing for payment of such premium together with other amounts owed as part of redemption price shall be in effect and shall not be scheduled to expire by its terms before the specified redemption date or (ii) other Available Moneys shall be held by the Trustee under the Indenture and are available for payment of such premium. 142 96. Section 8.02. Redemption of Less Than all Bonds. If less than all of the Bonds shall be called for redemption, the particular Bonds or portions of Bonds to be redeemed shall be selected by the Trustee by lot or in such other manner as the Trustee in its discretion may deem proper in order to assure each owner of Bonds a fair opportunity to have such owner's Bond or Bonds or portions thereof selected; provided, however, that the portion to be redeemed of any Bond of a denomination more than the then-applicable minimum authorized denomination shall be such minimum authorized denomination or an integral multiple thereof, and that in selecting portions of such Bonds for redemption, the Trustee shall treat each such Bond as representing that number of Bonds of such minimum authorized denomination obtained by dividing the principal amount of such Bond by such minimum authorized denomination; provided further that the Trustee shall first select any Bonds registered in the name of the Company or the Bank and then the remaining Bonds. Section 8.03. Notice of Redemption. In the case of any redemption pursuant to Section 2.17, the Trustee shall give in its own name or in the name of the Authority, notice mailed by first-class mail to the Registered Owners of the Bonds to be redeemed, addressed to him or her at his or her address as it appears on the Bond Register at least thirty (30) days before the date fixed for redemption, which notice shall state that Bonds properly identified have been called for redemption and, in the case of Bonds to be redeemed in part only, the portion of the principal amount thereof that has been called for redemption (or if all the outstanding Bonds are to be redeemed, so stating, in which event such identification may be omitted), that they will be due and payable on the date fixed for redemption (specifying such date) upon surrender thereof at the Corporate Trust Office or, at the option of the owner, at the corporate trust office of the Paying Agent, if any, for such Bonds, at the applicable redemption price (specifying such price) together with accrued interest to such date, and that all interest on the Bonds, or portions thereof, so to be redeemed will cease to accrue on and after such date. Failure to give any required notice of redemption as to any particular Bonds will not affect the validity of the call for redemption of any Bonds in respect to which no such failure occurs. Any notice mailed as provided in this Section shall be conclusively presumed to have been duly given, whether or not the Registered Owner actually receives the notice. Section 8.04. Rights of Owners of Bonds Called for Redemption Limited to Redemption Price and Accrued Interest. If notice of redemption has been given as provided in Section 8.03, the Bonds or portions thereof called for redemption shall be due and payable on the date fixed for redemption at the redemption 143 97. price, together with accrued interest to the date fixed for redemption. Payment of the redemption price, together with accrued interest, shall be made by the Trustee upon surrender of such Bonds. If there shall be called for redemption less than the entire principal amount of a Bond, the Authority shall execute and deliver and the Trustee shall authenticate, upon surrender of such Bond, and without charge to the owner thereof, Bonds for the unredeemed portion of the principal amount of the Bond so surrendered. Subject to the deposit with the Trustee of amounts necessary for the redemption of such Bonds as provided in Section 8.01, from and after the date fixed for redemption designated in such notice, notwithstanding that any Bonds so called for redemption in whole or in part shall not have been surrendered for cancellation, no further interest shall accrue upon the principal of any of the Bonds or portions thereof so called for redemption; and such Bonds or portions thereof so to be redeemed shall cease to be entitled to any lien, benefit or security under the Indenture and the owners thereof shall have no rights in respect of such Bonds or portions thereof except to receive payment of the redemption price thereof and unpaid interest accrued to the date fixed for redemption from such amounts deposited with the Trustee which shall be held uninvested by the Trustee in trust for the owner of such Bonds or portions thereof. Section 8.05. Redemption at Demand of the State. In accordance with the provisions of Section 1864 of the Act, the State of New York may, upon furnishing sufficient funds therefor, require the Authority to redeem prior to maturity, as a whole, any issue of Bonds, on any Interest Payment Date not less than twenty years after the date of the original issuance of the Bonds of such issue. The Authority shall deposit any such funds received by it with the Trustee. After the expiration of the Letter of Credit, the Trustee shall deposit such funds in the Bond Fund and, upon notice given as provided in Section 8.03, shall apply such funds to the redemption of such Bonds, at a redemption price equal to the applicable optional redemption price set forth in the Indenture or 105 percent of the principal amount of the Bonds to be redeemed, whichever is less, together with accrued and unpaid interest to the date fixed for redemption, all in the manner provided in this Article VIII. Prior to the expiration of the Letter of Credit, the Trustee shall deposit any such funds received by it in a segregated sub-account in the Debt Service Account of the Bond Fund, and upon notice published in the manner provided in Section 1864 of the Act, shall draw moneys under the Letter of Credit and apply such moneys drawn under the Letter of Credit to the redemption of such Bonds at a redemption price equal to 100 percent of the principal amount of the Bonds to be redeemed, together with accrued and unpaid interest 144 98. to the date fixed for redemption in the manner specified in the preceding sentence. Upon the application of such moneys drawn under the Letter of Credit, the Trustee shall pay the funds furnished by the State to the Bank with instructions to apply such funds to the reimbursement of the Bank for such moneys drawn under the Letter of Credit. Upon such redemption, the Trustee shall assign the Company Note to or as directed in writing by the Authority. 145 99. ARTICLE IX PARTICULAR COVENANTS Section 9.01. Payment of Principal of and Interest and Redemption Premium of Bonds. The Authority will promptly pay from the Company Note Payments and other funds held by the Trustee and available therefor the principal of, and the interest on, every Bond issued under and secured by the Indenture and any premium required to be paid for the retirement of said Bonds by redemption, at the places, on the dates and in the manner specified in the Indenture and in said Bonds according to the true intent and meaning thereof, subject, however, to the provisions of Section 1.03. Section 9.02. Performance of Covenants. The Authority will faithfully perform at all times all covenants, undertakings, stipulations and provisions contained in the Indenture, in any and every Bond and in all proceedings of the Authority pertaining thereto. Section 9.03. Further Instruments. The Authority will from time to time execute and deliver such further instruments and take such further action as may be reasonable and as may be required to carry out the purpose of the Indenture; provided, however, that no such instruments or actions shall pledge the credit of the Authority or the State of New York or the taxing power of the State of New York or otherwise be inconsistent with the provisions of Section 1.03. Section 9.04. Inspection of Project Books. All books and documents in the possession of the Authority relating to the Project or the Participation Agreement shall at all times be open to inspection by such accountants or other agents as the Trustee may from time to time designate. Section 9.05. No Extension of Time of Payment of Interest. In order to prevent any accumulation of claims for interest after maturity, the Authority will not directly or indirectly extend or assent to the extension of the time of payment of any claims for interest on any of the Bonds and will not directly or indirectly be a party to or approve any such arrangement by purchasing such claims for interest or in any other manner. In case any such claim for interest shall be extended in violation hereof, such claim for interest shall not be entitled, in case of any default hereunder, to the benefit or security of the Indenture except subject to the prior payment in full of the principal of, and premium, if any, on, all Bonds issued and 146 100. outstanding hereunder, and of all claims for interest which shall not have been so extended or funded. Section 9.06. Trustee's, Paying Agent's, Indexing Agent's, Tender Agent's and Remarketing Agents's Fees, Charges and Expenses. Pursuant to the provisions of Section 4.05 of the Participation Agreement, the Company has agreed to pay the fees and the expenses of the Trustee, any Paying Agent, the Indexing Agent, the Tender Agent and the Remarketing Agents, in the amounts set forth more fully therein, and the Authority shall have no liability for the payment of any fees or expenses of the Trustee, any Paying Agent, the Indexing Agent, the Tender Agent and the Remarketing Agents. Exclusive of the proceeds of any drawing under the Letter of Credit and any other moneys within the meaning of subdivision (a) of the definition of Available Moneys, the Trustee shall have a first lien with right of payment prior to payment on account of principal of, premium, if any, and interest on any Bond under the Indenture for the fees, charges and expenses of the Trustee. When the Trustee incurs expenses or renders services after the occurrence of an Act of Bankruptcy with respect to the Company, the expenses and the compensation for services are intended to constitute expenses of administration under any federal or state bankruptcy, insolvency, arrangement, moratorium, reorganization or other debtor relief law. The Company shall have no liability to pay any fees, charges or other expenses of the Trustee hereinabove mentioned except from amounts pledged under the Indenture. Section 9.07. Agreement of the State of New York. In accordance with the provisions of subdivision 11 of Section 1860 of the Act, the Authority, on behalf of the State of New York, does hereby pledge to and agree with the owners of the Bonds that the State of New York will not limit or alter the rights and powers vested by the Act in the Authority to fulfill the terms of any contract made with Bondowners, or in any way impair the rights and remedies of such owners, until the Bonds, together with the interest thereon, with (to the extent permitted by law) interest on any unpaid installments of interest, and all costs and expenses in connection with any action or proceeding by or on behalf of such owners, are fully met and discharged. 147 101. ARTICLE X DEFAULTS AND REMEDIES Section 10.01. Events of Default. In case one or more of the following Events of Default shall have occurred: (a) default in the payment of any installment of interest in respect of any Bond as the same shall become due and payable which default continues for five days; or (b) default in the payment of the principal of or premium, if any, in respect of any Bond as the same shall become due and payable either at maturity, upon redemption, by acceleration or otherwise; or (c) default in the payment of any amount due pursuant to Section 2.05 as the same becomes due and payable which default continues for five days; or (d) an event of default specified in Article VI of the Participation Agreement; or (e) after the expiration of the Letter of Credit, failure on the part of the Authority to duly observe or perform any other of the covenants or agreements on the part of the Authority contained in the Indenture or in any Bond for a period of 90 days after the date on which written notice of such failure, requiring the Authority to remedy the same, shall have been given to the Authority and the Company by the Trustee; or (f) receipt by the Trustee of written notice from the Bank of the occurrence and continuance of an event of default under the Reimbursement Agreement, that the Bank is terminating the Letter of Credit and that the Bank is directing the Trustee to accelerate the Bonds; or (g) receipt by the Trustee of written notice from the Bank on or before the tenth day after a drawing under the Letter of Credit in respect of interest on the Bonds, to the effect that the Bank has not been reimbursed for any such drawing and that the Bank is directing the Trustee to accelerate the Bonds; then, upon (a) the occurrence and continuance of any Event of Default described in clause (a), (b), (c), (d) or (e) of this paragraph, the Trustee may, and at the written request of owners of not less than 25% in aggregate principal amount of Bonds then 148 102. outstanding shall, or (b) the occurrence of an Event of Default described in clause (f) or (g) of this paragraph the Trustee shall immediately, by written notice given to the Authority, the Governor, the Comptroller, the Attorney General of the State of New York and the Company, declare the principal of all Bonds then outstanding to be due and payable immediately, at which time (unless a Fixed Rate Conversion Date has occurred and the Letter of Credit is no longer in effect) interest shall cease to accrue, and upon such declaration the said principal, together with interest accrued thereon, shall become due and payable immediately at the place of payment provided therein, anything in the Indenture or in the Bonds to the contrary notwithstanding and the Trustee shall give notice thereof to the Authority, the Company, the Tender Agent, the Remarketing Agents and the Bank, and shall give notice thereof by mail to all owners of outstanding Bonds. Prior to the expiration of the Letter of Credit, the Trustee shall draw immediately upon the Letter of Credit in the event the Bonds shall have been declared immediately due and payable and immediately apply amounts drawn under the Letter of Credit to payment of Bonds in accordance with the Indenture. The provisions of the preceding paragraph, however, are subject, after the expiration of the Letter of Credit, to the condition that if, after the principal of said Bonds has been so declared to be due and payable, all arrears of interest upon the Bonds are paid, and the Authority has performed all other things in respect to which it may have been in default hereunder and the reasonable compensation and expenses of the Trustee, and the Bondowners, including reasonable attorneys' fees, shall have been paid, or provision satisfactory to the Trustee shall be made for such payments, then, and in every such case, the owners of a majority in aggregate principal amount of the Bonds then outstanding, by written notice to the Authority and to the Trustee, may annul such declaration and its consequences, and such annulment shall be binding upon the Trustee and upon all owners of Bonds issued hereunder, or, if the Trustee shall have acted in the absence of a written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of all outstanding Bonds, and if there shall not have been theretofore delivered to the Trustee written direction to the contrary by the owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding, then any such declaration shall ipso facto be deemed to be rescinded and any such default and its consequences shall ipso facto be deemed to be annulled and such annulment shall be binding upon the Trustee and upon all owners of Bonds; but no such annulment shall extend to or affect any subsequent default or impair any right or remedy consequent thereon. The Trustee shall forward a copy of any notice from 149 103. Bondowners received by it pursuant to this paragraph to the Company. The provisions of the second preceding paragraph are, further, subject to the condition that any waiver by the Bank of any event of default under the Reimbursement Agreement and a rescission and annulment of its consequences shall constitute a waiver of the corresponding Event of Default under the Indenture and a rescission and annulment of the consequences thereof; provided that, the Trustee shall have received written notice from the Bank to the effect that the Letter of Credit has been reinstated, if applicable, and is in full force and effect (with respect to the principal of, premium, if any, interest on, and the purchase price of, all Bonds then entitled to the benefits of the Letter of Credit). If written notice of such event of default under the Reimbursement Agreement shall have been given as provided herein and if the Trustee shall thereafter have received written notice from the Bank that such event of default shall have been waived, the Trustee shall promptly give written notice of such waiver, rescission or annulment and of the corresponding waiver, rescission and annulment of the Event of Default hereunder to the Authority, the Governor, the Comptroller, the Attorney General of the State of New York, the Company, the Bank, the Tender Agent and the Remarketing Agents, and shall give written notice thereof by mail to all owners of outstanding Bonds; but no such waiver, rescission and annulment shall extend to or affect any subsequent Event of Default or impair any right or remedy consequent thereon. Section 10.02. Judicial Proceedings by Trustee. Upon the happening and continuance of any Event of Default, then and in every such case the Trustee in its discretion may, and upon the written request of the owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding and receipt of indemnity to its satisfaction, shall: (a) by suit, action or special proceeding, enforce all rights of the Bondowners and require the Authority, the Bank or the Company to perform its or their duties under the Act, the Participation Agreement, the Bonds, the Letter of Credit, the Company Note and the Indenture; (b) bring suit upon the Bonds; (c) by action or suit in equity require the Authority to account as if it were the trustee of an express trust for the Bondowners; or 150 104. (d) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Bondowners. Section 10.03. Effect of Discontinuance or Abandonment of Proceedings. In case the Trustee shall have proceeded to enforce any right under the Indenture and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee, then and in every such case the Authority, the Trustee and the Bondowners shall be restored respectively to their former positions and rights hereunder, respectively, and all rights, remedies and powers of the Authority, the Trustee and the Bondowners, respectively, shall continue as though no such proceedings had been taken. Section 10.04. Power of Bondowners to Direct Proceedings. Anything in the Indenture to the contrary notwithstanding, the owners of a majority in aggregate principal amount of the Bonds then outstanding hereunder shall have the right, by an instrument in writing executed and delivered to the Trustee, to direct the method and place of conducting all remedial proceedings to be taken by the Trustee hereunder, subject, however, to the provisions of Section 11.04, and provided, however, such direction shall not be in conflict with any rule of law or with any provision of the Indenture (including, without limitation, any provision requiring the Trustee to accelerate the Bonds and draw on the Letter of Credit upon the occurrence of an Event of Default under Section 10.01(f) or (g)) and shall not unduly prejudice the rights of the Bondowners who are not in such majority. The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the owners of a majority in aggregate principal amount of the Bonds and which is not in conflict with the Trustee's obligation to accelerate the Bonds and draw on the Letter of Credit upon the occurrence of an Event of Default under Section 10.01(f) or (g). Section 10.05. Limitation on Actions by Bondowners. No owner of any of the Bonds shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of any trust hereunder, or any other remedy hereunder or under the Bonds, unless such owner previously shall have given to the Trustee written notice of an Event of Default as hereinabove provided and unless also the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding shall have made written request of the Trustee so to do, after the right to exercise such powers or rights of action, as the case may be, shall have accrued, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers hereinabove granted, or to institute such action, suit or 151 105. proceeding in its or their name; nor unless there also shall have been offered to the Trustee security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee shall not have complied with such request within a reasonable time; and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to the execution of the trusts of the Indenture or for any other remedy hereunder; it being understood and intended that no one or more owners of the Bonds hereby secured shall have any right in any manner whatever by such owner's or owners' action to affect, disturb or prejudice the security of the Indenture, or to enforce any right hereunder or under the Bonds, except in the manner herein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner herein provided and for the equal benefit of all owners of outstanding Bonds, subject, however, to the provisions of Section 9.05. Nothing in the Indenture or in the Bonds contained shall affect or impair the right of action, which is also absolute and unconditional, of any owner of any Bond to enforce payment of the principal of and premium, if any, and interest on such owner's Bond at the date of maturity and places therein expressed. Section 10.06. Trustee's Right to Enforce Rights in Respect of Bonds in Own Name and Without Possession of Bonds. All rights of action under the Indenture or under any of the Bonds which are enforceable by the Trustee may be enforced by it without the possession of any of the Bonds, or the production thereof at the trial or other proceedings relative thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in its name, as trustee, for the equal and ratable benefit of the owners of the Bonds subject to the provisions of the Indenture. Section 10.07. No Remedy herein Conferred upon or Reserved Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the owners of the Bonds is intended to be exclusive of any other remedy or remedies, except as provided in Section 10.10, and each and every such remedy shall be cumulative, and shall be in addition to every other remedy given hereunder. Section 10.08. No Delay or Omission to be Deemed Waiver of Default. No delay or omission of the Trustee or of any owner of the Bonds to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default, or an acquiescence therein; and every power and remedy given by this Article X to the Trustee and to the owners of the Bonds, respectively, may be exercised from time to time and as often as may be deemed expedient. 152 106. Section 10.09. Application of Moneys Received by Trustee Pursuant to Article X. Any moneys or other property or assets received by the Trustee or by any receiver pursuant to this Article X (i) shall be applied first to the payment of the costs and expenses of the proceedings resulting in the collection of any moneys received by the Trustee or by any receiver pursuant to this Article X and of the expenses, liabilities and advances incurred or made and compensation for services rendered by or on behalf of the Trustee, including reasonable counsel fees and expenses; provided that, moneys drawn under the Letter of Credit shall not be applied to any such payment, and (ii) any remaining amounts shall then be applied as follows: (a) Unless the principal of all Bonds shall have become or shall have been declared due and payable, all such moneys shall be applied: First: To the payment to the Persons entitled thereto of all installments of interest then due on the Bonds, in the order of the maturity of the installments of such interest including (to the extent permitted by law) interest on overdue installments of interest at the rate borne by the Bonds on which such interest shall then be due, and, if the amount available shall not be sufficient to pay in full any particular installment or installments, then to the payment ratably, according to the amounts due on such installment or installments, to the Persons entitled thereto, without any discrimination or preference; and Second: To the payment to the Persons entitled thereto of the unpaid principal of and premium, if any, on any of the Bonds which shall have become due (other than Bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Indenture) in the order of their due dates, with interest on such Bonds from the respective dates upon which they become due and, if the amount available shall not be sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the Persons entitled thereto without any discrimination or preference. (b) If the principal of all the Bonds shall have become or shall have been declared due and payable, all 153 107. such moneys shall be applied to the payment of the principal, premium, if any, and interest then due and unpaid upon the Bonds, with interest on overdue principal, premium, if any, and interest as aforesaid, without preference or priority of principal and premium, if any, over interest or of interest over principal and premium, if any, or of any installment of interest over any other installment of interest or of any Bond over any other Bond, ratably, according to the amounts due respectively for principal, premium, if any, and interest, to the Persons entitled thereto without any discrimination or preference. (c) If the principal of all the Bonds shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of this Article X, then, subject to the provisions of paragraph (b) of this Section which shall be applicable in the event that the principal of all the Bonds shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) of this Section. Moneys drawn under the Letter of Credit may not be applied to effect any payment on any Bond not entitled to the benefits thereof as provided in Section 3.01. Whenever moneys are to be applied pursuant to the provisions of this Section, such moneys shall be applied at such times, and from time to time, as the Trustee shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall apply such funds, it shall fix the date (which shall be an Interest Payment Date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amount of principal to be paid on such date shall cease to accrue. Notwithstanding the two preceding sentences any moneys drawn under the Letter of Credit under this Article X shall be applied by the Trustee pursuant to the provisions of this Section 10.09 within five days after such moneys have been drawn. For the purpose of determining the Bondowners who are entitled to such application, the Trustee may establish a record date not more than five days before such payment date. The Trustee shall give such notice to Bondowners by mailing in the manner it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such payment date, and shall not be required to make payment to the owner of any Bond until such Bond shall be presented to the Trustee for appropriate endorsement or for cancellation if fully paid. 154 108. Section 10.10. Entirety of Agreement. The rights and remedies of the owners of the Bonds and of the Trustee set forth in this Article X are in lieu of the rights and remedies of owners of bonds of the Authority set forth in Section 1865 of the Act and the provisions of such Section 1865 are hereby abrogated with respect to the Bonds. Section 10.11. Notice of Event of Default. The Trustee shall, within 30 days after the occurrence of an Event of Default becomes known to a Responsible Officer, give notice thereof to all Bondowners by mail in the manner provided in Section 16.05 unless such Event of Default shall have been cured before the giving of such notice. 