-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJM31tjiEVKTGKO1cn8lr4pv8C1u5UgyPKVDTrPPAfAjWMVGshgQ/xpyaHonxRai ZpAOH5JaN8zDp/RhWGrYbw== 0000065984-97-000044.txt : 19970811 0000065984-97-000044.hdr.sgml : 19970811 ACCESSION NUMBER: 0000065984-97-000044 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERGY CORP /DE/ CENTRAL INDEX KEY: 0000065984 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 135550175 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11299 FILM NUMBER: 97653578 BUSINESS ADDRESS: STREET 1: 639 LOYOLA AVE CITY: NEW ORLEANS STATE: LA ZIP: 70113 BUSINESS PHONE: 5045295262 FORMER COMPANY: FORMER CONFORMED NAME: ENTERGY GSU HOLDINGS INC /DE/ DATE OF NAME CHANGE: 19940329 FORMER COMPANY: FORMER CONFORMED NAME: ENTERGY CORP /FL/ DATE OF NAME CHANGE: 19940329 FORMER COMPANY: FORMER CONFORMED NAME: MIDDLE SOUTH UTILITIES INC DATE OF NAME CHANGE: 19890521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERGY ARKANSAS INC CENTRAL INDEX KEY: 0000007323 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 710005900 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10764 FILM NUMBER: 97653579 BUSINESS ADDRESS: STREET 1: PO BOX 551 STREET 2: 40TH FLOOR CITY: LITTLE ROCK STATE: AR ZIP: 72203 BUSINESS PHONE: 5013774000 MAIL ADDRESS: STREET 1: P O BOX 551 CITY: LITTLE ROCK STATE: AR ZIP: 72203 FORMER COMPANY: FORMER CONFORMED NAME: ARKANSAS POWER & LIGHT CO DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERGY GULF STATES INC CENTRAL INDEX KEY: 0000044570 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 740662730 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20371 FILM NUMBER: 97653580 BUSINESS ADDRESS: STREET 1: 350 PINE ST CITY: BEAUMONT STATE: TX ZIP: 77701 BUSINESS PHONE: 4098386631 MAIL ADDRESS: STREET 1: 350 PINE ST CITY: BEAUMONT STATE: TX ZIP: 77701 FORMER COMPANY: FORMER CONFORMED NAME: GULF STATES UTILITIES CO DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERGY LOUISIANA INC CENTRAL INDEX KEY: 0000060527 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 720245590 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08474 FILM NUMBER: 97653581 BUSINESS ADDRESS: STREET 1: 639 LOYOLA AVE CITY: NEW ORLEANS STATE: LA ZIP: 70113 BUSINESS PHONE: 5045953100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERGY MISSISSIPPI INC CENTRAL INDEX KEY: 0000066901 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 640205830 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00320 FILM NUMBER: 97653582 BUSINESS ADDRESS: STREET 1: PO BOX 1640 CITY: JACKSON STATE: MS ZIP: 39215-1640 BUSINESS PHONE: 6019692311 FORMER COMPANY: FORMER CONFORMED NAME: MISSISSIPPI POWER & LIGHT CO DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERGY NEW ORLEANS INC CENTRAL INDEX KEY: 0000071508 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 720273040 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05807 FILM NUMBER: 97653583 BUSINESS ADDRESS: STREET 1: 639 LOYOLA AVE CITY: NEW ORLEANS STATE: LA ZIP: 70113 BUSINESS PHONE: 5045953100 MAIL ADDRESS: STREET 1: PO BOX 60340 CITY: NEW ORL STATE: LA ZIP: 70160 FORMER COMPANY: FORMER CONFORMED NAME: NEW ORLEANS PUBLIC SERVICE INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYSTEM ENERGY RESOURCES INC CENTRAL INDEX KEY: 0000202584 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 720752777 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09067 FILM NUMBER: 97653584 BUSINESS ADDRESS: STREET 1: ECHELON ONE STREET 2: 1340 ECHELON PKWY CITY: JACKSON STATE: MS ZIP: 39213 BUSINESS PHONE: 6019849000 MAIL ADDRESS: STREET 1: PO BOX 31995 CITY: JACKSON STATE: MS ZIP: 39286-1995 FORMER COMPANY: FORMER CONFORMED NAME: MIDDLE SOUTH ENERGY INC DATE OF NAME CHANGE: 19860803 10-Q 1 _____________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1997 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address of Principal Executive Identification Offices and Telephone Number No. 1-11299 ENTERGY CORPORATION 72-1229752 (a Delaware corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 529-5262 1-10764 ENTERGY ARKANSAS, INC. 71-0005900 (an Arkansas corporation) 425 West Capitol Avenue, 40th Floor Little Rock, Arkansas 72201 Telephone (501) 377-4000 1-2703 ENTERGY GULF STATES, INC. 74-0662730 (a Texas corporation) 350 Pine Street Beaumont, Texas 77701 Telephone (409) 838-6631 1-8474 ENTERGY LOUISIANA, INC. 72-0245590 (a Louisiana corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 529-5262 0-320 