155 109. ARTICLE XI CONCERNING THE TRUSTEE AND PAYING AGENT Section 11.01. Appointment of Trustee; Paying Agents. Chemical Bank is hereby appointed as Trustee and Paying Agent for the owners from time to time of the Bonds. The Trustee hereby accepts the duties and obligations of the Trustee and Paying Agent created by the Indenture for the owners from time to time of the Bonds. The provisions of this Article XI shall not affect the Trustee's obligation to accelerate the Bonds upon the occurrence of an Event of Default under Section 10.01(f) or (g), draw on the Letter of Credit or make any payment of principal, premium or interest on the Bonds. Subject to Article X and Section 11.04, and as and to the extent provided in Sections 4.08 and 4.09 of the Participation Agreement, the Trustee, the Paying Agent and the Tender Agent shall be entitled to indemnification by the Company for any losses, costs, charges, expenses (including reasonable attorneys' fees and disbursement), judgments and liabilities incurred by the Trustee, the Paying Agent and the Tender Agent in connection with any claims made, or any action, suit or proceeding instituted or threatened, in connection with the transactions contemplated by the Participation Agreement or the Indenture. The Trustee, Paying Agents and Tender Agent, except as otherwise provided in Section 9.06, shall look solely to the Company for such indemnification. Section 11.02. No Responsibility for Correctness of Statements in Indenture. The recitals, statements and representations in the Indenture or in the Bonds contained, save only the Trustee's certificate of authentication upon the Bonds, shall be taken and construed as made by and on the part of the Authority, and not by the Trustee, and the Trustee does not assume, and shall not have, any responsibility or obligation for the correctness of any recitals, statements and representations hereof or thereof or any other document delivered by the Authority or the Company in connection with the issuance of the Bonds. Section 11.03. No Responsibility for Default of Agents Selected with Due Care, nor for Own Acts Save Willful Misconduct or Negligence. The Trustee may execute such of the trusts or powers required of it hereunder and perform the duties required of it hereunder as may be reasonably necessary by or through attorneys, agents or receivers and the Trustee shall not be answerable for the default, negligence or misconduct of any such attorney, agent or 156 110. receiver selected by it with reasonable care. The Trustee may in all cases pay such reasonable compensation to and receive reimbursement for all such attorneys, agents, receivers, and employees as may reasonably be employed in connection with the trusts hereof. The Trustee may act upon the opinion or advice of any attorney (who may be the attorney or attorneys for the Authority or the Company), approved by the Trustee in the exercise of reasonable care. The Trustee shall not be responsible for any loss or damage resulting from any action or non-action in good faith in reliance upon such opinion or advice. The Trustee shall not be answerable for the exercise or non-exercise of any discretion or power under the Indenture or for anything whatever in connection with the trusts herein created, except only for its own willful misconduct or negligence. No provision of the Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that such funds will not be repaid or if satisfactory indemnity against such risk or liability is not provided to the Trustee. Section 11.04. No Duty to Take Enforcement Action Unless so Requested by Owners of 25% of the Bonds. Unless and until an Event of Default shall have occurred and (i) written notice thereof shall have been given to the Trustee or (ii) the occurrence thereof otherwise shall be known to a Responsible Officer of the Trustee, the Trustee shall be under no obligation to take any action in respect of any default or otherwise in respect of or toward the execution or enforcement of any of the trusts hereby created, or to institute, appear in or defend any suit or other proceeding in connection therewith, unless requested in writing so to do by owners of at least twenty-five percent (25%) in aggregate principal amount of the Bonds then outstanding, and if in its opinion such action may tend to involve it in expense or liability, unless furnished, from time to time as often as it may require, with security and indemnity satisfactory to it; but the foregoing provisions are intended only for the protection of the Trustee, and shall not affect any discretion or power given by any provisions of the Indenture to the Trustee to take action in respect of any default without such notice or request from the Bondowners, or without such security or indemnity. Notwithstanding any other provision of the Indenture or the Participation Agreement, no right of the Trustee to indemnification shall prevent the Trustee from (a) making payments on the Bonds when due from moneys available to it, (b) accelerating the Bonds as required pursuant to Article X, or (c) drawing on the Letter of Credit to make payments on the Bonds when due. 157 111. Section 11.05. Right to Rely. The Trustee shall be protected and shall incur no liability in acting or proceeding in good faith upon any resolution, notice, telegram, request, consent, waiver, certificate, statement, affidavit, voucher, bond, requisition or other paper or document which it shall in good faith believe to be genuine and to have been authorized or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of the Indenture and the Trustee may require a written opinion from legal counsel who is reasonably acceptable to the Trustee, which counsel may be an employee of or counsel to the Company or the Trustee, confirming the accuracy of any such paper or document, and the Trustee shall be under no duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument but may accept and rely upon the same as conclusive evidence of the truth and accuracy of such statements. Section 11.06. Right to Own and Deal in Bonds and Engage in Other Transactions with Authority and Company. The Trustee may in good faith buy, sell, own, hold and deal in any of the Bonds issued hereunder and secured by the Indenture, and may join in any action which any Bondowner may be entitled to take with like effect as if the Trustee were not a party to the Indenture. The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Authority or the Company, and may act as depository, trustee, or agent for any committee or body of owners of the Bonds secured hereby or other obligations of the Authority as freely as if it were not Trustee hereunder. Section 11.07. Construction of Provisions of Indenture by Trustee. The Trustee may construe any of the provisions of the Indenture insofar as the same may appear to be ambiguous or inconsistent with any other provision thereof, and any construction of any such provisions hereof by the Trustee in good faith shall be binding upon the Bondowners. Section 11.08. Right to Resign Trust. The Trustee may at any time and for any reason resign and be discharged of the trusts created by the Indenture by (a) executing an instrument in writing resigning such trusts and specifying the date when such resignation shall take effect, (b) filing the same with the Secretary of the Authority (c) giving notice thereof in writing to the Company not less than 60 days before the date specified in such instrument when such resignation shall take effect, and (d) giving notice of such resignation to Bondowners by mail in the manner provided in Section 16.05, the mailing of said notice to occur not less than four weeks prior to the date specified in such notice when such resignation shall take effect. Such resignation shall take effect only upon 158 112. the appointment of a successor Trustee in accordance with the provisions of Section 11.10. Section 11.09. Removal of Trustee. (a)The Trustee at any time and for any reason may be removed by an instrument in writing, appointing a successor, filed with the Trustee so removed and executed by the owners of a majority in aggregate principal amount of the Bonds then outstanding; provided, however, that no such removal shall become effective until the acceptance of appointment by a successor Trustee in accordance with Section 11.13. (b) The Trustee at any time other than during the continuance of an Event of Default or the continuance of an event which but for the passage of time would constitute an Event of Default and for any reason may be removed by an instrument in writing, executed by an Authorized Officer, appointing a successor, filed with the Trustee so removed; provided, however, that no such removal shall become effective until the acceptance of appointment by a successor Trustee in accordance with Section 11.13. Section 11.10. Appointment of Successor Trustee by Bondowners or Authority. In case at any time the Trustee shall resign, or shall be removed, or be dissolved, or if its property or affairs shall be taken under the control of any state or federal court or administrative body because of insolvency or bankruptcy, or for any other reason, a vacancy shall forthwith and ipso facto exist in the office of the Trustee, then a successor may be appointed by the owners of a majority in aggregate principal amount of the Bonds then outstanding, by an instrument or instruments in writing filed with the Secretary of the Authority, signed by such Bondowners or by their attorneys-in-fact duly authorized. Copies of each such instrument shall be promptly delivered by the Authority to the predecessor Trustee, to the Trustee so appointed and to the Company. Until a successor Trustee shall be appointed by the Bondowners as herein authorized, the Authority, by an instrument authorized by resolution, shall appoint a Trustee to fill such vacancy. The Authority shall not appoint a Trustee without the approval of the Company as evidenced by a certificate in writing signed by an Authorized Company Representative, which approval shall not be unreasonably withheld. After any appointment by the Authority, it shall cause notice of such appointment to be mailed to the Bondowners in the manner provided in Section 16.05. Any new Trustee so appointed by the Authority shall immediately and without further act be superseded by a Trustee appointed by the Bondowners in the manner above provided. 159 113. Section 11.11. Qualifications of Successor Trustee. Every successor in the trusts hereunder appointed pursuant to the foregoing provision shall be a bank or trust company organized and doing business under the laws of the United States or any state or territory thereof with trust powers, shall have a combined capital and surplus of at least $100,000,000 and shall (or the parent corporation of such successor shall) be rated at least Baa-3 and/or P-3 or an equivalent rating by Moody's or otherwise be acceptable to Moody's and the Authority if such a bank or trust company willing and able to accept the trusts on customary terms can, with reasonable effort, be located. Section 11.12. Court Appointment of Successor Trustee. In case at any time the Trustee shall resign and no appointment of a successor Trustee shall be made pursuant to the foregoing provisions of this Article XI prior to the date specified in the notice of resignation as the date when such resignation shall take effect, the Trustee, the Company or the owner of any Bond may apply to any court of competent jurisdiction to appoint a successor Trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor Trustee. Section 11.13. Acceptance of Appointment by, and Transfer of Trust Estate to, Successor Trustee. Any successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Authority an instrument accepting such appointment hereunder as a fiduciary for the owners from time to time of the Bonds and shall request the Bank to transfer the Letter of Credit to it as successor Trustee, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become duly vested with all the estates, property, rights, powers, trusts, duties and obligations of its predecessor in the trust hereunder, with like effect as if originally named Trustee herein and shall give notice thereof to the Company. Upon request of such Trustee, the Trustee ceasing to act and the Authority shall execute and deliver an instrument transferring to such successor Trustee all the estates, property, rights, powers and trusts hereunder of the Trustee so ceasing to act, and the Trustee so ceasing to act shall pay over to the successor Trustee all moneys and other assets, including the Company Note at the time held by it hereunder. Section 11.14. Successor Trustee by Merger or Consolidation. Any corporation into which any Trustee hereunder may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which any Trustee hereunder shall be a party, or any corporation to which any Trustee hereunder may transfer all or substantially all of its assets, shall be the successor Trustee under the Indenture, without the execution or filing of any paper or any further act on the part 160 114. of the parties hereto, anything herein to the contrary notwithstanding. Section 11.15. Exercise of Rights and Powers During Event of Default. Notwithstanding any other provisions of this Article XI, the Trustee shall, during the existence of an Event of Default of which a Responsible Officer of the Trustee has actual knowledge, exercise such of the rights and powers vested in it by the Indenture and use the same degree of skill and care in their exercise as a prudent man would use and exercise under the circumstances in the conduct of his own affairs. Section 11.16. Trustee may Intervene in Judicial Proceedings Involving Authority or the Company. In any judicial proceeding to which the Authority or the Company is a party and which in the opinion of the Trustee and its counsel has a substantial bearing on the interests of owners of the Bonds, the Trustee may in its own name or as trustee of an express trust intervene on behalf of the owners of the Bonds and shall, upon receipt of indemnity satisfactory to it, do so if requested in writing by the owners of at least twenty-five percent (25%) in aggregate principal amount of Bonds then outstanding if permitted by the court having jurisdiction in the premises. Section 11.17. Paying Agents. The Authority may, with the approval of the Company as evidenced by a certificate in writing signed by an Authorized Company Representative, at any time or from time to time appoint one or more additional Paying Agents for the owners from time to time of the Bonds in the manner and subject to the conditions set forth in this Section 11.17. Each Paying Agent shall signify its acceptance of the duties and obligations imposed upon it by the Indenture by written instrument of acceptance deposited with the Authority, the Trustee and the Company. Each Paying Agent appointed in addition to the Trustee and the Tender Agent shall be a bank or trust company duly organized under the laws of the United States or any state or territory thereof, shall have a capital stock and surplus aggregating at least $100,000,000 and shall (or the parent corporation of such successor shall) be rated at least Baa-3 and/or P-3 or an equivalent rating by Moody's or otherwise be acceptable to Moody's and the Authority and shall be willing and able to accept the office on reasonable and customary terms and shall be authorized by law to perform all the duties imposed upon it by the Indenture. Any Paying Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at 161 115. least 60 days' prior written notice to the Authority, the Trustee and the Company. Any Paying Agent may be removed at any time by an instrument filed with such Paying Agent, the Company and the Trustee and signed by the Authority. In the event of the resignation or removal of any Paying Agent, such Paying Agent shall pay over, assign and deliver any moneys held by it as Paying Agent to its successor, or if there be no successor, to the Trustee. In the event that for any reason there shall be a vacancy in the office of any Paying Agent, the Trustee shall act as such Paying Agent. Each Paying Agent shall set aside, segregate and hold in a trust account in trust solely for the benefit of the owners from time to time of the Bonds moneys transferred to such Paying Agent for the payment of the principal of, premium, if any, and interest on the Bonds. Section 11.18. Appointment of Co-Trustee. It is the purpose of the Indenture that there shall be no violation of any law of any jurisdiction (including particularly the law of the State of New York) denying or restricting the right of banking corporations or associations to transact business as a trustee in such jurisdiction. It is recognized that in case of litigation under the Indenture or the Participation Agreement and in particular in case of the enforcement thereof upon an Event of Default, or in the case the Trustee deems that by reason of any present or future law of any jurisdiction it may not exercise any of the powers, rights or remedies herein granted to the Trustee or hold title to the properties, in trust, as herein granted, or take any action which may be desirable or necessary in connection therewith, it may be necessary that the Trustee appoint an additional individual or institution as a separate or co-trustee. The following provisions of this Section are adapted to these ends. In the event that the Trustee appoints an additional individual or institution as a separate or co-trustee, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by the Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate or co-trustee but only to the extent necessary to enable such separate or co-trustee to exercise such powers, rights and remedies, and every covenant and obligation necessary to the exercise thereof by such separate or co- trustee shall run to and be enforceable by either of them. Should any instrument in writing from the Authority be required by the separate or co-trustee so appointed by the Trustee 162 116. for more fully and certainly vesting in and confirming to it such properties, rights, powers, trusts, duties and obligations, any and all such instruments in writing shall, on request, be executed, acknowledged and delivered by the Authority. In case any separate or co-trustee or a successor to either shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate or co-trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new trustee or successor to such separate or co-trustee. 163 117. ARTICLE XII EXECUTION OF INSTRUMENTS BY BONDOWNERS AND PROOF OF OWNERSHIP OF BONDS Section 12.01. Execution of Instruments; Proof of Ownership of Bonds. Any request, direction, consent, or other instrument in writing required or permitted by the Indenture to be signed or executed by Bondowners may be in any number of concurrent instruments of similar tenor and shall be signed or executed by such Bondowners in person or by agent appointed by an instrument in writing. Proof of the execution of any such instrument and of the ownership of Bonds shall be sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner: (a) The fact and date of the execution by any Person of any such instrument may be proved by the certificate of any officer in any jurisdiction who, by the laws thereof, has power to take acknowledgements within such jurisdiction, to the effect that the Person signing such instrument acknowledged before him or her the execution thereof, or by an affidavit of a witness to such execution. (b) The ownership of Bonds shall be proved by the Bond Register. Nothing contained in this Article XII shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which to it may seem sufficient. Any request or consent of the owner of any Bond shall bind every future owner of the same Bond, or any Bond issued in exchange or substitution therefor, in respect of anything done by the Trustee in pursuance of such request or consent. 164 118. ARTICLE XIII INDENTURES SUPPLEMENTAL HERETO Section 13.01. Supplemental Indentures not Requiring Consent of Bondowners. Subject to the conditions and restrictions herein contained, the Authority and the Trustee may, without the consent of or notice to the Bondowners, enter into an indenture or indentures supplemental hereto, for any one or more of the following purposes: (a) To cure any ambiguity or formal defect or omission in the Indenture; (b) To grant to or confer upon the Trustee for the benefit of the Bondowners any additional rights, remedies, power or authority that may lawfully be granted to or conferred upon the Bondowners or the Trustee or either of them; (c) To subject to the provisions of the Indenture additional revenues, properties or collateral; (d) To modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under any federal statute now or hereafter in effect or under any state Blue Sky Law, and, in connection therewith, if they so determine, to add to the Indenture, such other terms, conditions and provisions as may be permitted or required by said federal statute or Blue Sky Law; (e) To modify, amend or supplement the Indenture in such manner as to permit the qualification of the Bonds for deposit with a Securities Depository, and, in connection therewith, if they so determine, to add to the Indenture, such other terms, conditions and provisions as may be required to permit such qualification; or (f) To provide for any change in the Indenture which is not prejudicial to the interests of the Trustee or the Bondowners, including but not limited to any change necessary to obtain or maintain a rating on the Bonds from Moody's or S&P. 165 119. Section 13.02. Supplemental Indentures Requiring Consent of Bondowners. Except as otherwise provided in Section 13.01, any modification or amendment of the Indenture may be made only with the consent of the owners of not less than two-thirds in aggregate principal amount of the Bonds then outstanding and shall be set forth in a Supplemental Indenture. No such modification or amendment shall be made which will reduce the percentages of aggregate principal amount of Bonds, the consent of the owners of which is required for any such modification or amendment, or permit the creation by the Authority of any lien prior to or on a parity with the lien of the Indenture upon the Company Note Payments and other funds pledged hereunder, or which will affect the times, amounts and currency of payment of the principal of and premium, if any, and interest on the Bonds without the consent of the owners of all Bonds then outstanding and affected thereby. If at any time the Authority shall request the consent of Bondowners to the execution of any such Supplemental Indenture for any of the purposes of this Section, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Supplemental Indenture to be given as shall be reasonably requested by the Authority and in any event mailed to Bondowners in the manner provided in Section 16.05. Such notice shall briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the Corporate Trust Office of the Trustee for inspection by all Bondowners. If, within 60 days or such longer period as shall be prescribed by the Authority following the mailing of such notice, the required consent and approval of Bondowners is obtained, no owner of any Bond shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Authority or the Trustee from executing the same or restrain the Authority or the Trustee from taking any action pursuant to the provisions thereof. Upon the execution of any such Supplemental Indenture as in this Section permitted and provided, the Indenture shall be and be deemed to be modified and amended in accordance therewith. The Trustee shall consent to any such Supplemental Indenture requiring the consent of Bondowners if the required consent of Bondowners is obtained; provided that the Trustee may, but shall not be obligated to consent to any Supplemental Indenture which affects its own rights, powers, duties or obligations hereunder. 166 120. Section 13.03. Company and Bank Consent to Amendment of Indenture. The Authority and the Trustee shall not enter into any indenture supplemental to or amendatory of the Indenture without the prior consent of the Company as evidenced by a certificate in writing signed by an Authorized Company Representative and no such indenture supplemental to or amendatory of the Indenture shall be or become effective until such consent (as so evidenced) shall have been given by the Company. Prior to the expiration of the Letter of Credit, the Trustee shall not enter into any indenture supplemental to or amendatory of the Indenture without the prior written consent of the Bank, which consent shall not be unreasonably withheld. 167 121. ARTICLE XIV DEFEASANCE Section 14.01. Defeasance. 1. If at any time: (a) there shall have been delivered to the Trustee for cancellation all the Bonds (other than any Bonds which have been mutilated, lost, stolen or destroyed and which shall have been replaced or paid as provided in the Indenture, except for any such Bonds as are shown by proof satisfactory to the Trustee to be held by bona fide owners), or (b) with respect to all the Bonds not theretofore delivered to the Trustee for cancellation, the whole amount of the principal and the interest and the premium, if any, due and payable on such Bonds then outstanding shall be paid in accordance with the terms thereof and the terms of the Indenture (including but not limited to Section 6.03) or deemed to be paid as set forth below, and provision shall also be made for paying all other sums payable hereunder, including the Authority's, Trustee's, Tender Agent's, Remarketing Agent's, Indexing Agent's and Paying Agent's fees and expenses, then the Trustee, in such case, on written demand of the Authority or the Company, shall release the Indenture with respect to such Bonds and turn over to the Company the Company Note and turn over to the Bank the Letter of Credit, and shall execute such documents as may be reasonably required by the Authority and the Company to evidence such release. If the Bank certifies to the Trustee that any amount remains unpaid under the Reimbursement Agreement, the Trustee shall pay to the Bank any balances remaining in any fund created under the Indenture, other than (i) moneys and Investment Obligations retained for the redemption or payment of principal, interest or Purchase Price of Bonds which shall be held under the Indenture for the benefit of the Owners and (ii) moneys held in the Rebate Fund which shall be paid to the Company. Notwithstanding the foregoing, the Trustee shall not release the Project Fund or Rebate Fund or any funds therein to the Company until it shall have received an Opinion of Bond Counsel to the effect that such funds may be transferred to the Company without adversely affecting the exclusion of interest on any series of Bonds from gross income for federal income tax purposes; and all rights and immunities of the Trustee, including its rights to indemnification and to payment of fees and expenses under the Indenture or the Participation Agreement, shall survive the satisfaction of the Indenture under this Article XIV. 168 122. 2. After the date that the interest rate on the Bonds is converted to a Fixed Rate, Bonds shall be deemed to be paid whenever there shall have been deposited with the Trustee (whether upon or prior to the maturity or the redemption date of such Bonds) either moneys in an amount which shall be sufficient, or noncallable obligations, not subject to prepayment, issued or guaranteed as to full and timely payment by the United States of America (including any certificates or any other evidence of an ownership interest in such obligations or in specified portions thereof, which may consist of specified portions of the principal thereof or the interest thereon and which certificates or other evidence of an ownership interest must be rated by the Rating Agency then rating the Bonds at least as high as the obligations issued or guaranteed by, or backed by the full faith and credit of, the United States of America, which obligations are held by a custodian in safekeeping on behalf of the owners thereof) (such noncallable obligations, certificates and other evidence are herein referred to as "Investment Obligations") of such maturities and interest payment dates and bearing such interest as will, without the necessity of further investment or reinvestment of either the principal amount thereof or interest therefrom, provide moneys which shall be sufficient, to pay when due the principal of and premium, if any, and interest due and to become due on all such Bonds on and prior to the redemption date or maturity date thereof, as the case may be, or a combination of such moneys and Investment Obligations which shall be sufficient for such purposes, and the Trustee shall have given notice to the Registered Owners of such Bonds in the manner provided in Section 16.05 that a deposit meeting the requirements of this paragraph has been made and stating such maturity or redemption date upon which moneys are to be available for the payment of the principal or redemption price, if applicable, on such Bonds; provided, however, that neither Investment Obligations nor moneys deposited with the Trustee pursuant to this paragraph nor principal or interest payments on any Investment Obligations shall be withdrawn, or used for any purpose other than, and shall be held in trust for, the payment of the principal of and premium, if any, and interest on such Bonds. 3. Prior to the date that the interest rate on the Bonds is converted to a Fixed Rate, Bonds shall be deemed to be paid whenever (i) there shall have been deposited with the Trustee in the Bond Fund, Available Moneys in an amount which shall be sufficient, without the necessity of further investment or reinvestment of either the principal amount thereof or interest therefrom, to pay when due the principal of, premium, if any, and interest due and to become due on the Bonds (computed at the maximum interest rate that may become applicable to the Bonds) on and prior to the redemption date or maturity date thereof, as the case may be, provided, however, if the Bonds are subject to 169 123. optional or mandatory tender for purchase prior to the redemption date or maturity date thereof, as the case may be, such deposit also must be in an amount which shall be sufficient, without the necessity of such further investment or reinvestment, to pay when due the Purchase Price which may become applicable to the Bonds prior to the redemption date or maturity date, as the case may be, and (ii) any Rating Agency then rating the Bonds shall have received both an opinion of a nationally recognized accounting firm as to the sufficiency of the deposit in clause (i), without the necessity of further investment or reinvestment, and an unqualified opinion of counsel experienced in bankruptcy matters and satisfactory to the Trustee and to Moody's, if the Bonds are then rated by Moody's, to the effect that the application of such Available Moneys to the payment of principal of, premium, if any, and interest on the Bonds would not result in a preferential payment pursuant to the provisions of Section 547 of the United States Bankruptcy Code, 11 U.S.C. Section Section 101, et seq.; and, if the Bonds are to be redeemed the Trustee shall have given, or shall have received, in form satisfactory to it, irrevocable instructions to give, on a date in accordance with the provisions of Article VIII, notice of redemption of the Bonds to Bondowners; provided, however, that if the Trustee shall not have given notice of redemption to the Bondowners because such notice is not yet due, then the Trustee shall give notice to the Registered Owners of such Bonds in the manner provided in Section 16.05 that a deposit meeting the requirements of this paragraph has been made and stating such maturity or redemption date upon which moneys are to be available for the payment of principal or redemption price, if applicable, on such Bonds. Moneys so deposited with the Trustee shall not be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of, premium, if any, and interest on, the Bonds or for the payment of the Purchase Price of Bonds or authorized denominations thereof, in accordance with Section 2.05; provided that such moneys, if not then needed for such purpose, shall, to the extent practicable, upon written direction of the Company be invested and reinvested in Investment Obligations maturing on or prior to the earlier of (i) the date moneys may be required for the purchase of Bonds pursuant to Section 2.05 or (ii) the date moneys may be required to pay principal, premium, if any, or interest on the Bonds as evidenced by an opinion of a nationally recognized accounting firm or such other evidence as may be acceptable to the Trustee. Subject to the provisions of the next succeeding sentence and the last sentence of Section 14.01.1, neither the Company nor the Authority shall have any interest in, or ability to withdraw amounts from, any moneys so deposited with the Trustee. Amounts determined by the Trustee to be in excess of the amount necessary to pay the principal of, premium, if any, and interest (computed at the maximum interest rate that may become applicable to the Bonds on or prior to the 170 124. redemption date or maturity date, as applicable) on, the Bonds or the Purchase Price thereof (computed at the maximum interest rate that may become applicable to the Bonds on or prior to the redemption date or Maturity Date, as applicable) pursuant to Section 2.05 shall, upon a written direction of the Company, be paid over to the Company, as received by the Trustee, free and clear of any trust, lien or pledge. 171 125. ARTICLE XV REMARKETING AGENTS; REMARKETING OF BONDS; INDEXING AGENT; TENDER AGENT Section 15.01. Appointment and Duties of Remarketing Agents. The Authority has appointed, with the approval of the Company, Dillon, Read & Co. Inc. and Lehman Brothers Inc. as the initial Remarketing Agents for the Bonds. Each Remarketing Agent shall designate to the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Authority, the Company and the Trustee under which such Remarketing Agent will agree particularly to (i) perform its obligations under Section 2.03 with respect to the determination of the Weekly Rate, the Semi-Annual Rate, the Medium-Term Rate, the Money Market Municipal Rate, and the Fixed Rate (ii) perform its obligations under Section 2.06 with respect to any Bond delivered or deemed to have been delivered to the Tender Agent for purchase pursuant to Section 2.05, and (iii) keep books and records with respect to its activities hereunder as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Authority, the Trustee, the Company and the Bank at all reasonable times. Such acceptance shall include a designation of one Remarketing Agent as the "Remarketing Representative" who shall act on behalf of the other Remarketing Agent(s) and the acceptance by each Remarketing Agent of the determinations of the Remarketing Representative. Each Remarketing Agent acts as an agent for the purchasers of remarketed Bonds and not as an agent of the Authority or the Company in connection with any moneys delivered to it for the purchase of Bonds. The Authority shall cooperate with the Trustee, the Tender Agent and the Company to cause the necessary arrangements to be made and to be thereafter continued whereby funds from the sources specified herein and in the Participation Agreement will be made available for the purchase of Bonds presented at the Corporate Trust Office of the Tender Agent and whereby Bonds executed by the Authority and authenticated by the Trustee shall be made available to the Tender Agent to the extent necessary for delivery pursuant to Section 2.07. Section 15.02. Qualifications of a Remarketing Agent. Each Remarketing Agent shall be a commercial bank or member of the National Association of Securities Dealers, Inc., having a capitalization of at least $25,000,000 and authorization by law to perform all the duties imposed upon it by the Indenture (provided 172 126. that to qualify as a successor Remarketing Agent, such successor, or the parent corporation of such successor, shall be rated at least Baa-3 and/or P-3 or an equivalent rating by Moody's or otherwise be acceptable to Moody's and the Authority). Subject to the provisions of the next succeeding paragraph, a Remarketing Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at least thirty (30) days' notice to the Authority, the Company and the Trustee. A Remarketing Agent may be removed upon 30 days' notice, upon written request of the Company, by an instrument, signed by the Authority, filed with the Company, each Remarketing Agent (if more than one), the Indexing Agent, the Bank, the Tender Agent and the Trustee. In the event that a Remarketing Agent shall resign or be removed, and the Authority shall not have appointed a successor as Remarketing Agent and there are no other Remarketing Agents continuing to serve hereunder, then the last such Remarketing Agent or Remarketing Agent to resign or be removed notwithstanding the provisions of the first paragraph of this Section 15.02, shall continue as the Remarketing Agent solely for the purpose of determining the interest rate to be borne by the Bonds until the appointment by the Authority of a successor Remarketing Agent. Section 15.03. Appointment and Duties of Indexing Agents. The Authority shall, with the approval of the Company, appoint the Indexing Agent for the Bonds, subject to the conditions set forth in this Section. There may be separate Indexing Agents for the purpose of calculating each of the interest indices set forth in Section 1.01. The Indexing Agent shall designate to the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Authority, the Trustee, the Company and the Remarketing Agents under which the Indexing Agent will agree, particularly: (a) to compute the Weekly Rate Index, Semi-Annual Rate Index, the Medium-Term Rate Index, the Money Market Municipal Rate Index or the Fixed Rate Index, as the case may be, pursuant to and in accordance with Section 2.03, and when the Bonds bear interest at the related Rate, to give written notice to the Trustee, the Remarketing Agents and the Company of such index on the date of the computation thereof; and (b) to keep such books and records as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Authority, the Trustee, the Remarketing Agents and the Company at all reasonable times. 173 127. The Indexing Agent will perform the duties provided for in Section 2.03. Whenever the Indexing Agent makes a computation under that Section, it will promptly notify in writing the Trustee, the Authority, the Remarketing Agents and the Company of the results and date of computation. The Indexing Agent will keep adequate records pertaining to the performance of its duties and allow the Trustee, the Authority, the Remarketing Agents and the Company to inspect the records at reasonable times. Section 15.04. Qualifications of Indexing Agents. The Indexing Agent shall be a commercial bank, a member of the National Association of Securities Dealers, Inc. or a nationally recognized municipal securities evaluation service authorized by law to perform all the duties imposed upon it by the Indenture. The Indexing Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at least sixty (60) days' written notice to the Authority, the Company, the Remarketing Agents and the Trustee. The Indexing Agent may be removed at any time, at the written direction of the Company, by an instrument, signed by the Authority, filed with the Company, the Indexing Agent, the Remarketing Agents, the Trustee and the Bank. In the event that the Authority shall fail to appoint an Indexing Agent hereunder or the Indexing Agent shall resign or be removed, or be dissolved, or if the property or affairs of the Indexing Agent shall be taken under the control of any state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, and the Authority shall not have appointed its successor as Indexing Agent, the Remarketing Representative, notwithstanding the provisions of the first paragraph of this Section 15.04, shall ipso facto be deemed to be the Indexing Agent solely for the purpose of determining the interest rate to be borne by the Bonds until the appointment by the Authority of the Indexing Agent or successor Indexing Agent, as the case may be. Section 15.05. Dealings With the Authority and the Company. The Remarketing Agents and the Indexing Agent may in good faith buy, sell, own, hold and deal in any of the Bonds issued hereunder, and may join in any action which any Bondowner may be entitled to take with like effect as if it did not act in any capacity hereunder. The Remarketing Agents and the Indexing Agent, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Authority or the Company, and may act as depository, trustee or agent for any committee or body of Bondowners secured hereby or other obligations of the Authority as freely as if it did not act in any capacity hereunder. 174 128. Section 15.06. Tender Agent. The Authority shall, with the approval of the Company and the Bank, appoint the Tender Agent for the Bonds, subject to the conditions set forth in Section 15.07. The Tender Agent shall designate its Corporate Trust Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument of acceptance delivered to the Authority, the Trustee, the Remarketing Agents, the Indexing Agent, the Bank and the Company under which the Tender Agent will agree, particularly to perform its obligations under Article II and to request the Trustee to draw on the Letter of Credit as provided in Section 6.07.1. Notwithstanding anything to the contrary in the Indenture, the Tender Agent shall not invest any moneys it receives from such a draw on the Letter of Credit. The Tender Agent may designate from time to time a different Corporate Trust Office within The City of New York, New York, by a written instrument delivered to the Authority, the Trustee, the Remarketing Agents, the Indexing Agent, the Bank and the Company. The Tender Agent undertakes to perform such duties, and only such duties, as are specifically set forth in the Indenture and in any written instrument of acceptance of duties hereunder and no implied covenants shall be read into the Indenture against the Tender Agent. Insofar as such provisions may be applicable, the Tender Agent shall enjoy the same protective provisions in the performance of its duties hereunder as are specified in Sections 11.03, 11.05, 11.06, 11.07 and 11.14 with respect to the Trustee. Section 15.07. Qualifications of Tender Agent; Resignation; Removal. Any successor Tender Agent shall be a bank or trust company or a corporation duly organized under the laws of the United States of America or any state or territory thereof, which has an office in The City of New York, New York, and having a combined capital stock, surplus and undivided profits of at least $100,000,000 and authorized by law to perform all the duties imposed upon it by the Indenture. The Tender Agent may at any time resign and be discharged of the duties and obligations created by the Indenture by giving at least sixty (60) days' notice to the Authority, the Trustee, the Remarketing Agents, the Indexing Agent and the Company. The Tender Agent may be removed at any time, at the request of the Company, by an instrument, signed by the Authority, delivered to the Tender Agent, and to the Trustee, the Remarketing Agents, the Bank and the Indexing Agent. Any such resignation or removal of the Tender Agent shall not take effect until the appointment of a successor Tender Agent. 175 129. In the event of the resignation or removal of the Tender Agent, the Tender Agent shall pay over, assign and deliver any moneys and Bonds held by it in such capacity to its successor (provided that to qualify as a successor Tender Agent, such successor, or the parent corporation of such successor, shall be rated at least Baa-3 and/or P-3 or an equivalent rating by Moody's or otherwise be acceptable to Moody's and the Authority) or, if there be no successor, to the Trustee. In the event that the Tender Agent shall resign or be removed, or be dissolved, or if the property or affairs of the Tender Agent shall be taken under the control of the state or federal court or administrative body because of bankruptcy or insolvency, or for any other reason, a successor may be appointed by the Authority with the prior written approval of the Bank and the Trustee. Any such successor shall have an office in The City of New York, New York, and shall be acceptable to the Trustee. Written notice of such appointment shall immediately be given by the Company to the Trustee and the Remarketing Agents and the Trustee shall cause written notice of such appointment to be given to the owners of the Bonds. Any successor Tender Agent shall execute and deliver an instrument accepting such appointment and thereupon such successor, without any further act, deed or conveyance, shall become fully vested with all rights, powers, duties and obligations of its predecessor, with like effect as if originally named as Tender Agent, but such predecessor shall nevertheless, on the written request of the Authority or the Trustee, or of the successor, execute and deliver such instruments and do such other things as may reasonably be required to more fully and certainly vest and confirm in such successor all rights, powers, duties and obligations of such predecessor. If no successor Tender Agent has accepted appointment in the manner provided above within 90 days after the Tender Agent has given notice of its resignation as provided above, the Tender Agent may petition any court of competent jurisdiction for the appointment of a temporary successor Tender Agent; provided that any Tender Agent so appointed shall immediately and without further act be superseded by a Tender Agent appointed by the Authority as provided above. The Tender Agent shall not be required to take or be deemed to have notice of any Event of Default or of any event which the lapse of time or giving of notice, or both, would constitute an Event of Default unless an officer in its Corporate Trust Office shall have received written notice thereof from the Authority, the Bank or the Trustee. 176 130. ARTICLE XVI MISCELLANEOUS Section 16.01. Parties in Interest. Except as herein otherwise specifically provided, nothing in the Indenture expressed or implied is intended or shall be construed to confer upon any Person other than the Company, the Authority, the Trustee, the Tender Agent, the Bank and the owners of the Bonds hereunder, any right, remedy or claim under or by reason of the Indenture, the Indenture being intended to be for the sole and exclusive benefit of the Company, the Authority, the Trustee, the Bank and the owners of the Bonds. Section 16.02. Severability. In case any one or more of the provisions of the Indenture or of the Bonds issued hereunder shall, for any reason, be held to be illegal or invalid, such illegality or invalidity shall not affect any other provisions of the Indenture or of the Bonds, and the Indenture and the Bonds shall be construed and enforced as if such illegal or invalid provisions had not been contained therein. Section 16.03. No Individual Liability. No covenant or agreement contained in the Bonds or in the Indenture shall be deemed to be the covenant or agreement of any member, agent or employee of the Authority in his or her individual capacity, and neither the members of the Authority nor any official executing the Bonds shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. Section 16.04. Payment Due on Saturdays, Sundays and Holidays. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of any Bonds or any Mandatory Purchase Date shall be on a day other than a Business Day, then payment of interest or principal and premium, if any, or Purchase Price, need not be made on such date but may be made (without additional interest) on the next succeeding Business Day, with the same force and effect as if made on the date of maturity or the date fixed for redemption or the Mandatory Purchase Date. Section 16.05. Notices. (a) All notices, certificates, requests or other communications hereunder shall be sufficiently given and shall be deemed given, unless otherwise required by the Indenture, when mailed by first class mail, postage prepaid, addressed as follows: If to the Authority, at Empire State Plaza, Agency Building #2, Albany, New York 12223, Attention: President; if to the Company, at 175 East Old Country Road, Hicksville, New 177 131. York, Attention: Treasurer; if to the Trustee, at 450 West 33rd Street, 15th Floor, New York, New York 10001, Attention: Corporate Trustee Administration Department; if to the Tender Agent, at 55 Water Street, Room 234, North Building, New York, New York 10041, Attention: Corporate Tellers; if to the Bank, at its address specified in the Reimbursement Agreement; and, if to the Indexing Agent or Remarketing Agents, at the address specified in their respective acceptances delivered pursuant to Article XV. A duplicate copy of each notice, certificate, request or other communication given hereunder to the Authority, the Company, the Trustee, the Bank, the Indexing Agent, the Tender Agent or the Remarketing Agents shall also be given to the Authority, the Company and the Trustee. The Company, the Authority, the Trustee, the Bank, the Remarketing Agents and the Indexing Agent may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Any notice or other communication to be mailed to Registered Owners of the Bonds hereunder shall be mailed by first class mail in a sealed envelope, postage prepaid, addressed to each such Bondowner as his or her address last appears on the Bond Register. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impractical to mail notice to the Registered Owners of Bonds of any event when such notice is required to be given pursuant to any provision of the Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice. (b) So long as the Bonds shall be rated by Moody's, the Trustee shall furnish to Moody's at 99 Church Street, New York, New York, Attn: Structured Transactions Group or such other office as Moody's may designate to the Trustee, and if the Bonds shall be rated by S&P, the Trustee shall furnish to S&P, (i) a copy of each amendment to the Indenture, Participation Agreement, Letter of Credit, and Reimbursement Agreement of which it has knowledge, (ii) notice of the termination, extension or expiration of any Letter of Credit, (iii) notice of the payment of all the Bonds, (iv) notice of conversion to a Medium-Term Rate Period of greater than three years duration or a Fixed Rate, and (v) notice of any successor Trustee, Paying Agent, Tender Agent or Remarketing Agents; provided, however, that failure by the Trustee to notify Moody's or S&P shall not result in any liability on the part of the Trustee or affect the validity of such documents or actions. SECTION 16.06. GOVERNING LAW. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION OF THE INDENTURE AND OF THE BONDS. 178 132. Section 16.07. Effective Date; Counterparts. The Indenture shall become effective on delivery. The Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 16.08. References to the Bank. After the establishment of a Fixed Rate for the Bonds and upon receipt by the Trustee of notice from the Bank that all amounts payable to the Bank with respect to draws under the Letter of Credit have been received, all references in the Indenture to the Bank shall be ineffective. Section 16.09. Date for Identification Purposes Only. The date of the Indenture shall be for identification purposes only and shall not be construed to imply that the Indenture was delivered as of any date other than the actual date of the delivery hereof by the parties hereto. 179 IN WITNESS WHEREOF, the Authority has caused the Indenture to be executed by its Chair and its corporate seal to be hereunto affixed and attested by its Secretary, and the Trustee has caused the Indenture to be executed by one of its Vice Presidents or Assistant Vice Presidents and attested by one of its authorized officers or persons, all as of the date first above written. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY By /s/ Francis J. Murray, Jr. -------------------------- Chair (SEAL) Attest: /s/ Howard A. Jack - ------------------- Secretary CHEMICAL BANK AS TRUSTEE By /s/ Glenn Booth ------------------------ ASSISTANT VICE PRESIDENT (SEAL) Attest: /s/ L. O'Brien - ----------------------- ASSISTANT SECRETARY 180 STATE OF NEW YORK ) : ss.: COUNTY OF ALBANY ) On the 9th day of November, 1993, before me personally came Francis J. Murray, Jr., to me known, who being by me duly sworn, did depose and say that he is Chair of New York State Energy Research and Development Authority, the Authority described in and which executed the above instrument and that he signed his name thereto by authority of the members of said Authority. /s/ Jacquelyn L. Jerry ---------------------- Notary Public Jacquelyn L. Jerry Notary Public, State of New York No. 4953824 Qualified in Albany County Commission Expires July 31, 1995 STATE OF NEW YORK ) : ss.: COUNTY OF ALBANY ) On the 9th day of November, 1993, before me personally came Howard A. Jack, to me known, who being by me duly sworn, did depose and say that he is Secretary of New York State Energy Research and Development Authority, the Authority described in and which executed the above instrument; that he knows the seal of said Authority, the Authority described in and which executed the above instrument; that he knows the seal of said Authority; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the members of said Authority, and that he signed his name thereto by like authority. /s/ Jacquelyn L. Jerry ---------------------- Notary Public Jacquelyn L. Jerry Notary Public, State of New York No. 4953824 Qualified in Albany County Commission Expires July 31, 1995 181 135. STATE OF NEW YORK ) : ss.: CITY OF NEW YORK ) On the 17th day of November, 1993 before me personally came Glenn Booth and L. O'Brien, to me known, who, being by me duly sworn, did depose and say that they are a(n) Assistant Vice President and a(n) Assistant Secretary, respectively, of Chemical Bank, the Trustee, described in and which executed the above instrument; that they know the seal of said Trustee; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Corporate Trust Committee of the Board of Directors of said Trustee, and that they signed their names thereto by like authority. /s/ Annabelle DeLuca -------------------- Notary Public ANNABELLE DELUCA Notary Public, State of New York No. 01DE5013759 Qualified in Kings County Certificate Filed in New York County Commission Expires July 15, 1995 182 EXHIBIT A [Intentionally Omitted] 183 EXHIBIT B NOTICE OF ELECTION TO RETAIN BOND* FOLLOWING A MANDATORY PURCHASE DATE [Name and Address of Tender Agent] Attention: Bond Tender Unit Gentlemen: This notice is being sent to you in your capacity as Tender Agent under the Indenture of Trust (the "Indenture"), dated as of November 1, 1993, between New York State Energy Research and Development Authority (the "Authority") and Chemical Bank as Trustee (the "Trustee"), relating to the Authority's $__________ aggregate principal amount Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series B (the "Bonds"). You are hereby notified that: 1. The undersigned is the owner of Bond No.(s) _______________ outstanding under the Indenture in the principal amount(s) of $__________. 2. The undersigned's address is ________________ ______________________. 3. The undersigned has received a notice from the Trustee that the Bonds are required to be tendered on the Mandatory Purchase Date for purchase on the Mandatory Purchase Date as a result of the matters discussed in such notices. 4. The undersigned elects to retain Bond No.(s) ____________ in the principal amount(s) of $_____________ (or any portion thereof in an authorized denomination) and will not tender such Bond(s) (or portion thereof as aforesaid) on the Mandatory Purchase Date (or prior thereto) for purchase pursuant to Section 2.05(e)(4) of the Indenture. 5. The undersigned agrees to surrender such Bond(s) to be retained by the undersigned to [Name of Trustee], as Trustee, on the Mandatory Purchase Date in exchange for a replacement Bond or - ---------------------------------- *Note: Owners of Bonds may not elect to retain (i) if the Bonds currently bear interest at a Money Market Municipal Rate and (ii) unless the Bonds continue to be secured by a Letter of Credit after the Mandatory Purchase Date or have been converted to a Fixed Rate, as more particularly set forth in Section 2.05(e) of the Indenture. 184 Bonds bearing the appropriate legend and in the following denomination(s): ______________________. 6. The undersigned acknowledges that this notice of election is irrevocable and that the events specified in the notice from the Trustee referred to in Paragraph 3 above are to occur. 7. The undersigned acknowledges that the rating assigned by Moody's or S&P, if any, to the Bonds may be lowered or withdrawn as a result of the matters described in the notice from the Trustee referred to in Paragraph 3 above. 8. All capitalized terms not otherwise defined herein shall have the meaning given to such terms in the Indenture. Dated: ----------, ---- ----------------------- ------------------------------ Witness Name of owner as it is written on the face of the above-identified Bonds, in every particular without alteration, enlargement or any change whatsoever.