ENTERGY MISSISSIPPI, INC. 64-0205830 (a Mississippi corporation) 308 East Pearl Street Jackson, Mississippi 39201 Telephone (601) 368-5000 0-5807 ENTERGY NEW ORLEANS, INC. 72-0273040 (a Louisiana corporation) 639 Loyola Avenue New Orleans, Louisiana 70113 Telephone (504) 529-5262 1-9067 SYSTEM ENERGY RESOURCES, INC. 72-0752777 (an Arkansas corporation) Echelon One 1340 Echelon Parkway Jackson, Mississippi 39213 Telephone (601) 368-5000 _________________________________________________________________________ Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Common Stock Outstanding Outstanding at July 31, 1997 Entergy Corporation ($0.01 par value) 241,269,934 ENTERGY CORPORATION AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q June 30, 1997 Page Number Definitions 1 Management's Financial Discussion and Analysis - Liquidity and Capital Resources 3 Management's Financial Discussion and Analysis - Significant Factors and Known Trends 6 Results of Operations and Financial Statements: Entergy Corporation and Subsidiaries: Results of Operations 12 Statements of Consolidated Income 15 Statements of Consolidated Cash Flows 16 Consolidated Balance Sheets 18 Selected Operating Results 20 Entergy Arkansas, Inc.: Results of Operations 21 Statements of Income 22 Statements of Cash Flows 23 Balance Sheets 24 Selected Operating Results 26 Entergy Gulf States, Inc.: Results of Operations 28 Statements of Income (Loss) 30 Statements of Cash Flows 31 Balance Sheets 32 Selected Operating Results 34 Entergy Louisiana, Inc.: Results of Operations 35 Statements of Income 36 Statements of Cash Flows 37 Balance Sheets 38 Selected Operating Results 40 Entergy Mississippi, Inc.: Results of Operations 41 Statements of Income 42 Statements of Cash Flows 43 Balance Sheets 44 Selected Operating Results 46 Entergy New Orleans, Inc.: Results of Operations 48 Statements of Income 50 Statements of Cash Flows 51 Balance Sheets 52 Selected Operating Results 54 System Energy Resources, Inc.: Results of Operations 55 Statements of Income 56 Statements of Cash Flows 57 Balance Sheets 58 Notes to Financial Statements for Entergy Corporation and Subsidiaries 60 Part II: Item 1. Legal Proceedings 72 Item 4. Submission of Matters to a Vote of Security Holders 73 Item 5. Other Information 74 Item 6. Exhibits and Reports on Form 8-K 75 Experts 76 Signature 77 This combined Quarterly Report on Form 10-Q is separately filed by Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representations whatsoever as to any other company. This combined Quarterly Report on Form 10-Q supplements and updates the Annual Report on Form 10-K for the calendar year ended December 31, 1996, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, filed by the individual registrants with the SEC and should be read in conjunction therewith. Investors are cautioned that forward-looking statements contained herein with respect to the revenues, earnings, competitive performance, or other prospects for the business of Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., System Energy Resources, Inc. or their affiliated companies may be influenced by factors that could cause actual outcomes and results to be materially different than projected. Such factors include, but are not limited to, the effects of weather, the performance of generating units, fuel prices and availability, regulatory decisions and the effects of changes in law, capital spending requirements, the evolution of competition, changes in accounting standards, and other factors. DEFINITIONS Certain abbreviations or acronyms used in the text are defined below: Abbreviation or Acronym Term Algiers 15th Ward of the City of New Orleans, Louisiana ALJ Administrative Law Judge ANO Arkansas Nuclear One Plant ANO 1 Unit No. 1 of ANO ANO 2 Unit No. 2 of ANO APSC Arkansas Public Service Commission Cajun Cajun Electric Power Cooperative, Inc. Capital Funds Agreement Agreement, dated as of June 21, 1974, as amended, between System Energy and Entergy Corporation, and the assignments thereof CitiPower CitiPower Pty. Council Council of the City of New Orleans, Louisiana domestic utility companies Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans, collectively Entergy Entergy Corporation and its various direct and indirect subsidiaries Entergy Arkansas Entergy Arkansas, Inc., formerly Arkansas Power & Light Company Entergy Corporation Entergy Corporation, a Delaware corporation, successor to Entergy