B-2 185 EXHIBIT C REQUISITION CERTIFICATE Long Island Lighting Company (the "Company") hereby requests Chemical Bank, as Trustee, under the Indenture of Trust relating to New York State Energy Research and Development Authority's (the "Authority") Electric Facilities Revenue Bonds (Long Island Lighting Company Project), 1993 Series B dated as of November 1, 1993 (the "Indenture"), to withdraw $___________ from the Construction Account in the Project Fund established under the Indenture for purposes permitted by Section 5.03 thereof. In connection with this withdrawal, the Company states as follows: 1. This requisition relates to the Bond Proceeds Sub-Account of the separate account in the Project Fund relating to the Project (as defined in the Indenture). 2. The number of this requisition is No. _____. 3. Payments aggregating $____________ are due to the following persons in the following amounts for expenditures incurred in connection with the Project: Person Amount Item ------ ------ ---- 4. Payment is due to the Company in the total amount of $____________ in reimbursement for amounts paid by the Company in connection with the Project as shown on the Schedule attached hereto. Deposit such payment by wire transfer to the ___________________________ _____________________________________________________. 5. Each amount referred to in paragraphs 3 and 4 hereof will be used to pay, or reimburse the Company for, a Cost of Construction of such Project and is a proper charge against the separate account for such Project in the Project Fund. 6. None of the items for which the disbursement is requested has formed the basis for any disbursement heretofore made from the Project Fund. 7. The disbursement will not be used in a manner that would result in a violation of any representation, warranty or 186 covenant contained in Section 5.04 of the Participation Agreement or in the Tax Regulatory Agreement. 8. No "event of default" as defined in the Participation Agreement has occurred and is continuing and no event which with the lapse of time alone would become such a default has occurred and is continuing. 9. No "event of default" as defined in the Indenture has occurred and is continuing and no event which with the lapse of time alone would become such a default has occurred and is continuing. Capitalized terms used in this requisition are used as defined in the Indenture. I am an Authorized Company Representative. LONG ISLAND LIGHTING COMPANY By: -------------------------- Name: Title: C-2 187 C-3 EX-10.W 7 SUPPLEMENTAL DEATH BENEFITS 1 Exhibit 10(w) SUPPLEMENTAL DEATH AND RETIREMENT BENEFITS PLAN OF LONG ISLAND LIGHTING COMPANY As Amended and Restated Effective January 1, 1993 2 ARTICLE I PURPOSE OF PLAN This Supplemental Death and Retirement Benefits Plan of Long Island Lighting Company (The "Plan") provides death benefits and unfunded retirement benefits for Officers and other Principal Executives of LILCO who are subject to disproportionate amounts of income tax as a result of protecting their Beneficiaries during their active employment. This plan also mitigates the more severe cost of living erosion such executives experience after retirement. The Company believes that this additional compensation will make LILCO's Executive Compensation Program sufficiently competitive so that the Company will continue to attract, retain, and motivate highly qualified executives. ARTICLE II DEFINITIONS Wherever used in the Plan, the masculine pronoun shall be deemed to include the feminine. Words used in the singular or plural shall be construed as if plural or singular, respectively, where they would so apply. * * * * * * * * * * * * Wherever used herein: 2.1 "Beneficiary" means the person or persons (including the Participant's spouse) whom the Participant designated to receive the benefits payable under the Plan. For the retirement benefits provided under Section 5.5, each Participant must name the Beneficiary on a form furnished by and filed with the Plan Administrator. Each Participant may change the Beneficiary by filing with the Plan Administrator written notice to that effect on a form furnished by the Plan Administrator. The change will take effect when the Plan Administrator receives notice. For the death benefits provided under Article V, the Beneficiary means the person or persons whom the Participant designated in the manner prescribed by the insurer or in the manner described in Section 5.3 or 5.4. With respect to both retirement and death benefits, if no Beneficiary is selected, payment will be made to the Participant's estate. -2- 3 2.2 "Company" or "LILCO" means Long Island Lighting Company, a New York Corporation. 2.3 "Compensation" means the Participant's highest annual rate of base pay in effect at any time. 2.4 "Effective Date" means April 1, 1981. 2.5 "Executive Officer" means the Chief Executive Officer and the President of the Company. Each Executive Officer will have five Units of Compensation. 2.6 "Disability Leave Plan" means the Disability Leave Plan of Long Island Lighting Company in effect as of January 1, 1993. 2.7 "Long Term Disability Plan" means the Long Term Disability Plan for Management and Management Support Employees of Long Island Lighting Company in effect as of January 1, 1993. 2.8 "Normal Retirement Date" means the first day of the month nearest the Participant's 65th birthday. 2.9 "Officer" means an employee who, on or after January 1, 1993, is either (a) a Company Officer, or (b) an Assistant Vice President. Each Officer will have three Units of Compensation. 2.10 "Participant" means an Executive Officer, an Officer, or a Principal Executive during the period of his eligibility in the Plan. 2.11 "Plan" means the plan set forth herein, known as the "Supplemental Death And Retirement Benefits Plan of Long Island Lighting Company," as it may be amended from time to time. 2.12 "Plan Administrator" means an appointed or duly elected Officer of the Company designated by the Board of Directors. 2.13 "Principal Executive" means an employee of the Company who meets the conditions set forth in (a) or (b) below and has been provided with notice of his status as a Participant in the Plan. (a) Before the date on which any designations are made in accordance with the provisions of section 2.13(b), an employee who was a -3- 4 Principal Executive between April 1, 1981 and November 30, 1986. Principal Executives satisfying this condition will have two Units of Compensation for calculating Death Benefits under Article V and three Units of Compensation for calculating Retirement Benefits under Section 5.5(2). (b) Subsequent to December 31, 1992, an employee who has been designated by the Board of Directors to be a Principal Executive for purposes of the Plan. Principal Executives satisfying this condition will have two Units of Compensation. 2.14 "Years of Participation" means the period measured in years and months from the date the Participant is included in the Plan until the Participant's status in the Plan is terminated. Years of Participation include periods during which the employee would have been in active employment with LILCO as a Participant except if the Participant was on a leave of absence from active employment authorized solely by LILCO. 2.15 "Years of Employment" means the sum of the period or periods, measured in years and months, whether or not continuous, that the Participant worked at LILCO. 2.16 "Unit of Compensation" means the Participant's Compensation. ARTICLE III ELIGIBILITY 3.1 Executive Officers and Officers are eligible to participate in the Plan and continue to participate in the Plan during the period of their employment either as an Executive Officer or as an Officer. 3.2 Employees who were Principal Executives as defined in Section 2.13(a) between April 1, 1981 and November 30, 1986 are eligible to participate in the Plan during the period of their employment. 3.3 An employee who has been designated by the Board of Directors to be a Principal Executive is eligible to participate in the Plan and will continue to participate in the Plan only during the period fixed by -4- 5 the Board of Directors at the time of designation as a Principal Executive or for such longer period as the Board of Directors shall subsequently determine. ARTICLE IV VESTING A Participant who has reached the earlier of (1) age 60 and 10 years of service or (2) his or her Normal Retirement Date will be vested in the benefits described herein. A nonvested Participant whose employment is terminated is not entitled to any benefits under this Plan. ARTICLE V BENEFITS UNDER THE PLAN 5.1 Pre-retirement Death Benefit Upon the death of a Participant before retirement, the Participant's Beneficiary will be entitled to receive a lump sum in an amount equal to the product, rounded up to the nearest $1,000 of (1) the Participant's Unit of Compensation and (2) the multiple indicated below: (a) if the Participant is an Executive Officer, five, (b) if the Participant is an Officer, three. (c) if the Participant is a Principal Executive, two. 5.2 Insured Death Benefit If the Company chooses to enter into an insurance contract or contracts in order to provide the death benefits described in the Plan, the Participant must apply for insurance. In order to obtain coverage under the Plan, the Participant must comply with the necessary administrative requirements of the insurance company. If the Participant applies for insurance but is found to be ineligible by the insurance company, the Participant will be covered under the Plan on an uninsured basis and will receive from the Company the dollar amount of death benefit described in Section -5- 6 5.1. If, for any reason, the insurer after issuing a policy should successfully contest the Participant's right to receive insurance proceeds in an amount equal to the death benefit described in Section 5.1, the Participant will receive from LILCO the difference between the amount, if any, the insurer paid and the dollar amount of death benefit described in Section 5.1. If LILCO enters into an insurance contract or contracts in order to provide the death benefits described in the Plan, the Participant will not be eligible to receive any annuity payment pursuant to section 5.5 of the Plan until the insurance policy is terminated or the Participant has designated LILCO as Beneficiary of the policy. To the extent that the terms of the insurance policy permit assignment of the right to designate the Beneficiary, the Participant will be permitted to assign such right. However, if the Participant does not reserve the right to redesignate the Company as the Beneficiary of the policy, the Participant will not have the right to receive an annuity under Section 5.5 of the Plan. No portion of any uninsured death benefit is subject to assignment or anticipation. 5.3 Pre-retirement Insured Death Benefit To the extent an insurance policy funds the death benefits and the Participant designates a Beneficiary to receive the proceeds payable under the policy, the payment terms under the insurance contract the Participant has elected will control in the event of the Participant's death. 5.4 Pre-retirement Uninsured Death Benefit Any pre-retirement death benefit not payable by an insurer at the direction of the insured shall only be a general LILCO obligation. A Participant eligible for insurance protection under an insurance policy maintained by LILCO may elect to name LILCO as the Beneficiary under the policy. In that event, the death benefit will be deemed uninsured and payment of the amount described in Section 5.1 will only be a general LILCO obligation and the Participant will have no rights in any insurance policy maintained by LILCO on the Participant's life. LILCO will pay any actual or deemed uninsured death benefit to the Beneficiary designated in writing on the form furnished by and filed with the Plan Administrator. If no Beneficiary -6- 7 is selected, payment will be made to the Participant's estate. For a discussion of the federal income tax consequences if LILCO is designated as the Beneficiary, see Article XIII. If a Participant has not designated a Beneficiary for any increased amount of death benefit payable after January 1, 1993, payment will be made to the same Beneficiary whom the Participant designated under the existing group term life insurance contract in the same proportions as the proceeds payable to each Beneficiary under that insurance contract. 5.5 Post-Retirement Benefit Not later than December 31 in the year preceding the Participant's Normal Retirement Date, the Participant must make an election for each Unit of Compensation, up to a total of five units for an Executive Officer; up to a total of three units for an Officer; and up to a total of two units for a Principal Executive, except for those who were Principal Executives in the Plan between April 1, 1981 and November 30, 1986 who are entitled to two Units of Compensation if they elect the death benefits under subsection (1) hereof, or three Units of Compensation if they elect the retirement benefits under subsection (2) hereof. The election will be to have either: (1) the Company continue to pay (to the Participant, or at his election, to the insurer) an amount equal to the premiums due under the life insurance policy on the Participant's life described in Section 5.1 (or, if payment of the Participant's death benefit is an obligation of LILCO and not the insurer, have the Company continue to provide the amount of death benefit to which the Participant is entitled under Section 5.1), or (2) the Company pay a retirement benefit, in the form described below in subparagraph (a) or a combination of (a) and (b): (a) A basic supplemental retirement benefit payable monthly for 180 months certain, beginning on the first day of the month following the date of retirement, equal to five percent of each Unit of Compensation. The Participant's election under this option may provide for the benefit to be received in one of several different equivalent actuarial -7- 8 forms that are set forth in the Appendix to this Plan. (b) A lump sum amount payable on the first day of the month following the date of retirement equal to no more than 50 percent of the present value of the basic supplemental retirement benefit that would otherwise be payable under (a) above. If the Participant elects a combination of (a) and (b), the annuity described in option (a) will be reduced so that its present value is equal to the present value of the annuity initially described in (a) reduced by the amount paid pursuant to option (b). If a Participant does not make an election pursuant to this section, the form of the pre-retirement death benefit previously in effect will be continued. 5.6 Earliest Pension Commencement Date Notwithstanding any other provision of this Plan, the earliest date that monthly retirement payments may commence or that the lump sum amount may be paid to any Participant as described under Section 5.5(2)(a) and (2)(b), respectively, will be the first day of the first month coincident with or next following the fifth anniversary of the Participant's date of entry into the Plan, with that date being the Participant's "Earliest Pension Commencement Date." A vested Participant who retires before his Earliest Pension Commencement Date will receive at the Earliest Pension Commencement Date the benefit to which he was entitled at his Normal Retirement Date. If a Participant should die during the period beginning with the date of actual retirement and ending on his Earliest Pension Commencement Date, the Participant will be deemed to have retired on the day before his date of death and to have commenced receipt of the pension benefit, if any, which he elected to receive. 5.7 Late Retirement If the Participant continues his employment with the Company beyond his Normal Retirement Date, the Participant may change the election he previously made pursuant to Section 5.5, provided any such changed election is made no later than December 31 in the year preceding his actual retirement. -8- 9 5.8 Early Retirement A Participant may retire before his Normal Retirement Date on the first day of any month coincident with or next following the date on which he has both attained age 60 and completed 10 years of employment. Upon such early retirement, the death benefit or post-retirement annuity or any combination thereof will be reduced. The amount of the reduced death benefit or reduced post-retirement annuity or any combination thereof shall be equal to the product of (1) and (2) where (1) is equal to the ratio of the Participant's Years of Participation at his early retirement date to the Years of Participation the Participant would have had at his Normal Retirement Date if his participation had continued until that date and (2) is equal to the amount determined under the option the Participant elected under Section 5.5 as though the Participant's early retirement date were his Normal Retirement Date. The Participant must make the Section 5.5 elections not later than December 31 in the year preceding retirement. 5.9 Disability If a Participant becomes disabled as determined under either the Disability Leave Plan or the Long Term Disability Plan, the Participant will be considered disabled under this Plan. A disabled Participant will continue to be a Participant in this Plan during the period of disability for purposes of vesting and Plan participation until the Earliest Pension Commencement Date, as referred to in Section 5.6, at which time the Participant will be deemed to have retired for purposes of this Plan. ARTICLE VI ADMINISTRATION 6.1 Plan Administrator and Powers The Plan Administrator shall administer this Plan. On all matters and questions of interpreting or administering the Plan, the decisions of the Plan Administrator shall govern and control and shall be conclusive and binding on the persons at any time having or claiming to have any interest whatsoever under this Plan. For example, the Plan Administrator will establish the factors, methods and assumptions -9- 10 utilized to determine the actuarial equivalent value of any benefit under this Plan or he may provide for additional times at which benefit elections under this Plan may be made. The Plan Administrator may employ attorneys, accountants, actuaries and other consultants or advisors to render advice to or otherwise to assist him in carrying out his responsibilities under the Plan including participation in the Claims Review Procedure. ARTICLE VII CLAIMS REVIEW PROCEDURE Any Participant, former Participant, or Beneficiary of either, who has been denied a benefit by a decision of the Plan Administrator may request that the Plan Administrator give further consideration to his claim by filing with the Plan Administrator a request for a hearing. That request, together with a written statement of the reasons why the claimant believes his claim should be allowed, must be filed with the Plan Administrator no later than 60 days after the claimant receives written notice that his initial claim in whole or in part was denied. Upon receiving a request for review, the Plan Administrator will conduct a hearing within the next 60 days, at which the claimant may be present and may be represented by an attorney or other representative of his choosing. At the hearing, the claimant will have the opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or before the hearing date upon five business days' written notice to the Plan Administrator), the claimant or his representative will be given the opportunity to review all documents in the Plan Administrator's possession that relate to the claim and its disallowance. Either the claimant or the Plan Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, the reporter will furnish both parties with a complete written transcript of the proceedings. The full expense of any such reporter and transcript will be borne by the party causing the reporter to attend the hearing. The Plan Administrator will make the final decision as to the allowance of the claim within 60 days of receiving the appeal (unless there has been an extension of up to 60 days due to special -10- 11 circumstances, provided the delay and the circumstances occasioning it are communicated to the claimant within the 60-day period). Such communication must be written in a manner calculated to be understood by the claimant and must include specific reasons for the decision and specific references to the Plan provisions on which the decision is based. ARTICLE VIII EFFECT OF DESIGNATION OF LILCO AS BENEFICIARY In general, to the extent that any death benefit is not funded by an insurance policy or is paid under a policy pursuant to which LILCO has been designated as the Beneficiary of the proceeds, the premium payments made on the policy will not be includable in the Participant's income for federal income tax purposes. However, the death benefits payable under the policy will be subject to federal income tax. On the other hand, to the extent that any death benefit is funded by an insurance policy and the Participant designates a Beneficiary other than LILCO, the premiums paid by LILCO will be included in the Participant's income for federal income tax purposes. However, the death benefits payable under the policy will not be subject to federal income tax. This is not intended to be general tax advice but merely to inform Participants regarding the effect of exercising the option now available to designate LILCO as a Beneficiary under the policy. In making the determination as to the appropriate Beneficiary designation, the Participant should consider all the aspects of his family financial planning objectives. ARTICLE IX MISCELLANEOUS Payment of premiums, death benefits not payable by the insurer, and annuity benefits under this Plan will be paid out of the Company's general assets. A trust currently exists to accumulate the funds necessary to pay the benefits under the Plan. The Company may, from time to time, establish an additional trust for this purpose. The Participant's right to receive benefits under the Plan will be no greater than the right of any unsecured general creditor, and no amount payable by -11- 12 the Company under this Plan, in whole or in part, will be subject in any manner to anticipation, alienation, or assignment by the Participant or the Participant's Beneficiary. Nothing in this Plan may be construed as a contract of employment between the Company and the Participant nor may any provision of the Plan interfere with the right of the Company to discharge any employee. ARTICLE X AMENDMENT OR TERMINATION The Company intends to continue the Plan indefinitely. Nevertheless, in order to protect against unforeseen conditions, the Company reserves the right at any time and from time to time, by resolution of its Board of Directors, to amend or terminate this Plan, provided, however, that no such amendment or termination adversely affects the vested benefit that had accrued to any Participant or Beneficiary before the date that the Plan was amended or terminated. -12- 13 APPENDIX 1 OPTIONAL FORMS OF BENEFIT A.1 Form of Monthly Retirement Income Payments A Participant who elects to receive all or a portion of his benefits in the form of a monthly retirement income payment under Section 5.5(2)(a) may further elect to receive that income payment in one of the following optional forms of monthly payment, which, in each case, is determined by multiplying the basic supplemental retirement benefit described in the first sentence of Section 5.5(2)(a) by the applicable conversion factor. (1) An increasing rate of payment for 180 months certain with the amount of payment for each of the first 12 months being equal to 78.95% of the amount that would otherwise be payable and with the rate of monthly payments for each subsequent 12 months increased by 4%, compounded annually. During the 15th year, the last year of payments under the option, the rate of monthly payment will be $1.73 for each $1.00 of monthly payments in the first year. (2) A reduced annuity for the lifetime of the Participant, with 180 months certain where each such monthly payment will be determined by reference to the applicable conversion factor. (3) A 50% joint and survivor annuity under which the monthly payment for the lifetime of the Participant will be determined by reference to the applicable conversion factor and, upon the Participant's death, continued for the lifetime of the Participant's beneficiary at 50% of the monthly payment that has been made by the Participant. This option has no certain period. (4) A combination of Options (1) and (2) above under which payments will be made for the lifetime of the Participant for 180 monthly certain payments. The amount of payment for each of the first twelve months will be determined by reference to the applicable conversion factor with the rate of monthly payment for each subsequent twelve months increasing by 4%, compounded annually for the remainder of the Participant's lifetime. -13- 14 (5) A combination of Options (1) and (3) as described above with the amount of payment for each of the first twelve months being determined by reference to the applicable conversion factor with the rate of monthly payment for each subsequent twelve months increased by 4% compounded annually for the remainder of the Participant's lifetime and, upon the Participant's death, continued for the lifetime of the Participant's Beneficiary at 50% of the monthly payment that had been made to the Participant. This option has no certain period. (6) A 100% joint and survivor annuity under which each monthly payment during the lifetime of the Participant will be determined by reference to the applicable conversion factor and, upon the Participant's death, continued for the lifetime of the Participant's Beneficiary at 100% of the monthly payment that had been made to the Participant. This option has no certain period. A.2 Election Period If a Participant elects to receive the post-retirement benefit described in Section 5.5 and the form of monthly income payments as described in Section A.1 of this Appendix, the Participant must make the election in the time prescribed in Sections 5.5, 5.7 or 5.8, whichever is applicable. If circumstances preclude the Participant from making an election before January 1 of the year in which the date of retirement falls, this requirement may be waived in the sole discretion of the Plan Administrator. A.3 Manner of Election All elections must be made in writing on forms provided by the Plan Administrator. -14- EX-10.X1 8 CATACOSINOS EMPLOYMENT AGREEMENT 1 LONG ISLAND LIGHTING COMPANY EXECUTIVE EMPLOYMENT AGREEMENT FOURTH AMENDMENT, dated as of December 31, 1993 (herein sometimes called the "Amendment") to that certain Executive Employment Contract dated the 20th day of March 1987, between Long Island Lighting Company (the "Company") and William J. Catacosinos (the "Executive"), such Executive Employment Contract being hereinafter referred to as the "Contract." WHEREAS, the Board of Directors of the Company (the "Board") on December 15, 1993, determined that it is desirable to extend the term of the Contract so that the objectives intended to be achieved thereby will continue to be provided. NOW, THEREFORE, for good and valuable consideration, the Company and the Executive agree as follows: 1. Paragraph 9 of the Contract is hereby amended by deleting therefrom the date "December 31, 1993" and inserting in its place the date "December 31, 1994." 2. On and after the date hereof, each reference in the Contract to "this Agreement," "hereto" or words of like import referring to the Contract shall mean and be a reference to the Contract as amended hereby. 3. Except as specifically amended above, the Contract is and shall continue to be in full force and effect and is in all respects ratified and confirmed. IN WITNESS WHEREOF, the parties hereto have executed this Amendment. LONG ISLAND LIGHTING COMPANY By /s/ Kathleen A. Marion ---------------------------- KATHLEEN A. MARION Secretary Executive: /s/ W. J. Catacosinos ---------------------------- WILLIAM J. CATACOSINOS EX-10.X2 9 BABCOCK EMPLOYMENT AGREEMENT 1 LONG ISLAND LIGHTING COMPANY EXECUTIVE EMPLOYMENT AGREEMENT AGREEMENT between Long Island Lighting Company, a New York corporation (the "Company"), and Theodore A. Babcock (the "Executive"), WHEREAS, the Board of Directors of the Company (the "Board") believes that, in the event of a threat or occurrence of a bid to acquire or change control of the Company or to effect a business combination, it is in the best interest of the Company and its present and future shareholders that the business of the Company be continued with a minimum of disruption, and that such objective will be achieved if its key executives are given reasonable assurances of employment security so they will not be distracted by personal uncertainties and risks created during such period; and WHEREAS, the Company believes the giving of such assurances will (a) secure the continued services of its key executives in the performance of both their regular duties and such extra duties as may be required of them during such period of uncertainty, (b) enable the Company to rely on such executives to manage its affairs during any such period with less concern for their personal risks, and (c) enhance the Company's ability to attract new key executives as needed; and 2 WHEREAS, the Compensation Committee of the Board has recommended, and the Board has approved, entering into agreements with key executives of the Company in order to achieve the foregoing objectives; and WHEREAS, the Executive is a key executive of the Company; NOW, THEREFORE, the Company and the Executive agree as follows: 1. Employment. This Agreement provides the Executive with certain rights in the event of a Change in Control. The Company agrees that if Executive is in the employ of the Company on the date on which a Change in Control occurs (the "Change in Control Date") and, within three years after the Change in Control Date, Executive's employment is terminated for any reason, including but not limited to voluntary resignation of the Executive, then Executive shall be entitled to receive the benefits enumerated in Paragraph 2. For the purposes of this Agreement, a "Change in Control" shall be deemed to have taken place if: (a) LILCO merges with, or consolidates into another person or entity; (b) all or a substantial portion of the assets of LILCO are transferred to another person or entity unless the sale is approved by a majority of the Continuing Directors; (c) any person or group of persons (as defined in Rule 13d-5 of the Securities and Exchange Act of 1934), together with its affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 of the Securities and Exchange Act of 1934), directly - 2 - 3 or indirectly, of securities of the Company (including securities convertible at the option of the holder into securities of the Company ordinarily having the right to vote in election of directors) which together represent, or would together represent after giving effect to such conversion, in excess of 40 percent of the combined voting power of the Company's outstanding securities ordinarily having the right to vote in election of directors; (d) a liquidator, trustee or other similar person is appointed for all or substantially all of the assets of the Company; or (e) Continuing Directors no longer constitute at least a majority of the Company's Board. For the purposes of this agreement, "Continuing Director" means any individual who is a member of the Company's Board on March 15, 1987, or is designated (before such person's initial election as a director) as a Continuing Director by a majority of the then remaining Continuing Directors. 2. Termination Benefits. In the event of Executive's termination of employment for any reason, including but not limited to voluntary resignation of the Executive, within three years following a Change in Control Date, Executive shall be entitled to the following termination benefits: (a) The Executive shall receive severance pay equal to the greater of (i) one year's salary at the Executive's annual compensation rate in effect on the date of such termination or the Change in Control Date, whichever is greater, or (ii) the - 3 - 4 total compensation paid to the Executive in the 12-month period ending on the date of such termination. (b) The Executive shall receive (i) a benefit which shall be equal to the amount determined under Section 3.2(B) of the Supplemental Death and Retirement Benefit Plan ("SD&RB") as though the Executive's date of termination was the date of his attainment of age 65, multiplied by a fraction, the numerator of which is the Executive's years of service, or partial years of service computed to the nearest whole month, with the Company at his date of termination, and the denominator of which is the years of service, or partial years of service computed to the nearest whole month, with the Company which the Executive would have had at age 65 had he been continuously employed by the Company until age 65, reduced by (ii) the benefit under the SD&RB to which he is entitled at the date of his termination of employment. The benefit computed above shall be paid in the same manner as provided for any benefit described in Section 3.2(B) of the SD&RB except that the Executive may elect to receive as a lump sum the Actuarial Equivalent of such benefit computed above immediately upon termination. In determining such Actuarial Equivalent, such benefit shall be deemed to be payable as of the attainment of age 60 by the Executive with no reduction for early commencement and an actuarial factor of $110.16 per $1 of monthly income payable shall be used. If the Executive is under age 60 at termination, the benefit shall be reduced by 4% for each year the Executive is under age 60. - 4 - 5 (c) In addition, the Company shall continue to provide coverage for the Executive under its Medical, Dental and Life Insurance Plans in effect on the Change in Control Date, as amended to comply with COBRA, or pay the Executive monthly an amount that will allow the Executive to obtain insurance coverage essentially no less favorable than that provided to the Executive prior to termination under such plans. Such benefits will continue for a period equal to the lesser of (i) one year following the date of termination, or (ii) until the Executive is provided substantially comparable or greater benefits by another employer. (d) Notwithstanding any other provision of this Agreement, if any payment under this Agreement calculated as set forth above, either alone or together with other amounts which the Executive has the right to receive from the Company, would constitute an "excess parachute payment" (as defined in Section 280G of the Code) (collectively referred to as "Affected Payment"), then the Executive shall be entitled to receive an additional cash payment (an "Additional Payment") which, when added to the Affected Payment provides a net benefit to the Executive, after payment of the excise tax imposed by Section 4999 of the Code and payment of any federal, state and local income taxes attributable to such Additional Payment, equal to the Affected Payment before such Additional Payment. The Company shall have the option of defending or challenging any - 5 - 6 determination concerning the status of payments as "excess parachute payments." The Executive shall receive the Additional Payments concurrently with Affected Payments; provided, however, the Executive shall be entitled to Additional Payments in arrears upon a subsequent finding by the Internal Revenue Service or court of competent jurisdiction that any payment is an "excess parachute payment." 3. Other Benefits. Any salary or consulting fees due to the Executive during the 12 months following termination under any other agreement shall be reduced by payments made under paragraph 2(a) above. For purposes of any other agreement between the Executive and the Company which provides a benefit the amount of which depends upon the SD&RB Plan, any benefit payable pursuant to paragraph 2(b) above shall be treated as the benefit under the SD&RB Plan for purposes of calculations under such other agreement. 4. Payments. Amounts payable under paragraphs 2(a) and 2(b) above to the Executive shall be paid by the Company in cash within five business days of such termination. If the Company fails to pay any such amount within five business days, the trustee of the trust established for the preservation of the amounts payable under this Agreement shall pay the amounts due within 10 business days of termination. If the amounts due have not been paid to the Executive within 10 business days of the termination, the Executive shall have the right to recover from - 6 - 7 the Company or the trust all costs incurred in obtaining payment plus interest on both the amounts due and such costs at a rate of 15% per annum calculated from the date of termination. 5. Attorneys Fees. The Company is aware that various parties may attempt to deny the Executive the benefits intended under this Agreement or other agreements that provide for payments after a Change in Control. The Company irrevocably authorizes the Executive to retain counsel at the expense of the Company to represent the Executive in connection with the initiation or defense of any litigation relating to any payments under this Agreement or other agreements due from the Company if a Change in Control occurs. Legal fees and expenses shall be paid or reimbursed to the Executive by the Company on a regular, periodic basis upon presentation by the Executive of a statement to the Company. In the event the Company fails to pay or reimburse such amounts, the trustee of the SD&RB Trust shall pay such amounts up to an aggregate amount which, in the trustees sole and exclusive judgment, will not impair the ability of the SD&RB Trust to pay benefits due under the SD&RB Plan. 6. GOVERNING LAW. EXCEPT TO THE EXTENT REQUIRED BY ERISA, THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF NEW YORK. 7. Amendment. This Agreement may not be amended except by the written agreement of the parties hereto. - 7 - 8 8. Binding Effect. This Agreement shall be binding on the Company, its successors, and assigns. Should there be a consolidation or merger of the Company with or into another corporation, or a purchase of all or substantially all of the assets of the Company and another entity, the surviving or acquiring corporation will succeed to the rights and obligations of the Company under this Agreement. 9. Term. This Agreement shall be effective with respect to any Change in Control from February 4, 1994 through December 31, 1994. IN WITNESS WHEREOF, the parties hereto have executed this Agreement dated this 23rd day of February, 1994. LONG ISLAND LIGHTING COMPANY By /S/ WILLIAM J. CATACOSINOS ------------------------------------- Chairman, Board of Directors Executive: /S/ THEODORE A. BABCOCK ----------------------------------- Theodore A. Babcock - 8 - EX-10.X21 10 BABCOCK INDEMNIFICATION AGREEMENT 1 AGREEMENT This Agreement is made this 23rd day of February 1994 by and between Long Island Lighting Company, a New York corporation (the "Company"), and Theodore A. Babcock ("Indemnitee"). W I T N E S S E T H: WHEREAS, the Company, as an additional inducement to Indemnitee to continue to serve the Company, has agreed to provide Indemnitee with the benefits contemplated by this Agreement which benefits are intended to supplement or replace, if necessary, the Company's existing directors' and officers' liability insurance; and WHEREAS, as a result of the provision of such benefits Indemnitee has agreed to serve or to continue to serve as a director and/or officer of the Company; NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, including the Indemnitee's continued service to the Company, the Company and Indemnitee hereby agree as follows: 1. Definitions. The following terms, as used herein, shall have the following respective meanings: "Adverse Determination" means a Determination (as hereinafter defined) that Indemnitee is not entitled to be fully indemnified by the Company for Losses and Expenses in connection with any actual or threatened action, suit or proceeding, whether civil, criminal or investigative, against Indemnitee because the claim is an Excluded Claim or because Indemnitee is not otherwise entitled to payment under this Agreement. 2 "Change of Control" means any transaction or event where (a) the Company merges with, or consolidates into, another person or entity, (b) all or a substantial portion of the assets of the Company are transferred to another person or entity unless the sale is approved by a majority of the Continuing Directors, (c) any person or group of persons (as defined in Rule 13d-5 promulgated under the Securities Exchange Act of 1934), together with its affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Company (including securities convertible at the option of the holder into securities of the Company ordinarily having the right to vote in elections of directors) which together represent or would together represent, after giving effect to any conversion, in excess of 40 percent of the combined voting power of the Company's outstanding securities ordinarily having the right to vote in elections of directors, (d) a liquidator, trustee or other similar person is appointed for all or substantially all of the assets of the Company, or (e) Continuing Directors no longer constitute at least a majority of the Company's Board. For purposes of this Agreement, (y) the Company's class of Preferred Stock shall not be deemed to be securities of the Company ordinarily having the right to vote in elections of directors, and (z) "Continuing Director" means any individual who was a member of the Company's Board on March 15, 1987, or is designated (before such person's initial election as a director) as a Continuing Director by a majority of the then remaining Continuing Directors. "Covered Amount" means Losses and Expenses which, in type or amount, are not insured under the D&O Insurance maintained by the Company from time to time. "Covered Act" means any breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted by Indemnitee or any of the foregoing alleged by any claimant or any claim against Indemnitee solely by reason of being a director or officer of the Company or serving at the request of the Company any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. "D&O Insurance" means the directors' and officers' liability insurance policies currently maintained by the Company, identified in Exhibit A hereto, and any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that provided under the policies identified in Exhibit A. - 2 - 3 "Determination" means a determination, based on the facts known at the time, made by: (i) A majority vote of a quorum of Disinterested Directors; or (ii) Independent legal counsel in a written opinion prepared at the request of a majority of a quorum of Disinterested Directors; or (iii) A majority of the disinterested shareholders of the Company; or (iv) A final adjudication by a court of competent jurisdiction; provided, however, that after a Change of Control occurs, a "Determination" shall mean only a final adjudication by a court of competent jurisdiction. "Determined" shall have a correlative meaning. "Disinterested Director" means a director of the Company who is not and was not a party to the action, suit or proceeding in respect of which indemnification is sought. "Excluded Claim" means any payment for Losses or Expenses in connection with any claim the payment of which by the Company under this Agreement is not permitted by applicable law. "Expenses" means any reasonable expenses incurred by Indemnitee as a result of a claim or claims made against him for Covered Acts including, without limitation, attorneys fees and disbursements and costs of investigative, judicial or administrative proceedings or appeals, but shall not include Fines. "Fines" means any fine, penalty or, with respect to an employee benefit plan, any excise tax or penalty assessed with respect thereto, but only to the extent such may not be indemnified by the Company under applicable law. "Losses" means any amounts which Indemnitee is legally obligated to pay as a result of a claim or claims made against him for Covered Acts including, without limitation, damages and judgments and sums paid in settlement of a claim or claims, but shall not include Fines. 2. Maintenance of D&O Insurance. (a) The Company hereby represents and warrants that the insurance policies identified in Exhibit A contain all policies of directors' and officers' liability insurance currently maintained by the Company and that such policies are in full force and effect. - 3 - 4 (b) In all policies of D&O Insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company's directors or officers most favorably insured by such policy. (c) The Company hereby covenants and agrees that, so long as Indemnitee shall continue to serve as a director and/or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director and/or officer of the Company, the Company, shall maintain in full force and effect D&O Insurance; provided, however, that prior to a Change of Control, the Company shall have no obligation to maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit. Subsequent to a Change of Control, the Company shall maintain in full force and effect D&O Insurance. 3. Indemnification. The Company shall indemnify Indemnitee and hold him harmless to the extent of the Covered Amount from any and all Losses and Expenses subject, in each case, to the further provisions of this Agreement. 4. Excluded Coverage. (a) The Company shall have no obligation to indemnify Indemnitee for and hold him harmless from any Loss or Expense which has been Determined to constitute an Excluded Claim. (b) The Company shall have no obligation pursuant to this Agreement to indemnify Indemnitee and hold him harmless for any Loss or Expense to the extent that Indemnitee is indemnified by the Company pursuant to the Company's By-Laws or otherwise indemnified and in each case he actually receives payment of such indemnity amount. 5. Indemnification Procedures. (a) Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any action, suit or proceeding, Indemnitee may, if indemnification with respect thereto may be sought from the Company under this - 4 - 5 Agreement, notify the Company of the commencement thereof, but Indemnitee's failure to so notify the Company shall not affect his right to indemnification hereunder. (b) If, at the time of the receipt of such notice, the Company has D&O Insurance in effect, the Company shall give prompt notice to the insurers of the commencement or the threat of commencement of such action, suit or proceeding in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Losses and Expenses payable as a result of such actual or threatened action, suit or proceeding in accordance with the terms of such policies. (c) To the extent the Company does not, at the time of the commencement of or the threat of commencement of such action, suit or proceeding, have applicable D&O Insurance, or if a Determination is not made that any Expenses arising out of such action, suit or proceeding will be payable under the D&O Insurance then in effect, the Company shall be obligated to advance the Expenses of any such action, suit or proceeding as they are billed and in advance of the final disposition thereof and the Company, if appropriate, shall be entitled to assume the defense of such action, suit or proceeding, with counsel satisfactory to Indemnitee in his sole discretion, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, the Company will not be liable to Indemnitee under this Agreement for any legal or other Expenses subsequently incurred by the Indemnitee in connection with such defense other than reasonable Expenses of investigation; provided that Indemnitee shall have the right to employ his own counsel in any such action, suit or proceeding but the fees and expenses of such counsel incurred after delivery of notice from the Company of its assumption of such defense shall be at the Indemnitee's expense; provided further that if (i) the employment of his own counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, (iii) a Change of Control shall have occurred before or during the actual or threatened action, suit or proceeding, or (iv) the Company shall not, in fact, have employed counsel to assume the defense of such actual or threatened action, suit or proceeding, the fees and disbursements of counsel chosen by Indemnitee in his sole discretion shall be at the expense of the Company. - 5 - 6 (d) All payments on account of the Company's indemnification obligations under this Agreement shall be made within sixty (60) days of Indemnitee's written request therefor unless a Determination is made that the claims giving rise to Indemnitee's request are Excluded Claims or otherwise not payable under this Agreement, provided that all payments on account of the Company's obligations under Section 5(c) of this Agreement prior to the final disposition of any action, suit or proceeding shall be made within 20 days of Indemnitee's written request therefor and such obligation shall not be subject to any such Determination but shall be subject to Section 5(e) of this Agreement. (e) Indemnitee agrees that he will (without interest) reimburse the Company for Losses and Expenses paid by the Company pursuant to this Agreement in connection with any actual or threatened action, suit or proceeding against Indemnitee in the event and only to the extent that a Determination shall have been made by a court in a final adjudication from which there is no further right of appeal that the Indemnitee is not entitled to be indemnified by the Company for such Losses or Expenses because the claim is an Excluded Claim or because Indemnitee is otherwise not entitled to payment under this Agreement. 6. Settlement. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any pending or threatened action, suit or proceeding effected without the Company's prior written consent prior to a Change of Control, but shall have the obligation to so indemnify Indemnitee in any such settlement effected without the Company's prior written consent upon or after a Change of Control. The Company shall not settle any claim in any manner which would impose any Fine or any obligation on Indemnitee without Indemnitee's written consent. Neither the Company nor Indemnitee shall unreasonably withhold their consent to any proposed settlement. 7. Presumptions and Effect of Certain Proceedings. The Secretary of the Company shall, promptly upon receipt of Indemnitee's request for indemnification, advise in writing the Board of Directors or such other person or persons empowered to make the Determination as provided in Section 5 hereof that Indemnitee shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proof in the making of any Determination contrary to such presumption. If the person or persons so empowered to make such Determination shall have failed to make the requested Determination within 60 days after receipt by the Company of such request, the requisite Determination of entitlement to indemnification shall be deemed - 6 - 7 to have been made and Indemnitee shall be absolutely entitled to such indemnification, absent actual and material fraud in the request for indemnification. The termination of any action, suit, investigation or proceeding described in Section 5 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself: (a) create a presumption that Indemnitee's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action adjudicated or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled; or (b) otherwise adversely affect the rights of Indemnitee to indemnification except as may be provided herein. 8. Rights Not Exclusive. Nothing herein shall limit or affect any right of Indemnitee otherwise than hereunder to indemnification or advancement of expenses, including attorneys fees, under any statute, rule, regulation, certificate of incorporation, by-law, insurance policy, contract, vote of disinterested shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in any other capacity by holding such office, and shall continue after the Indemnitee ceases to serve the Company as a director and/or officer. 9. Enforcement. (a) Indemnitee's right to indemnification shall be enforceable by Indemnitee in the state courts of the State of New York or the United States District Courts for the Southern or Eastern Districts of New York and shall be enforceable by Indemnitee notwithstanding any Adverse Determination (except an Adverse Determination not subject to further appeal by a court of competent jurisdiction). In any such action, if a prior Adverse Determination has been made, the burden of proving that indemnification is required under this Agreement shall be on Indemnitee. The Company shall have the burden of proving that indemnification is not required under this Agreement if no prior Adverse Determination shall have been made. (b) In the event that any action is instituted by Indemnitee under this Agreement, or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable counsel fees ("Enforcement Expenses"), incurred by Indemnitee with respect to such action. If the payment by the Company of any of the Enforcement Expenses results in the recognition by the Indemnitee of taxable income for Federal, state or local tax purposes, the Company, to the extent permitted by law, shall make an additional payment to Indemnitee which, when added to the - 7 - 8 Enforcement Expenses, results in a net after-tax benefit to Indemnitee equal to the Enforcement Expenses, unless the court determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. (c) Subsequent to a Change of Control and unless and until a court of competent jurisdiction makes an Adverse Determination which becomes final and not subject to further appeal, Indemnitee (whether or not still serving as a director and/or officer of the Company) and Indemnitee's agents, for purposes of enforcing this Agreement and investigating, defending and/or settling any claim for which indemnification may be available under this Agreement, shall have full access to the Company's employees and records to the same extent that Indemnitee now has, and the Company at its expense will provide Indemnitee with copies of any such records requested by Indemnitee or Indemnitee's agents. The Company will cooperate fully with Indemnitee in making such records and employees available in connection with the investigation, defense and/or settlement of any such claim. (d) The Company hereby waives, effective upon a Change of Control, any objections it may have, whether based upon conflict of interest or otherwise, to any attorney or law firm which has represented the Company within the past five years in connection with any matter or may hereafter represent the Company in connection with any matter, and affirmatively agrees that any such attorney may represent Indemnitee in connection with the interpretation, construction or enforcement of this Agreement or of the Trust (as that term is defined in Section 15) or in any other matter. (e) The Company hereby authorizes any attorney, effective upon a Change of Control, to appear on its behalf in any state court of the State of New York or the United States District Court for the Southern or Eastern District of New York to consent to summary judgment in favor of Indemnitee in any declaratory judgment action brought by Indemnitee to determine the validity and enforceability of this Agreement and of the Trust. 10. Severability. In the event that any provision of this Agreement is determined by a final order not subject to further appeal of a court of competent jurisdiction to require the Company to do or to fail to do an act which is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a - 8 - 9 violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms. 11. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 12. Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York. 13. Successors and Assigns. This Agreement shall be (i) binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law) and (ii) shall be binding on and inure to the benefit of the heirs, personal representatives and estate of Indemnitee. 14. Amendment. No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties hereto. 15. Establishment of Trust. The Company has created a trust pursuant to the agreement annexed hereto as Exhibit B (the "Trust") for the benefit of Indemnitee and other directors and officers of the Company (together with the Indemnitee, the "Beneficiaries") who have executed agreements similar to this Agreement (together with this Agreement, the "Indemnity Agreements"), the trustee and any successor trustee of which shall be chosen by a majority of the Beneficiaries. The Company initially funded the Trust with $5,000 and, prior to a Change of Control, shall fund the Trust in an additional amount sufficient in the sole judgment of a majority of the continuing Directors to satisfy any and all Losses and Expenses reasonably anticipated at the time of such funding for which the Company may indemnify the Beneficiaries under the Indemnity Agreements. From time to time after a Change of Control, upon receipt of a written request from any of the Beneficiaries, the Company shall further fund the Trust in amounts sufficient to satisfy any and all Losses and Expenses reasonably anticipated at the time of such request for which the Company may indemnify the Beneficiaries under the Indemnity Agreements. The amount of amounts to be deposited in the Trust pursuant to the foregoing funding obligations shall be determined by mutual agreement of the indemnitee and the Company or, if the Company and the Indemnitee are unable to reach such an agreement, by independent legal counsel selected by a majority of - 9 - 10 the Beneficiaries. The terms of the Trust shall provide that, except upon the written consent of all of the Beneficiaries and the Company, (i) the Trust shall not be revoked or the principal thereof invaded, (ii) the trustee shall advance to the Indemnitee within 20 days of a request by Indemnitee, any and all Losses and Expenses, Indemnitee hereby agreeing to reimburse the trustee of the Trust for Losses and Expenses so advanced in the event and only to the extent that a Determination is made by a court in a final adjudication from which there is no further right of appeal that Indemnitee is not entitled to be indemnified under this Agreement, (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligations set forth in this Section, (iv) the trustee shall promptly pay to Indemnitee any amounts to which Indemnitee shall be entitled (including amounts to be advanced) pursuant to this Agreement, and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by independent legal counsel selected by a majority of the Beneficiaries or a court of competent jurisdiction that all of the Beneficiaries have been fully indemnified with respect to the proceeding giving rise to the establishment of the Trust in question under the terms of the Indemnity Agreements. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. Attest: LONG ISLAND LIGHTING COMPANY By: /s/ HERBERT M. LEIMAN By: /s/ WILLIAM J. CATACOSINOS -------------------------- --------------------------- Herbert M. Leiman William J. Catacosinos Title: Assistant Corporate Title: Chairman and Secretary Chief Executive Officer Witness: /s/ TIMOTHY P. KIERNAN /s/ THEODORE A. BABCOCK - ------------------------------ ---------------------------- Theodore A. Babcock
- 10 - 11 EXHIBIT A Policies of insurance providing indemnification of Directors and Officers for a claim alleging a wrongful act on their part and/or reimbursement to the Company for damages due to indemnification by the Company which may be required or permitted by law.
Insurance Limits of Policy Company Liability Deductible Number Term - --------- --------- ---------- ------ ---- ($ millions) Associated $35 At least DOO4OA 8/26/93 Electric & $5,000 but 1A93 8/26/94 Gas Ins. no more than Services Ltd. $55,000 (AEGIS) Energy Ins. $50 Underlying 900153 8/26/93 Mutual Ltd. X/O Coverage 92DO 8/26/94 (EIM) $35 Continental $15 Underlying DSB 8/26/93 Ins. Co. X/O Coverage 082593-1 8/26/94 $85 Zurich Ins. $10 Underlying DSB 8/26/93 Co. X/O Coverage 082593-2 8/26/94 $100 ACE Ins. $45 Underlying LIL 8/26/93 Co. Ltd. X/O 7035D 8/26/94 $110 Zurich Ins. $15 Underlying DSB 8/26/93 Co. X/O Coverage 082593-3 8/26/94 $155 XL Ins. $10 Underlying XLDCR 8/26/93 Co. Ltd. X/O Coverage 00278-93 8/26/94 $170 ACE Ins. $45 Underlying LIL 8/26/93 Co. Ltd. X/O Coverage 7036D 8/26/94 $180
- 11 - EX-10.X30 11 FULLER INDEMNIFICATION AGREEMENT 1 AGREEMENT This Agreement is made this third day of January 1994 by and between Long Island Lighting Company, a New York corporation (the "Company"), and Vicki L. Fuller ("Indemnitee"). W I T N E S S E T H: WHEREAS, the Company, as an additional inducement to Indemnitee to continue to serve the Company, has agreed to provide Indemnitee with the benefits contemplated by this Agreement which benefits are intended to supplement or replace, if necessary, the Company's existing directors' and officers' liability insurance; and WHEREAS, as a result of the provision of such benefits Indemnitee has agreed to serve or to continue to serve as a director and/or officer of the Company; NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, including the Indemnitee's continued service to the Company, the Company and Indemnitee hereby agree as follows: 1. Definitions. The following terms, as used herein, shall have the following respective meanings: "Adverse Determination" means a Determination (as hereinafter defined) that Indemnitee is not entitled to be fully indemnified by the Company for Losses and Expenses in connection with any actual or threatened action, suit or proceeding, whether civil, criminal or investigative, against Indemnitee because the claim is an Excluded Claim or because Indemnitee is not otherwise entitled to payment under this Agreement. 2 "Change of Control" means any transaction or event where (a) the Company merges with, or consolidates into, another person or entity, (b) all or a substantial portion of the assets of the Company are transferred to another person or entity unless the sale is approved by a majority of the Continuing Directors, (c) any person or group of persons (as defined in Rule 13d-5 promulgated under the Securities Exchange Act of 1934), together with its affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Company (including securities convertible at the option of the holder into securities of the Company ordinarily having the right to vote in elections of directors) which together represent or would together represent, after giving effect to any conversion, in excess of 40 percent of the combined voting power of the Company's outstanding securities ordinarily having the right to vote in elections of directors, (d) a liquidator, trustee or other similar person is appointed for all or substantially all of the assets of the Company, or (e) Continuing Directors no longer constitute at least a majority of the Company's Board. For purposes of this Agreement, (y) the Company's class of Preferred Stock shall not be deemed to be securities of the Company ordinarily having the right to vote in elections of directors, and (z) "Continuing Director" means any individual who was a member of the Company's Board on March 15, 1987, or is designated (before such person's initial election as a director) as a Continuing Director by a majority of the then remaining Continuing Directors. "Covered Amount" means Losses and Expenses which, in type or amount, are not insured under the D&O Insurance maintained by the Company from time to time. "Covered Act" means any breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted by Indemnitee or any of the foregoing alleged by any claimant or any claim against Indemnitee solely by reason of being a director or officer of the Company or serving at the request of the Company any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. "D&O Insurance" means the directors' and officers' liability insurance policies currently maintained by the Company, identified in Exhibit A hereto, and any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that provided under the policies identified in Exhibit A. - 2 - 3 "Determination" means a determination, based on the facts known at the time, made by: (i) A majority vote of a quorum of Disinterested Directors; or (ii) Independent legal counsel in a written opinion prepared at the request of a majority of a quorum of Disinterested Directors; or (iii) A majority of the disinterested shareholders of the Company; or (iv) A final adjudication by a court of competent jurisdiction; provided, however, that after a Change of Control occurs, a "Determination" shall mean only a final adjudication by a court of competent jurisdiction. "Determined" shall have a correlative meaning. "Disinterested Director" means a director of the Company who is not and was not a party to the action, suit or proceeding in respect of which indemnification is sought. "Excluded Claim" means any payment for Losses or Expenses in connection with any claim the payment of which by the Company under this Agreement is not permitted by applicable law. "Expenses" means any reasonable expenses incurred by Indemnitee as a result of a claim or claims made against him for Covered Acts including, without limitation, attorneys fees and disbursements and costs of investigative, judicial or administrative proceedings or appeals, but shall not include Fines. "Fines" means any fine, penalty or, with respect to an employee benefit plan, any excise tax or penalty assessed with respect thereto, but only to the extent such may not be indemnified by the Company under applicable law. "Losses" means any amounts which Indemnitee is legally obligated to pay as a result of a claim or claims made against him for Covered Acts including, without limitation, damages and judgments and sums paid in settlement of a claim or claims, but shall not include Fines. 2. Maintenance of D&O Insurance. (a) The Company hereby represents and warrants that the insurance policies identified in Exhibit A contain all policies of directors' and officers' liability insurance currently maintained by the Company and that such policies are in full force and effect. - 3 - 4 (b) In all policies of D&O Insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company's directors or officers most favorably insured by such policy. (c) The Company hereby covenants and agrees that, so long as Indemnitee shall continue to serve as a director and/or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director and/or officer of the Company, the Company, shall maintain in full force and effect D&O Insurance; provided, however, that prior to a Change of Control, the Company shall have no obligation to maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit. Subsequent to a Change of Control, the Company shall maintain in full force and effect D&O Insurance. 3. Indemnification. The Company shall indemnify Indemnitee and hold him harmless to the extent of the Covered Amount from any and all Losses and Expenses subject, in each case, to the further provisions of this Agreement. 4. Excluded Coverage. (a) The Company shall have no obligation to indemnify Indemnitee for and hold him harmless from any Loss or Expense which has been Determined to constitute an Excluded Claim. (b) The Company shall have no obligation pursuant to this Agreement to indemnify Indemnitee and hold him harmless for any Loss or Expense to the extent that Indemnitee is indemnified by the Company pursuant to the Company's By-Laws or otherwise indemnified and in each case he actually receives payment of such indemnity amount. 5. Indemnification Procedures. (a) Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any action, suit or proceeding, Indemnitee may, if indemnification with respect thereto may be sought from the Company under this - 4 - 5 Agreement, notify the Company of the commencement thereof, but Indemnitee's failure to so notify the Company shall not affect his right to indemnification hereunder. (b) If, at the time of the receipt of such notice, the Company has D&O Insurance in effect, the Company shall give prompt notice to the insurers of the commencement or the threat of commencement of such action, suit or proceeding in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Losses and Expenses payable as a result of such actual or threatened action, suit or proceeding in accordance with the terms of such policies. (c) To the extent the Company does not, at the time of the commencement of or the threat of commencement of such action, suit or proceeding, have applicable D&O Insurance, or if a Determination is not made that any Expenses arising out of such action, suit or proceeding will be payable under the D&O Insurance then in effect, the Company shall be obligated to advance the Expenses of any such action, suit or proceeding as they are billed and in advance of the final disposition thereof and the Company, if appropriate, shall be entitled to assume the defense of such action, suit or proceeding, with counsel satisfactory to Indemnitee in his sole discretion, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, the Company will not be liable to Indemnitee under this Agreement for any legal or other Expenses subsequently incurred by the Indemnitee in connection with such defense other than reasonable Expenses of investigation; provided that Indemnitee shall have the right to employ his own counsel in any such action, suit or proceeding but the fees and expenses of such counsel incurred after delivery of notice from the Company of its assumption of such defense shall be at the Indemnitee's expense; provided further that if (i) the employment of his own counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, (iii) a Change of Control shall have occurred before or during the actual or threatened action, suit or proceeding, or (iv) the Company shall not, in fact, have employed counsel to assume the defense of such actual or threatened action, suit or proceeding, the fees and disbursements of counsel chosen by Indemnitee in his sole discretion shall be at the expense of the Company. - 5 - 6 (d) All payments on account of the Company's indemnification obligations under this Agreement shall be made within sixty (60) days of Indemnitee's written request therefor unless a Determination is made that the claims giving rise to Indemnitee's request are Excluded Claims or otherwise not payable under this Agreement, provided that all payments on account of the Company's obligations under Section 5(c) of this Agreement prior to the final disposition of any action, suit or proceeding shall be made within 20 days of Indemnitee's written request therefor and such obligation shall not be subject to any such Determination but shall be subject to Section 5(e) of this Agreement. (e) Indemnitee agrees that he will (without interest) reimburse the Company for Losses and Expenses paid by the Company pursuant to this Agreement in connection with any actual or threatened action, suit or proceeding against Indemnitee in the event and only to the extent that a Determination shall have been made by a court in a final adjudication from which there is no further right of appeal that the Indemnitee is not entitled to be indemnified by the Company for such Losses or Expenses because the claim is an Excluded Claim or because Indemnitee is otherwise not entitled to payment under this Agreement. 6. Settlement. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any pending or threatened action, suit or proceeding effected without the Company's prior written consent prior to a Change of Control, but shall have the obligation to so indemnify Indemnitee in any such settlement effected without the Company's prior written consent upon or after a Change of Control. The Company shall not settle any claim in any manner which would impose any Fine or any obligation on Indemnitee without Indemnitee's written consent. Neither the Company nor Indemnitee shall unreasonably withhold their consent to any proposed settlement. 7. Presumptions and Effect of Certain Proceedings. The Secretary of the Company shall, promptly upon receipt of Indemnitee's request for indemnification, advise in writing the Board of Directors or such other person or persons empowered to make the Determination as provided in Section 5 hereof that Indemnitee shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proof in the making of any Determination contrary to such presumption. If the person or persons so empowered to make such Determination shall have failed to make the requested Determination within 60 days after receipt by the Company of such request, the requisite Determination of entitlement to indemnification shall be deemed - 6 - 7 to have been made and Indemnitee shall be absolutely entitled to such indemnification, absent actual and material fraud in the request for indemnification. The termination of any action, suit, investigation or proceeding described in Section 5 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself: (a) create a presumption that Indemnitee's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action adjudicated or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled; or (b) otherwise adversely affect the rights of Indemnitee to indemnification except as may be provided herein. 8. Rights Not Exclusive. Nothing herein shall limit or affect any right of Indemnitee otherwise than hereunder to indemnification or advancement of expenses, including attorneys fees, under any statute, rule, regulation, certificate of incorporation, by-law, insurance policy, contract, vote of disinterested shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in any other capacity by holding such office, and shall continue after the Indemnitee ceases to serve the Company as a director and/or officer. 9. Enforcement. (a) Indemnitee's right to indemnification shall be enforceable by Indemnitee in the state courts of the State of New York or the United States District Courts for the Southern or Eastern Districts of New York and shall be enforceable by Indemnitee notwithstanding any Adverse Determination (except an Adverse Determination not subject to further appeal by a court of competent jurisdiction). In any such action, if a prior Adverse Determination has been made, the burden of proving that indemnification is required under this Agreement shall be on Indemnitee. The Company shall have the burden of proving that indemnification is not required under this Agreement if no prior Adverse Determination shall have been made. (b) In the event that any action is instituted by Indemnitee under this Agreement, or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable counsel fees ("Enforcement Expenses"), incurred by Indemnitee with respect to such action. If the payment by the Company of any of the Enforcement Expenses results in the recognition by the Indemnitee of taxable income for Federal, state or local tax purposes, the Company, to the extent permitted by law, shall make an additional payment to Indemnitee which, when added to the - 7 - 8 Enforcement Expenses, results in a net after-tax benefit to Indemnitee equal to the Enforcement Expenses, unless the court determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. (c) Subsequent to a Change of Control and unless and until a court of competent jurisdiction makes an Adverse Determination which becomes final and not subject to further appeal, Indemnitee (whether or not still serving as a director and/or officer of the Company) and Indemnitee's agents, for purposes of enforcing this Agreement and investigating, defending and/or settling any claim for which indemnification may be available under this Agreement, shall have full access to the Company's employees and records to the same extent that Indemnitee now has, and the Company at its expense will provide Indemnitee with copies of any such records requested by Indemnitee or Indemnitee's agents. The Company will cooperate fully with Indemnitee in making such records and employees available in connection with the investigation, defense and/or settlement of any such claim. (d) The Company hereby waives, effective upon a Change of Control, any objections it may have, whether based upon conflict of interest or otherwise, to any attorney or law firm which has represented the Company within the past five years in connection with any matter or may hereafter represent the Company in connection with any matter, and affirmatively agrees that any such attorney may represent Indemnitee in connection with the interpretation, construction or enforcement of this Agreement or of the Trust (as that term is defined in Section 15) or in any other matter. (e) The Company hereby authorizes any attorney, effective upon a Change of Control, to appear on its behalf in any state court of the State of New York or the United States District Court for the Southern or Eastern District of New York to consent to summary judgment in favor of Indemnitee in any declaratory judgment action brought by Indemnitee to determine the validity and enforceability of this Agreement and of the Trust. 10. Severability. In the event that any provision of this Agreement is determined by a final order not subject to further appeal of a court of competent jurisdiction to require the Company to do or to fail to do an act which is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a - 8 - 9 violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms. 11. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 12. Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York. 13. Successors and Assigns. This Agreement shall be (i) binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law) and (ii) shall be binding on and inure to the benefit of the heirs, personal representatives and estate of Indemnitee. 14. Amendment. No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties hereto. 15. Establishment of Trust. The Company has created a trust pursuant to the agreement annexed hereto as Exhibit B (the "Trust") for the benefit of Indemnitee and other directors and officers of the Company (together with the Indemnitee, the "Beneficiaries") who have executed agreements similar to this Agreement (together with this Agreement, the "Indemnity Agreements"), the trustee and any successor trustee of which shall be chosen by a majority of the Beneficiaries. The Company initially funded the Trust with $5,000 and, prior to a Change of Control, shall fund the Trust in an additional amount sufficient in the sole judgment of a majority of the continuing Directors to satisfy any and all Losses and Expenses reasonably anticipated at the time of such funding for which the Company may indemnify the Beneficiaries under the Indemnity Agreements. From time to time after a Change of Control, upon receipt of a written request from any of the Beneficiaries, the Company shall further fund the Trust in amounts sufficient to satisfy any and all Losses and Expenses reasonably anticipated at the time of such request for which the Company may indemnify the Beneficiaries under the Indemnity Agreements. The amount of amounts to be deposited in the Trust pursuant to the foregoing funding obligations shall be determined by mutual agreement of the indemnitee and the Company or, if the Company and the Indemnitee are unable to reach such an agreement, by independent legal counsel selected by a majority of - 9 - 10 the Beneficiaries. The terms of the Trust shall provide that, except upon the written consent of all of the Beneficiaries and the Company, (i) the Trust shall not be revoked or the principal thereof invaded, (ii) the trustee shall advance to the Indemnitee within 20 days of a request by Indemnitee, any and all Losses and Expenses, Indemnitee hereby agreeing to reimburse the trustee of the Trust for Losses and Expenses so advanced in the event and only to the extent that a Determination is made by a court in a final adjudication from which there is no further right of appeal that Indemnitee is not entitled to be indemnified under this Agreement, (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligations set forth in this Section, (iv) the trustee shall promptly pay to Indemnitee any amounts to which Indemnitee shall be entitled (including amounts to be advanced) pursuant to this Agreement, and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by independent legal counsel selected by a majority of the Beneficiaries or a court of competent jurisdiction that all of the Beneficiaries have been fully indemnified with respect to the proceeding giving rise to the establishment of the Trust in question under the terms of the Indemnity Agreements. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. Attest: LONG ISLAND LIGHTING COMPANY By: /s/ H. M. Leiman By: /s/ W. J. Catacosinos ------------------------ ----------------------- Herbert M. Leiman William J. Catacosinos Title: Assistant Corporate Title: Chairman and Secretary Chief Executive Officer Witness: /s/ Renee Banks /s/ Vicki L. Fuller - ------------------------------- ------------------------------ Renee Banks Vicki L. Fuller
- 10 - 11 EXHIBIT A Policies of insurance providing indemnification of Directors and Officers for a claim alleging a wrongful act on their part and/or reimbursement to the Company for damages due to indemnification by the Company which may be required or permitted by law.
Insurance Limits of Policy Company Liability Deductible Number Term - --------- --------- ---------- ------ ---- ($ millions) Associated $35 At least DOO4OA 8/26/93 Electric & $5,000 but 1A93 8/26/94 Gas Ins. no more than Services Ltd. $55,000 (AEGIS) Energy Ins. $50 Underlying 900153 8/26/93 Mutual Ltd. X/O Coverage 92DO 8/26/94 (EIM) $35 Continental $15 Underlying DSB 8/26/93 Ins. Co. X/O Coverage 082593-1 8/26/94 $85 Zurich Ins. $10 Underlying DSB 8/26/93 Co. X/O Coverage 082593-2 8/26/94 $100 ACE Ins. $45 Underlying LIL 8/26/93 Co. Ltd. X/O 7035D 8/26/94 $110 Zurich Ins. $15 Underlying DSB 8/26/93 Co. X/O Coverage 082593-3 8/26/94 $155 XL Ins. $10 Underlying XLDCR 8/26/93 Co. Ltd. X/O Coverage 00278-93 8/26/94 $170 ACE Ins. $5 Underlying LIL 8/26/93 Co. Ltd. X/O Coverage 7036D 8/26/94 $180
- 11 - EX-10.X40 12 ORTEGA AGREEMENT 1 AGREEMENT This Agreement is made this 20th day of April 1993 by and between Long Island Lighting Company, a New York corporation (the "Company"), and Katherine D. Ortega ("Indemnitee"). W I T N E S S E T H: WHEREAS, the Company has experienced increasing difficulty in obtaining directors' and officers' liability insurance, significantly higher premiums for such insurance than has historically been charged the Company and reductions in the coverage of such insurance; and WHEREAS, the Company, as an additional inducement to Indemnitee to continue to serve the Company, has agreed to provide Indemnitee with the benefits contemplated by this Agreement which benefits are intended to supplement or replace, if necessary, the Company's existing directors' and officers' liability insurance; and WHEREAS, as a result of the provision of such benefits Indemnitee has agreed to serve or to continue to serve as a director and/or officer of the Company; NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, including the Indemnitee's continued service to the Company, the Company and Indemnitee hereby agree as follows: 1. Definitions. The following terms, as used herein, shall have the following respective meanings: "Adverse Determination" means a Determination (as hereinafter defined) that Indemnitee is not entitled to be fully indemnified by the Company for Losses and Expenses in connection with any actual or threatened action, suit or proceeding, whether civil, criminal or investigative, against Indemnitee because the claim is an Excluded Claim or because Indemnitee is not otherwise entitled to payment under this Agreement. 2 "Change of Control" means any transaction or event where (a) the Company merges with, or consolidates into, another person or entity, (b) all or a substantial portion of the assets of the Company are transferred to another person or entity unless the sale is approved by a majority of the Continuing Directors, (c) any person or group of persons (as defined in Rule 13d-5 promulgated under the Securities Exchange Act of 1934), together with its affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Company (including securities convertible at the option of the holder into securities of the Company ordinarily having the right to vote in elections of directors) which together represent or would together represent, after giving effect to any conversion, in excess of 40 percent of the combined voting power of the Company's outstanding securities ordinarily having the right to vote in elections of directors, (d) a liquidator, trustee or other similar person is appointed for all or substantially all of the assets of the Company, or (e) Continuing Directors no longer constitute at least a majority of the Company's Board. For purposes of this Agreement, (y) the Company's class of Preferred Stock shall not be deemed to be securities of the Company ordinarily having the right to vote in elections of directors, and (z) "Continuing Director" means any individual who was a member of the Company's Board on March 15, 1987, or is designated (before such person's initial election as a director) as a Continuing Director by a majority of the then remaining Continuing Directors. "Covered Amount" means Losses and Expenses which, in type or amount, are not insured under the D&O Insurance maintained by the Company from time to time. "Covered Act" means any breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted by Indemnitee or any of the foregoing alleged by any claimant or any claim against Indemnitee solely by reason of being a director or officer of the Company or serving at the request of the Company any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. "D&O Insurance" means the directors' and officers' liability insurance policies currently maintained by the Company, identified in Exhibit A hereto, and any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that provided under the policies identified in Exhibit A. - 2 - 3 "Determination" means a determination, based on the facts known at the time, made by: (i) A majority vote of a quorum of Disinterested Directors; or (ii) Independent legal counsel in a written opinion prepared at the request of a majority of a quorum of Disinterested Directors; or (iii) A majority of the disinterested shareholders of the Company; or (iv) A final adjudication by a court of competent jurisdiction; provided, however, that after a Change of Control occurs, a "Determination" shall mean only a final adjudication by a court of competent jurisdiction. "Determined" shall have a correlative meaning. "Disinterested Director" means a director of the Company who is not and was not a party to the action, suit or proceeding in respect of which indemnification is sought. "Excluded Claim" means any payment for Losses or Expenses in connection with any claim the payment of which by the Company under this Agreement is not permitted by applicable law. "Expenses" means any reasonable expenses incurred by Indemnitee as a result of a claim or claims made against him for Covered Acts including, without limitation, attorneys fees and disbursements and costs of investigative, judicial or administrative proceedings or appeals, but shall not include Fines. "Fines" means any fine, penalty or, with respect to an employee benefit plan, any excise tax or penalty assessed with respect thereto, but only to the extent such may not be indemnified by the Company under applicable law. "Losses" means any amounts which Indemnitee is legally obligated to pay as a result of a claim or claims made against him for Covered Acts including, without limitation, damages and judgments and sums paid in settlement of a claim or claims, but shall not include Fines. 2. Maintenance of D&O Insurance. (a) The Company hereby represents and warrants that the insurance policies identified in Exhibit A contain all policies of directors' and officers' liability insurance currently maintained by the Company and that such policies are in full force and effect. - 3 - 4 (b) In all policies of D&O Insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company's directors or officers most favorably insured by such policy. (c) The Company hereby covenants and agrees that, so long as Indemnitee shall continue to serve as a director and/or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director and/or officer of the Company, the Company, shall maintain in full force and effect D&O Insurance; provided, however, that prior to a Change of Control, the Company shall have no obligation to maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit. Subsequent to a Change of Control, the Company shall maintain in full force and effect D&O Insurance. 3. Indemnification. The Company shall indemnify Indemnitee and hold him harmless to the extent of the Covered Amount from any and all Losses and Expenses subject, in each case, to the further provisions of this Agreement. 4. Excluded Coverage. (a) The Company shall have no obligation to indemnify Indemnitee for and hold him harmless from any Loss or Expense which has been Determined to constitute an Excluded Claim. (b) The Company shall have no obligation pursuant to this Agreement to indemnify Indemnitee and hold him harmless for any Loss or Expense to the extent that Indemnitee is indemnified by the Company pursuant to the Company's By-Laws or otherwise indemnified and in each case he actually receives payment of such indemnity amount. 5. Indemnification Procedures. (a) Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any action, suit or proceeding, Indemnitee may, if indemnification with respect thereto may be sought from the Company under this - 4 - 5 Agreement, notify the Company of the commencement thereof, but Indemnitee's failure to so notify the Company shall not affect his right to indemnification hereunder. (b) If, at the time of the receipt of such notice, the Company has D&O Insurance in effect, the Company shall give prompt notice to the insurers of the commencement or the threat of commencement of such action, suit or proceeding in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Losses and Expenses payable as a result of such actual or threatened action, suit or proceeding in accordance with the terms of such policies. (c) To the extent the Company does not, at the time of the commencement of or the threat of commencement of such action, suit or proceeding, have applicable D&O Insurance, or if a Determination is not made that any Expenses arising out of such action, suit or proceeding will be payable under the D&O Insurance then in effect, the Company shall be obligated to advance the Expenses of any such action, suit or proceeding as they are billed and in advance of the final disposition thereof and the Company, if appropriate, shall be entitled to assume the defense of such action, suit or proceeding, with counsel satisfactory to Indemnitee in his sole discretion, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, the Company will not be liable to Indemnitee under this Agreement for any legal or other Expenses subsequently incurred by the Indemnitee in connection with such defense other than reasonable Expenses of investigation; provided that Indemnitee shall have the right to employ his own counsel in any such action, suit or proceeding but the fees and expenses of such counsel incurred after delivery of notice from the Company of its assumption of such defense shall be at the Indemnitee's expense; provided further that if (i) the employment of his own counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, (iii) a Change of Control shall have occurred before or during the actual or threatened action, suit or proceeding, or (iv) the Company shall not, in fact, have employed counsel to assume the defense of such actual or threatened action, suit or proceeding, the fees and disbursements of counsel chosen by Indemnitee in his sole discretion shall be at the expense of the Company. - 5 - 6 (d) All payments on account of the Company's indemnification obligations under this Agreement shall be made within sixty (60) days of Indemnitee's written request therefor unless a Determination is made that the claims giving rise to Indemnitee's request are Excluded Claims or otherwise not payable under this Agreement, provided that all payments on account of the Company's obligations under Section 5(c) of this Agreement prior to the final disposition of any action, suit or proceeding shall be made within 20 days of Indemnitee's written request therefor and such obligation shall not be subject to any such Determination but shall be subject to Section 5(e) of this Agreement. (e) Indemnitee agrees that he will (without interest) reimburse the Company for Losses and Expenses paid by the Company pursuant to this Agreement in connection with any actual or threatened action, suit or proceeding against Indemnitee in the event and only to the extent that a Determination shall have been made by a court in a final adjudication from which there is no further right of appeal that the Indemnitee is not entitled to be indemnified by the Company for such Losses or Expenses because the claim is an Excluded Claim or because Indemnitee is otherwise not entitled to payment under this Agreement. 6. Settlement. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any pending or threatened action, suit or proceeding effected without the Company's prior written consent prior to a Change of Control, but shall have the obligation to so indemnify Indemnitee in any such settlement effected without the Company's prior written consent upon or after a Change of Control. The Company shall not settle any claim in any manner which would impose any Fine or any obligation on Indemnitee without Indemnitee's written consent. Neither the Company nor Indemnitee shall unreasonably withhold their consent to any proposed settlement. 7. Presumptions and Effect of Certain Proceedings. The Secretary of the Company shall, promptly upon receipt of Indemnitee's request for indemnification, advise in writing the Board of Directors or such other person or persons empowered to make the Determination as provided in Section 5 hereof that Indemnitee shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proof in the making of any Determination contrary to such presumption. If the person or persons so empowered to make such Determination shall have failed to make the requested Determination within 60 days after receipt by the Company of such request, the requisite Determination of entitlement to indemnification shall be deemed - 6 - 7 to have been made and Indemnitee shall be absolutely entitled to such indemnification, absent actual and material fraud in the request for indemnification. The termination of any action, suit, investigation or proceeding described in Section 5 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself: (a) create a presumption that Indemnitee's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action adjudicated or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled; or (b) otherwise adversely affect the rights of Indemnitee to indemnification except as may be provided herein. 8. Rights Not Exclusive. Nothing herein shall limit or affect any right of Indemnitee otherwise than hereunder to indemnification or advancement of expenses, including attorneys fees, under any statute, rule, regulation, certificate of incorporation, by-law, insurance policy, contract, vote of disinterested shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in any other capacity by holding such office, and shall continue after the Indemnitee ceases to serve the Company as a director and/or officer. 9. Enforcement. (a) Indemnitee's right to indemnification shall be enforceable by Indemnitee in the state courts of the State of New York or the United States District Courts for the Southern or Eastern Districts of New York and shall be enforceable by Indemnitee notwithstanding any Adverse Determination (except an Adverse Determination not subject to further appeal by a court of competent jurisdiction). In any such action, if a prior Adverse Determination has been made, the burden of proving that indemnification is required under this Agreement shall be on Indemnitee. The Company shall have the burden of proving that indemnification is not required under this Agreement if no prior Adverse Determination shall have been made. (b) In the event that any action is instituted by Indemnitee under this Agreement, or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable counsel fees ("Enforcement Expenses"), incurred by Indemnitee with respect to such action. If the payment by the Company of any of the Enforcement Expenses results in the recognition by the Indemnitee of taxable income for Federal, state or local tax purposes, the Company, to the extent permitted by law, shall make an additional payment to Indemnitee which, when added to the - 7 - 8 Enforcement Expenses, results in a net after-tax benefit to Indemnitee equal to the Enforcement Expenses, unless the court determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. (c) Subsequent to a Change of Control and unless and until a court of competent jurisdiction makes an Adverse Determination which becomes final and not subject to further appeal, Indemnitee (whether or not still serving as a director and/or officer of the Company) and Indemnitee's agents, for purposes of enforcing this Agreement and investigating, defending and/or settling any claim for which indemnification may be available under this Agreement, shall have full access to the Company's employees and records to the same extent that Indemnitee now has, and the Company at its expense will provide Indemnitee with copies of any such records requested by Indemnitee or Indemnitee's agents. The Company will cooperate fully with Indemnitee in making such records and employees available in connection with the investigation, defense and/or settlement of any such claim. (d) The Company hereby waives, effective upon a Change of Control, any objections it may have, whether based upon conflict of interest or otherwise, to any attorney or law firm which has represented the Company within the past five years in connection with any matter or may hereafter represent the Company in connection with any matter, and affirmatively agrees that any such attorney may represent Indemnitee in connection with the interpretation, construction or enforcement of this Agreement or of the Trust (as that term is defined in Section 15) or in any other matter. (e) The Company hereby authorizes any attorney, effective upon a Change of Control, to appear on its behalf in any state court of the State of New York or the United States District Court for the Southern or Eastern District of New York to consent to summary judgment in favor of Indemnitee in any declaratory judgment action brought by Indemnitee to determine the validity and enforceability of this Agreement and of the Trust. 10. Severability. In the event that any provision of this Agreement is determined by a final order not subject to further appeal of a court of competent jurisdiction to require the Company to do or to fail to do an act which is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a - 8 - 9 violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms. 11. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 12. Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York. 13. Successors and Assigns. This Agreement shall be (i) binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law) and (ii) shall be binding on and inure to the benefit of the heirs, personal representatives and estate of Indemnitee. 14. Amendment. No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties hereto. 15. Establishment of Trust. The Company has created a trust pursuant to the agreement annexed hereto as Exhibit B (the "Trust") for the benefit of Indemnitee and other directors and officers of the Company (together with the Indemnitee, the "Beneficiaries") who have executed agreements similar to this Agreement (together with this Agreement, the "Indemnity Agreements"), the trustee and any successor trustee of which shall be chosen by a majority of the Beneficiaries. The Company initially funded the Trust with $5,000 and, prior to a Change of Control, shall fund the Trust in an additional amount sufficient in the sole judgment of a majority of the continuing Directors to satisfy any and all Losses and Expenses reasonably anticipated at the time of such funding for which the Company may indemnify the Beneficiaries under the Indemnity Agreements. From time to time after a Change of Control, upon receipt of a written request from any of the Beneficiaries, the Company shall further fund the Trust in amounts sufficient to satisfy any and all Losses and Expenses reasonably anticipated at the time of such request for which the Company may indemnify the Beneficiaries under the Indemnity Agreements. The amount of amounts to be deposited in the Trust pursuant to the foregoing funding obligations shall be determined by mutual agreement of the indemnitee and the Company or, if the Company and the Indemnitee are unable to reach such an agreement, by independent legal counsel selected by a majority of - 9 - 10 the Beneficiaries. The terms of the Trust shall provide that, except upon the written consent of all of the Beneficiaries and the Company, (i) the Trust shall not be revoked or the principal thereof invaded, (ii) the trustee shall advance to the Indemnitee within 20 days of a request by Indemnitee, any and all Losses and Expenses, Indemnitee hereby agreeing to reimburse the trustee of the Trust for Losses and Expenses so advanced in the event and only to the extent that a Determination is made by a court in a final adjudication from which there is no further right of appeal that Indemnitee is not entitled to be indemnified under this Agreement, (iii) the Trust shall continue to be funded by the Company in accordance with the funding obligations set forth in this Section, (iv) the trustee shall promptly pay to Indemnitee any amounts to which Indemnitee shall be entitled (including amounts to be advanced) pursuant to this Agreement, and (v) all unexpended funds in the Trust shall revert to the Company upon a final determination by independent legal counsel selected by a majority of the Beneficiaries or a court of competent jurisdiction that all of the Beneficiaries have been fully indemnified with respect to the proceeding giving rise to the establishment of the Trust in question under the terms of the Indemnity Agreements. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. Attest: LONG ISLAND LIGHTING COMPANY By: /s/ Herbert M. Leiman By: /s/ William J. Catacosinos ------------------------ ------------------------------ Herbert M. Leiman William J. Catacosinos Title: Assistant Corporate Title: Chairman and Secretary Chief Executive Officer Witness: /s/ Michael W. Scott /s/ Katherine D. Ortega - ------------------------------- ------------------------------ Michael W. Scott Katherine D. Ortega
- 10 - 11 EXHIBIT A Policies of insurance providing indemnification of Directors and Officers for a claim alleging a wrongful act on their part and/or reimbursement to the Company for damages due to indemnification by the Company which may be required or permittted by law.
Insurance Limits of Policy Company Liability Deductible Number Term - --------- --------- ---------- ------ ---- ($ millions) Associated $35 - DOO4OA 8/26/92 Electric & 1A92 8/26/93 Gas Ins. Services Ltd. (AEGIS) Energy Ins. $50 Underlying 900153 8/26/92 Mutual Ltd. X/O Coverage 92DO 8/26/93 (EIM) $35 XL Ins. $25 Underlying XLDCR 8/26/92 Co. Ltd. X/O Coverage 00278-92 8/26/93 $85 ACE Ins. $50 Underlying AD071 8/26/92 Co. Ltd. X/O Coverage 826 8/26/93 $110
- 11 - EX-10.X54 13 GOLDBERG AGREEMENT 1 AGREEMENT This Agreement dated as of April 20, 1993 is made this 30th day of September 1993 by and between Long Island Lighting Company, a New York corporation (the "Company"), and Lionel M. Goldberg ("Indemnitee"). W I T N E S S E T H: WHEREAS, the Indemnitee having reached the mandatory age of retirement and having served the Company since his retirement as a Director in the capacity of Consulting Director, the Company, as an additional inducement to Indemnitee to continue to serve the Company, has agreed to provide Indemnitee with the benefits contemplated by this Agreement which benefits are intended to supplement or replace, if necessary, the Company's existing directors' and officers' liability insurance; and WHEREAS, as a result of the provision of such benefits Indemnitee has agreed to serve or to continue to serve as a director and/or officer of the Company; NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, including the Indemnitee's continued service to the Company, the Company and Indemnitee hereby agree as follows: 1. Definitions. The following terms, as used herein, shall have the following respective meanings: "Adverse Determination" means a Determination (as hereinafter defined) that Indemnitee is not entitled to be fully indemnified by the Company for Losses and Expenses in connection with any actual or threatened action, suit or proceeding, whether civil, criminal or investigative, against Indemnitee because the claim is an Excluded Claim or because Indemnitee is not otherwise entitled to payment under this Agreement. 2 "Change of Control" means any transaction or event where (a) the Company merges with, or consolidates into, another person or entity, (b) all or a substantial portion of the assets of the Company are transferred to another person or entity unless the sale is approved by a majority of the Continuing Directors, (c) any person or group of persons (as defined in Rule 13d-5 promulgated under the Securities Exchange Act of 1934), together with its affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Company (including securities convertible at the option of the holder into securities of the Company ordinarily having the right to vote in elections of directors) which together represent or would together represent, after giving effect to any conversion, in excess of 40 percent of the combined voting power of the Company's outstanding securities ordinarily having the right to vote in elections of directors, (d) a liquidator, trustee or other similar person is appointed for all or substantially all of the assets of the Company, or (e) Continuing Directors no longer constitute at least a majority of the Company's Board. For purposes of this Agreement, (y) the Company's class of Preferred Stock shall not be deemed to be securities of the Company ordinarily having the right to vote in elections of directors, and (z) "Continuing Director" means any individual who was a member of the Company's Board on March 15, 1987, or is designated (before such person's initial election as a director) as a Continuing Director by a majority of the then remaining Continuing Directors. "Covered Amount" means Losses and Expenses which, in type or amount, are not insured under the D&O Insurance maintained by the Company from time to time. "Covered Act" means any breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted by Indemnitee or any of the foregoing alleged by any claimant or any claim against Indemnitee solely by reason of being a director or officer of the Company or serving at the request of the Company any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. "D&O Insurance" means the directors' and officers' liability insurance policies currently maintained by the Company, identified in Exhibit A hereto, and any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that provided under the policies identified in Exhibit A. - 2 - 3 "Determination" means a determination, based on the facts known at the time, made by: (i) A majority vote of a quorum of Disinterested Directors; or (ii) Independent legal counsel in a written opinion prepared at the request of a majority of a quorum of Disinterested Directors; or (iii) A majority of the disinterested shareholders of the Company; or (iv) A final adjudication by a court of competent jurisdiction; provided, however, that after a Change of Control occurs, a "Determination" shall mean only a final adjudication by a court of competent jurisdiction. "Determined" shall have a correlative meaning. "Disinterested Director" means a director of the Company who is not and was not a party to the action, suit or proceeding in respect of which indemnification is sought. "Excluded Claim" means any payment for Losses or Expenses in connection with any claim the payment of which by the Company under this Agreement is not permitted by applicable law. "Expenses" means any reasonable expenses incurred by Indemnitee as a result of a claim or claims made against him for Covered Acts including, without limitation, attorneys fees and disbursements and costs of investigative, judicial or administrative proceedings or appeals, but shall not include Fines. "Fines" means any fine, penalty or, with respect to an employee benefit plan, any excise tax or penalty assessed with respect thereto, but only to the extent such may not be indemnified by the Company under applicable law. "Losses" means any amounts which Indemnitee is legally obligated to pay as a result of a claim or claims made against him for Covered Acts including, without limitation, damages and judgments and sums paid in settlement of a claim or claims, but shall not include Fines. 2. Maintenance of D&O Insurance. (a) The Company hereby represents and warrants that the insurance policies identified in Exhibit A contain all policies of directors' and officers' liability insurance currently maintained by the Company and that such policies are in full force and effect. - 3 - 4 (b) In all policies of D&O Insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company's directors or officers most favorably insured by such policy. (c) The Company hereby covenants and agrees that, so long as Indemnitee shall continue to serve as a director and/or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director and/or officer of the Company, the Company, shall maintain in full force and effect D&O Insurance; provided, however, that prior to a Change of Control, the Company shall have no obligation to maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit. Subsequent to a Change of Control, the Company shall maintain in full force and effect D&O Insurance. 3. Indemnification. The Company shall indemnify Indemnitee and hold him harmless to the extent of the Covered Amount from any and all Losses and Expenses subject, in each case, to the further provisions of this Agreement. 4. Excluded Coverage. (a) The Company shall have no obligation to indemnify Indemnitee for and hold him harmless from any Loss or Expense which has been Determined to constitute an Excluded Claim. (b) The Company shall have no obligation pursuant to this Agreement to indemnify Indemnitee and hold him harmless for any Loss or Expense to the extent that Indemnitee is indemnified by the Company pursuant to the Company's By-Laws or otherwise indemnified and in each case he actually receives payment of such indemnity amount. 5. Indemnification Procedures. (a) Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any action, suit or proceeding, Indemnitee may, if indemnification with respect thereto may be sought from the Company under this - 4 - 5 Agreement, notify the Company of the commencement thereof, but Indemnitee's failure to so notify the Company shall not affect his right to indemnification hereunder. (b) If, at the time of the receipt of such notice, the Company has D&O Insurance in effect, the Company shall give prompt notice to the insurers of the commencement or the threat of commencement of such action, suit or proceeding in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Losses and Expenses payable as a result of such actual or threatened action, suit or proceeding in accordance with the terms of such policies. (c) To the extent the Company does not, at the time of the commencement of or the threat of commencement of such action, suit or proceeding, have applicable D&O Insurance, or if a Determination is not made that any Expenses arising out of such action, suit or proceeding will be payable under the D&O Insurance then in effect, the Company shall be obligated to advance the Expenses of any such action, suit or proceeding as they are billed and in advance of the final disposition thereof and the Company, if appropriate, shall be entitled to assume the defense of such action, suit or proceeding, with counsel satisfactory to Indemnitee in his sole discretion, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, the Company will not be liable to Indemnitee under this Agreement for any legal or other Expenses subsequently incurred by the Indemnitee in connection with such defense other than reasonable Expenses of investigation; provided that Indemnitee shall have the right to employ his own counsel in any such action, suit or proceeding but the fees and expenses of such counsel incurred after delivery of notice from the Company of its assumption of such defense shall be at the Indemnitee's expense; provided further that if (i) the employment of his own counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, (iii) a Change of Control shall have occurred before or during the actual or threatened action, suit or proceeding, or (iv) the Company shall not, in fact, have employed counsel to assume the defense of such actual or threatened action, suit or proceeding, the fees and disbursements of counsel chosen by Indemnitee in his sole discretion shall be at the expense of the Company. - 5 - 6 (d) All payments on account of the Company's indemnification obligations under this Agreement shall be made within sixty (60) days of Indemnitee's written request therefor unless a Determination is made that the claims giving rise to Indemnitee's request are Excluded Claims or otherwise not payable under this Agreement, provided that all payments on account of the Company's obligations under Section 5(c) of this Agreement prior to the final disposition of any action, suit or proceeding shall be made within 20 days of Indemnitee's written request therefor and such obligation shall not be subject to any such Determination but shall be subject to Section 5(e) of this Agreement. (e) Indemnitee agrees that he will (without interest) reimburse the Company for Losses and Expenses paid by the Company pursuant to this Agreement in connection with any actual or threatened action, suit or proceeding against Indemnitee in the event and only to the extent that a Determination shall have been made by a court in a final adjudication from which there is no further right of appeal that the Indemnitee is not entitled to be indemnified by the Company for such Losses or Expenses because the claim is an Excluded Claim or because Indemnitee is otherwise not entitled to payment under this Agreement. 6. Settlement. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any pending or threatened action, suit or proceeding effected without the Company's prior written consent prior to a Change of Control, but shall have the obligation to so indemnify Indemnitee in any such settlement effected without the Company's prior written consent upon or after a Change of Control. The Company shall not settle any claim in any manner which would impose any Fine or any obligation on Indemnitee without Indemnitee's written consent. Neither the Company nor Indemnitee shall unreasonably withhold their consent to any proposed settlement. 7. Presumptions and Effect of Certain Proceedings. The Secretary of the Company shall, promptly upon receipt of Indemnitee's request for indemnification, advise in writing the Board of Directors or such other person or persons empowered to make the Determination as provided in Section 5 hereof that Indemnitee shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proof in the making of any Determination contrary to such presumption. If the person or persons so empowered to make such Determination shall have failed to make the requested Determination within 60 days after receipt by the Company of such request, the requisite Determination of entitlement to indemnification shall be deemed - 6 - 7 to have been made and Indemnitee shall be absolutely entitled to such indemnification, absent actual and material fraud in the request for indemnification. The termination of any action, suit, investigation or proceeding described in Section 5 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself: (a) create a presumption that Indemnitee's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action adjudicated or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled; or (b) otherwise adversely affect the rights of Indemnitee to indemnification except as may be provided herein. 8. Rights Not Exclusive. Nothing herein shall limit or affect any right of Indemnitee otherwise than hereunder to indemnification or advancement of expenses, including attorneys fees, under any statute, rule, regulation, certificate of incorporation, by-law, insurance policy, contract, vote of disinterested shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in any other capacity by holding such office, and shall continue after the Indemnitee ceases to serve the Company as a director and/or officer. 9. Enforcement. (a) Indemnitee's right to indemnification shall be enforceable by Indemnitee in the state courts of the State of New York or the United States District Courts for the Southern or Eastern Districts of New York and shall be enforceable by Indemnitee notwithstanding any Adverse Determination (except an Adverse Determination not subject to further appeal by a court of competent jurisdiction). In any such action, if a prior Adverse Determination has been made, the burden of proving that indemnification is required under this Agreement shall be on Indemnitee. The Company shall have the burden of proving that indemnification is not required under this Agreement if no prior Adverse Determination shall have been made. (b) In the event that any action is instituted by Indemnitee under this Agreement, or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable counsel fees ("Enforcement Expenses"), incurred by Indemnitee with respect to such action. If the payment by the Company of any of the Enforcement Expenses results in the recognition by the Indemnitee of taxable income for Federal, state or local tax purposes, the Company, to the extent permitted by law, shall make an additional payment to Indemnitee which, when added to the - 7 - 8 Enforcement Expenses, results in a net after-tax benefit to Indemnitee equal to the Enforcement Expenses, unless the court determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. (c) Subsequent to a Change of Control and unless and until a court of competent jurisdiction makes an Adverse Determination which becomes final and not subject to further appeal, Indemnitee (whether or not still serving as a director and/or officer of the Company) and Indemnitee's agents, for purposes of enforcing this Agreement and investigating, defending and/or settling any claim for which indemnification may be available under this Agreement, shall have full access to the Company's employees and records to the same extent that Indemnitee now has, and the Company at its expense will provide Indemnitee with copies of any such records requested by Indemnitee or Indemnitee's agents. The Company will cooperate fully with Indemnitee in making such records and employees available in connection with the investigation, defense and/or settlement of any such claim. (d) The Company hereby waives, effective upon a Change of Control, any objections it may have, whether based upon conflict of interest or otherwise, to any attorney or law firm which has represented the Company within the past five years in connection with any matter or may hereafter represent the Company in connection with any matter, and affirmatively agrees that any such attorney may represent Indemnitee in connection with the interpretation, construction or enforcement of this Agreement or of the Trust (as that term is defined in Section 15) or in any other matter. (e) The Company hereby authorizes any attorney, effective upon a Change of Control, to appear on its behalf in any state court of the State of New York or the United States District Court for the Southern or Eastern District of New York to consent to summary judgment in favor of Indemnitee in any declaratory judgment action brought by Indemnitee to determine the validity and enforceability of this Agreement and of the Trust. 10. Severability. In the event that any provision of this Agreement is determined by a final order not subject to further appeal of a court of competent jurisdiction to require the Company to do or to fail to do an act which is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a - 8 - 9 violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms. 11. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 12. Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York. 13. Successors and Assigns. This Agreement shall be (i) binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law) and (ii) shall be binding on and inure to the benefit of the heirs, personal representatives and estate of Indemnitee. 14. Amendment. No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties hereto. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. Attest: LONG ISLAND LIGHTING COMPANY By: /s/ H. M. Leiman By: /s/ W. J. Catacosinos ------------------------ ----------------------- Herbert M. Leiman William J. Catacosinos Title: Assistant Corporate Title: Chairman and Secretary Chief Executive Officer Witness: /s/ Jean Burger /s/ L. M. Goldberg - ------------------------------- ------------------------------ Jean Burger Lionel M. Goldberg
- 9 - 10 EXHIBIT A Policies of insurance providing indemnification of Directors and Officers for a claim alleging a wrongful act on their part and/or reimbursement to the Company for damages due to indemnification by the Company which may be required or permitted by law.
Insurance Limits of Policy Company Liability Deductible Number Term - --------- --------- ---------- ------ ---- ($ millions) Associated $35 At least DOO4OA 8/26/93 Electric & $5,000 but 1A93 8/26/94 Gas Ins. no more than Services Ltd. $55,000 (AEGIS) Energy Ins. $50 Underlying 900153 8/26/93 Mutual Ltd. X/O Coverage 92DO 8/26/94 (EIM) $35 Continental $15 Underlying DSB 8/26/93 Ins. Co. X/O Coverage 082593-1 8/26/94 $85 Zurich Ins. $10 Underlying DSB 8/26/93 Co. X/O Coverage 082593-2 8/26/94 $100 ACE Ins. $45 Underlying LIL 8/26/93 Co. Ltd. X/O Coverage 7035D 8/26/94 $110 Zurich Ins. $15 Underlying DSB 8/26/93 Co. X/O Coverage 082593-3 8/26/94 $155 XL Ins. $10 Underlying XLDCR 8/26/93 Co. Ltd. X/O Coverage 00278-93 8/26/94 $170 ACE Ins. $5 Underlying LIL 8/26/93 Co. Ltd. X/O Coverage 7036D 8/26/94 $180
- 10 - EX-10.X55 14 PYNE AGREEMENT 1 AGREEMENT This Agreement dated as of April 20, 1993 is made this 30th day of September 1993 by and between Long Island Lighting Company, a New York corporation (the "Company"), and Eben W. Pyne ("Indemnitee"). W I T N E S S E T H: WHEREAS, the Indemnitee has reached the mandatory age of retirement and the Company has requested him to continue to serve the Company as a Consulting Director; and WHEREAS, the Company, as an additional inducement to Indemnitee to continue to serve the Company, has agreed to provide Indemnitee with the benefits contemplated by this Agreement which benefits are intended to supplement or replace, if necessary, the Company's existing directors' and officers' liability insurance; and WHEREAS, as a result of the provision of such benefits Indemnitee has agreed to serve or to continue to serve as a director and/or officer of the Company; NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, including the Indemnitee's continued service to the Company, the Company and Indemnitee hereby agree as follows: 1. Definitions. The following terms, as used herein, shall have the following respective meanings: "Adverse Determination" means a Determination (as hereinafter defined) that Indemnitee is not entitled to be fully indemnified by the Company for Losses and Expenses in connection with any actual or threatened action, suit or proceeding, whether civil, criminal or investigative, against Indemnitee because the claim is an Excluded Claim or because Indemnitee is not otherwise entitled to payment under this Agreement. 2 "Change of Control" means any transaction or event where (a) the Company merges with, or consolidates into, another person or entity, (b) all or a substantial portion of the assets of the Company are transferred to another person or entity unless the sale is approved by a majority of the Continuing Directors, (c) any person or group of persons (as defined in Rule 13d-5 promulgated under the Securities Exchange Act of 1934), together with its affiliates, is or becomes the beneficial owner (as defined in Rule 13d-3 under such Act), directly or indirectly, of securities of the Company (including securities convertible at the option of the holder into securities of the Company ordinarily having the right to vote in elections of directors) which together represent or would together represent, after giving effect to any conversion, in excess of 40 percent of the combined voting power of the Company's outstanding securities ordinarily having the right to vote in elections of directors, (d) a liquidator, trustee or other similar person is appointed for all or substantially all of the assets of the Company, or (e) Continuing Directors no longer constitute at least a majority of the Company's Board. For purposes of this Agreement, (y) the Company's class of Preferred Stock shall not be deemed to be securities of the Company ordinarily having the right to vote in elections of directors, and (z) "Continuing Director" means any individual who was a member of the Company's Board on March 15, 1987, or is designated (before such person's initial election as a director) as a Continuing Director by a majority of the then remaining Continuing Directors. "Covered Amount" means Losses and Expenses which, in type or amount, are not insured under the D&O Insurance maintained by the Company from time to time. "Covered Act" means any breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted by Indemnitee or any of the foregoing alleged by any claimant or any claim against Indemnitee solely by reason of being a director or officer of the Company or serving at the request of the Company any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity. "D&O Insurance" means the directors' and officers' liability insurance policies currently maintained by the Company, identified in Exhibit A hereto, and any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that provided under the policies identified in Exhibit A. - 2 - 3 "Determination" means a determination, based on the facts known at the time, made by: (i) A majority vote of a quorum of Disinterested Directors; or (ii) Independent legal counsel in a written opinion prepared at the request of a majority of a quorum of Disinterested Directors; or (iii) A majority of the disinterested shareholders of the Company; or (iv) A final adjudication by a court of competent jurisdiction; provided, however, that after a Change of Control occurs, a "Determination" shall mean only a final adjudication by a court of competent jurisdiction. "Determined" shall have a correlative meaning. "Disinterested Director" means a director of the Company who is not and was not a party to the action, suit or proceeding in respect of which indemnification is sought. "Excluded Claim" means any payment for Losses or Expenses in connection with any claim the payment of which by the Company under this Agreement is not permitted by applicable law. "Expenses" means any reasonable expenses incurred by Indemnitee as a result of a claim or claims made against him for Covered Acts including, without limitation, attorneys fees and disbursements and costs of investigative, judicial or administrative proceedings or appeals, but shall not include Fines. "Fines" means any fine, penalty or, with respect to an employee benefit plan, any excise tax or penalty assessed with respect thereto, but only to the extent such may not be indemnified by the Company under applicable law. "Losses" means any amounts which Indemnitee is legally obligated to pay as a result of a claim or claims made against him for Covered Acts including, without limitation, damages and judgments and sums paid in settlement of a claim or claims, but shall not include Fines. 2. Maintenance of D&O Insurance. (a) The Company hereby represents and warrants that the insurance policies identified in Exhibit A contain all policies of directors' and officers' liability insurance currently maintained by the Company and that such policies are in full force and effect. - 3 - 4 (b) In all policies of D&O Insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits, subject to the same limitations, as are accorded to the Company's directors or officers most favorably insured by such policy. (c) The Company hereby covenants and agrees that, so long as Indemnitee shall continue to serve as a director and/or officer of the Company and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director and/or officer of the Company, the Company, shall maintain in full force and effect D&O Insurance; provided, however, that prior to a Change of Control, the Company shall have no obligation to maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit. Subsequent to a Change of Control, the Company shall maintain in full force and effect D&O Insurance. 3. Indemnification. The Company shall indemnify Indemnitee and hold him harmless to the extent of the Covered Amount from any and all Losses and Expenses subject, in each case, to the further provisions of this Agreement. 4. Excluded Coverage. (a) The Company shall have no obligation to indemnify Indemnitee for and hold him harmless from any Loss or Expense which has been Determined to constitute an Excluded Claim. (b) The Company shall have no obligation pursuant to this Agreement to indemnify Indemnitee and hold him harmless for any Loss or Expense to the extent that Indemnitee is indemnified by the Company pursuant to the Company's By-Laws or otherwise indemnified and in each case he actually receives payment of such indemnity amount. 5. Indemnification Procedures. (a) Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any action, suit or proceeding, Indemnitee may, if indemnification with respect thereto may be sought from the Company under this - 4 - 5 Agreement, notify the Company of the commencement thereof, but Indemnitee's failure to so notify the Company shall not affect his right to indemnification hereunder. (b) If, at the time of the receipt of such notice, the Company has D&O Insurance in effect, the Company shall give prompt notice to the insurers of the commencement or the threat of commencement of such action, suit or proceeding in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all Losses and Expenses payable as a result of such actual or threatened action, suit or proceeding in accordance with the terms of such policies. (c) To the extent the Company does not, at the time of the commencement of or the threat of commencement of such action, suit or proceeding, have applicable D&O Insurance, or if a Determination is not made that any Expenses arising out of such action, suit or proceeding will be payable under the D&O Insurance then in effect, the Company shall be obligated to advance the Expenses of any such action, suit or proceeding as they are billed and in advance of the final disposition thereof and the Company, if appropriate, shall be entitled to assume the defense of such action, suit or proceeding, with counsel satisfactory to Indemnitee in his sole discretion, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, the Company will not be liable to Indemnitee under this Agreement for any legal or other Expenses subsequently incurred by the Indemnitee in connection with such defense other than reasonable Expenses of investigation; provided that Indemnitee shall have the right to employ his own counsel in any such action, suit or proceeding but the fees and expenses of such counsel incurred after delivery of notice from the Company of its assumption of such defense shall be at the Indemnitee's expense; provided further that if (i) the employment of his own counsel by Indemnitee has been previously authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, (iii) a Change of Control shall have occurred before or during the actual or threatened action, suit or proceeding, or (iv) the Company shall not, in fact, have employed counsel to assume the defense of such actual or threatened action, suit or proceeding, the fees and disbursements of counsel chosen by Indemnitee in his sole discretion shall be at the expense of the Company. - 5 - 6 (d) All payments on account of the Company's indemnification obligations under this Agreement shall be made within sixty (60) days of Indemnitee's written request therefor unless a Determination is made that the claims giving rise to Indemnitee's request are Excluded Claims or otherwise not payable under this Agreement, provided that all payments on account of the Company's obligations under Section 5(c) of this Agreement prior to the final disposition of any action, suit or proceeding shall be made within 20 days of Indemnitee's written request therefor and such obligation shall not be subject to any such Determination but shall be subject to Section 5(e) of this Agreement. (e) Indemnitee agrees that he will (without interest) reimburse the Company for Losses and Expenses paid by the Company pursuant to this Agreement in connection with any actual or threatened action, suit or proceeding against Indemnitee in the event and only to the extent that a Determination shall have been made by a court in a final adjudication from which there is no further right of appeal that the Indemnitee is not entitled to be indemnified by the Company for such Losses or Expenses because the claim is an Excluded Claim or because Indemnitee is otherwise not entitled to payment under this Agreement. 6. Settlement. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any pending or threatened action, suit or proceeding effected without the Company's prior written consent prior to a Change of Control, but shall have the obligation to so indemnify Indemnitee in any such settlement effected without the Company's prior written consent upon or after a Change of Control. The Company shall not settle any claim in any manner which would impose any Fine or any obligation on Indemnitee without Indemnitee's written consent. Neither the Company nor Indemnitee shall unreasonably withhold their consent to any proposed settlement. 7. Presumptions and Effect of Certain Proceedings. The Secretary of the Company shall, promptly upon receipt of Indemnitee's request for indemnification, advise in writing the Board of Directors or such other person or persons empowered to make the Determination as provided in Section 5 hereof that Indemnitee shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proof in the making of any Determination contrary to such presumption. If the person or persons so empowered to make such Determination shall have failed to make the requested Determination within 60 days after receipt by the Company of such request, the requisite Determination of entitlement to indemnification shall be deemed - 6 - 7 to have been made and Indemnitee shall be absolutely entitled to such indemnification, absent actual and material fraud in the request for indemnification. The termination of any action, suit, investigation or proceeding described in Section 5 hereof by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself: (a) create a presumption that Indemnitee's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action adjudicated or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled; or (b) otherwise adversely affect the rights of Indemnitee to indemnification except as may be provided herein. 8. Rights Not Exclusive. Nothing herein shall limit or affect any right of Indemnitee otherwise than hereunder to indemnification or advancement of expenses, including attorneys fees, under any statute, rule, regulation, certificate of incorporation, by-law, insurance policy, contract, vote of disinterested shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in any other capacity by holding such office, and shall continue after the Indemnitee ceases to serve the Company as a director and/or officer. 9. Enforcement. (a) Indemnitee's right to indemnification shall be enforceable by Indemnitee in the state courts of the State of New York or the United States District Courts for the Southern or Eastern Districts of New York and shall be enforceable by Indemnitee notwithstanding any Adverse Determination (except an Adverse Determination not subject to further appeal by a court of competent jurisdiction). In any such action, if a prior Adverse Determination has been made, the burden of proving that indemnification is required under this Agreement shall be on Indemnitee. The Company shall have the burden of proving that indemnification is not required under this Agreement if no prior Adverse Determination shall have been made. (b) In the event that any action is instituted by Indemnitee under this Agreement, or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable counsel fees ("Enforcement Expenses"), incurred by Indemnitee with respect to such action. If the payment by the Company of any of the Enforcement Expenses results in the recognition by the Indemnitee of taxable income for Federal, state or local tax purposes, the Company, to the extent permitted by law, shall make an additional payment to Indemnitee which, when added to the - 7 - 8 Enforcement Expenses, results in a net after-tax benefit to Indemnitee equal to the Enforcement Expenses, unless the court determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. (c) Subsequent to a Change of Control and unless and until a court of competent jurisdiction makes an Adverse Determination which becomes final and not subject to further appeal, Indemnitee (whether or not still serving as a director and/or officer of the Company) and Indemnitee's agents, for purposes of enforcing this Agreement and investigating, defending and/or settling any claim for which indemnification may be available under this Agreement, shall have full access to the Company's employees and records to the same extent that Indemnitee now has, and the Company at its expense will provide Indemnitee with copies of any such records requested by Indemnitee or Indemnitee's agents. The Company will cooperate fully with Indemnitee in making such records and employees available in connection with the investigation, defense and/or settlement of any such claim. (d) The Company hereby waives, effective upon a Change of Control, any objections it may have, whether based upon conflict of interest or otherwise, to any attorney or law firm which has represented the Company within the past five years in connection with any matter or may hereafter represent the Company in connection with any matter, and affirmatively agrees that any such attorney may represent Indemnitee in connection with the interpretation, construction or enforcement of this Agreement or of the Trust (as that term is defined in Section 15) or in any other matter. (e) The Company hereby authorizes any attorney, effective upon a Change of Control, to appear on its behalf in any state court of the State of New York or the United States District Court for the Southern or Eastern District of New York to consent to summary judgment in favor of Indemnitee in any declaratory judgment action brought by Indemnitee to determine the validity and enforceability of this Agreement and of the Trust. 10. Severability. In the event that any provision of this Agreement is determined by a final order not subject to further appeal of a court of competent jurisdiction to require the Company to do or to fail to do an act which is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a - 8 - 9 violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms. 11. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 12. Consent to Jurisdiction. The Company and the Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of New York and the United States District Courts for the Southern and Eastern Districts of New York. 13. Successors and Assigns. This Agreement shall be (i) binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law) and (ii) shall be binding on and inure to the benefit of the heirs, personal representatives and estate of Indemnitee. 14. Amendment. No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties hereto. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. Attest: LONG ISLAND LIGHTING COMPANY By: Herbert M. Leiman By: William J. Catacosinos ----------------- ---------------------- Herbert M. Leiman William J. Catacosinos Title: Assistant Corporate Title: Chairman and Secretary Chief Executive Officer Witness: Susan Ingenito Eben W. Pyne -------------- ------------ Eben W. Pyne - 9 - 10 EXHIBIT A Policies of insurance providing indemnification of Directors and Officers for a claim alleging a wrongful act on their part and/or reimbursement to the Company for damages due to indemnification by the Company which may be required or permitted by law.
Insurance Limits of Policy Company Liability Deductible Number Term - --------- --------- ---------- ------ ---- ($ millions) Associated $35 At least DOO4OA 8/26/93 Electric & $5,000 but 1A93 8/26/94 Gas Ins. no more than Services Ltd. $55,000 (AEGIS) Energy Ins. $50 Underlying 900153 8/26/93 Mutual Ltd. X/O Coverage 92DO 8/26/94 (EIM) $35 Continental $15 Underlying DSB 8/26/93 Ins. Co. X/O Coverage 082593-1 8/26/94 $85 Zurich Ins. $10 Underlying DSB 8/26/93 Co. X/O Coverage 082593-2 8/26/94 $100 ACE Ins. $45 Underlying LIL 8/26/93 Co. Ltd. X/O Coverage 7035D 8/26/94 $110 Zurich Ins. $15 Underlying DSB 8/26/93 Co. X/O Coverage 082593-3 8/26/94 $155 XL Ins. $10 Underlying XLDCR 8/26/93 Co. Ltd. X/O Coverage 00278-93 8/26/94 $170 ACE Ins. $5 Underlying LIL 8/26/93 Co. Ltd. X/O Coverage 7036D 8/26/94 $180
- 10 - EX-23 15 CONSENT OF AUDITORS 1 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in the Post-Effective Amendment No. 3 to Registration Statement (No 33-16238) on Form S-8 relating to Long Island Lighting Company's Employee Stock Purchase Plan, Post-Effective Amendment No. 1 to Registration Statement (No. 2-87427) on Form S-3 relating to Long Island Lighting Company's Automatic Dividend Reinvestment Plan and in the related Prospectus, Registration Statement (No. 2-88578) on Form S-3 relating to the issuance of Common Stock and in the related Prospectus and Registration Statement (No. 33-45834) on Form S-3 relating to the issuance of General and Refunding Bonds and in the related Prospectus and Registration Statement (No. 33-60744) on Form S-3 relating to the issuance of General and Refunding Bonds, Debentures, Preferred Stock or Common Stock and in the related Prospectus, of our report dated February 4, 1994, with respect to the financial statements and schedules of Long Island Lighting Company included in this Annual Report on Form 10-K for the year ended December 31, 1993. ERNST & YOUNG Melville, New York March 11, 1994 EX-24.A 16 POWERS OF ATTORNEY 1 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 18th day of February 1994. /s/ W. J. CATACOSINOS -------------------------------- WILLIAM J. CATACOSINOS CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER 2 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 21st day of February 1994. /s/ WINFIELD E. FROMM -------------------------------- WINFIELD E. FROMM 3 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 21st day of February 1994. /s/ PHYLLIS S. VINEYARD -------------------------------- PHYLLIS S. VINEYARD 4 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 21st day of February 1994. /s/ JOHN H. TALMAGE ------------------------------ JOHN H. TALMAGE 5 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 21st day of February 1994. /s/ BASIL A. PATERSON -------------------------------- BASIL A. PATERSON 6 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 21st day of February 1994. /s/ GEORGE BUGLIARELLO -------------------------------- GEORGE BUGLIARELLO 7 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 9th day of March 1994. /s/ GEORGE J. SIDERIS -------------------------------- GEORGE J. SIDERIS 8 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 21st day of February 1994. /s/ A. JAMES BARNES -------------------------------- A. JAMES BARNES 9 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 21st day of February 1994. /s/ RICHARD L. SCHMALENSEE -------------------------------- RICHARD L. SCHMALENSEE 10 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 17th day of February 1994. /s/ RENSO L. CAPORALI -------------------------------- RENSO L. CAPORALI 11 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 22nd day of February 1994. /s/ PETER O. CRISP -------------------------------- PETER O. CRISP 12 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 22nd day of February 1994. /s/ KATHERINE D. ORTEGA -------------------------------- KATHERINE D. ORTEGA 13 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity either as a director or officer, or both as the case may be, of said Company, I do hereby appoint KATHLEEN A. MARION, ANTHONY NOZZOLILLO, and ROBERT J. GREY, and each of them severally, as my attorneys-in-fact with power to execute in my name and place, and in my capacity as a director, officer, or both, as the case may be, of LONG ISLAND LIGHTING COMPANY, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. IN WITNESS WHEREOF, I have executed this power of attorney this 21st day of February 1994. /s/ VICKI L. FULLER -------------------------------- VICKI L. FULLER EX-24.B 17 CERTIFICATE AS TO POWER OF ATTORNEY 1 EXHIBIT 24(b) 1993 Form 10-K LONG ISLAND LIGHTING COMPANY CERTIFICATE AS TO POWER OF ATTORNEY WHEREAS, LONG ISLAND LIGHTING COMPANY, a New York corporation, intends to file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, an Annual Report for the year ended December 31, 1993, on Form 10- K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder. NOW, THEREFORE, in my capacity as Assistant Corporate Secretary of Long Island Lighting Company, I do hereby certify that Anthony Nozzolillo has been appointed by the Board of Directors of Long Island Lighting Company with power to execute, among other documents, said Report, any amendment to said Report and any other documents required in connection therewith, and to file the same with the Securities and Exchange Commission. WITNESS my hand and the seal of the Company this 10th day of March, 1994. /s/ HERBERT M. LEIMAN ------------------------------ HERBERT M. LEIMAN Assistant Corporate Secretary (Corporate Seal) EX-24.C 18 BOARD RESOLUTION 1 Exhibit 24(c) 1993 FORM 10-K LONG ISLAND LIGHTING COMPANY I, HERBERT M. LEIMAN, Assistant Corporate Secretary of LONG ISLAND LIGHTING COMPANY (the "Company"), a New York corporation, DO HEREBY CERTIFY that annexed hereto is a true, correct and complete copy of the resolution adopted at a meeting of the Board of Directors of the Company duly called and held on February 22, 1994, at which meeting a quorum was present and acting throughout. AND I DO FURTHER CERTIFY that the foregoing resolution has not been in any way amended, annulled, rescinded or revoked and that the same is still in full force and effect. WITNESS my hand and the seal of the Company this 10th day of March, 1994. /s/ HERBERT M. LEIMAN ---------------------------- HERBERT M. LEIMAN Assistant Corporate Secretary (Corporate Seal) 2 LONG ISLAND LIGHTING COMPANY (Resolution adopted on February 22, 1994) "RESOLVED, that 1. the proper officers of this Company are authorized to execute and file with the Securities and Exchange Commission under the Securities Act of 1934, as amended, the Annual Report for the year ended December 31, 1993 on Form 10-K as prescribed by said Commission pursuant to said Act and the rules and regulations promulgated thereunder, substantially in the form submitted to each of the directors with such additional changes therein as the General Counsel of the Company shall approve (the "Form 10-K"); 2. Anthony Nozzolillo, Senior Vice President, and Kathleen A. Marion, Corporate Secretary, their successors and each of them, are designated as agents for service in connection with said Report and each of them is authorized to receive all notices and communications from the Securities and Exchange Commission respecting said Report and any amendment thereto; and all powers which are provided by any rules and regulations of said Commission to be conferred upon persons so designated are hereby conferred upon each of said officers; and 3. without limiting the authority of any officer of this Company to act in the premises, Anthony Nozzolillo, Robert J. Grey and Kathleen A. Marion, their successors and each of them, are hereby appointed attorneys-in-fact of this Company and the power to execute and file any instruments and documents, including but not limited to the Annual Report on Form 10-K, and to make any payments and do any other acts and things, including the execution and filing of any amendment to said Report as they may deem necessary or desirable to effect such filing; and the Corporate Secretary or any Assistant Corporate Secretary, or any other officer of this Company, is hereby authorized to certify and deliver to the Securities and Exchange Commission copies of this resolution as evidence of such powers." -----END PRIVACY-ENHANCED MESSAGE-----