Corporation, a Florida corporation Entergy Enterprises Entergy Enterprises, Inc. Entergy Gulf States Entergy Gulf States, Inc., formerly Gulf States Utilities Company (including wholly owned subsidiaries - Varibus Corporation, GSG&T, Inc., Prudential Oil & Gas, Inc., and Southern Gulf Railway Company) Entergy Louisiana Entergy Louisiana, Inc., formerly Louisiana Power & Light Company Entergy Mississippi Entergy Mississippi, Inc., formerly Mississippi Power & Light Company Entergy New Orleans Entergy New Orleans, Inc., formerly New Orleans Public Service Inc. Entergy Operations Entergy Operations, Inc., a subsidiary of Entergy Corporation that has operating responsibility for ANO, Grand Gulf 1, River Bend, and Waterford 3 Entergy Services Entergy Services, Inc. EPA U.S. Environmental Protection Agency Abbreviation or Acronym Term EPAct Energy Policy Act of 1992 FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission Form 10-K The combined Annual Report on Form 10-K for the year ended December 31, 1996, of Entergy, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy Grand Gulf 1 Unit No. 1 (nuclear) of the Grand Gulf Plant ISES Independence Steam Electric Generating Station kWh Kilowatt-hour(s) LPSC Louisiana Public Service Commission London Electricity London Electricity plc - a regional electric company serving London, England, which was acquired by Entergy on February 7, 1997 Merger The combination transaction, consummated on December 31, 1993, by which Entergy Gulf States became a subsidiary of Entergy Corporation and Entergy Corporation became a Delaware corporation MPSC Mississippi Public Service Commission NRC Nuclear Regulatory Commission Owner Participant A corporation that, in connection with the Waterford 3 sale and leaseback transactions, has acquired a beneficial interest in a trust, the Owner Trustee of which is the owner and lessor of undivided interests in Waterford 3 Owner Trustee Each institution and/or individual acting as Owner Trustee under a trust agreement with an Owner Participant in connection with the Waterford 3 sale and leaseback transactions PCBs Polychlorinated biphenyls PUHCA Public Utility Holding Company Act of 1935, as amended PUCT Public Utility Commission of Texas PURPA Public Utility Regulatory Policies Act River Bend River Bend Nuclear Plant, owned 70% by Entergy Gulf States RUS Rural Utilities Service SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards as promulgated by the Financial Accounting Standards Board System Energy System Energy Resources, Inc. System Fuels System Fuels, Inc. Waterford 3 Unit No. 3 (nuclear) of the Waterford Plant ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Cash Flows Net cash flow from operations for Entergy, the domestic utility companies, and System Energy for the six months ended June 30, 1997, and 1996 was as follows: Six Months Six Months Company Ended 6/30/97 Ended 6/30/96 (In Millions) Entergy $ 840.2 $ 626.4 Entergy Arkansas $ 177.7 $ 157.8 Entergy Gulf States $ 213.5 $ 113.6 Entergy Louisiana $ 115.2 $ 155.9 Entergy Mississippi $ 87.6 $ 80.7 Entergy New Orleans $ 29.2 $ 15.0 System Energy $ 131.6 $ 129.3 The positive cash flow from operations for the domestic utility companies results from continued efforts to streamline operations and to reduce costs, as well as from collections under rate phase-in plans that exceed current cash requirements for the related costs. In the income statement, these revenue collections are offset by the amortization of the previously deferred costs so that there is no effect on net income. These phase-in plans will continue to contribute to Entergy's cash position in the immediate future. The Grand Gulf 1 phase-in plans will expire in 1998 for Entergy Arkansas and Entergy Mississippi, and in 2001 for Entergy New Orleans. Entergy Gulf States' phase-in plan for River Bend will expire in 1998. However, Entergy Louisiana's phase-in plan for Waterford 3 expired in June 1997. Competitive growth businesses had a positive impact on Entergy's cash flow from operations. In accordance with the purchase method of accounting, London Electricity's results of operations are not included in Entergy's six months ended June 30, 1996 Statements of Consolidated Cash Flows. Financing Sources As discussed in Note 8, the acquisition of London Electricity for $2.1 billion was accomplished in February 1997. The acquisition was financed with $1.7 billion of debt that is non-recourse to Entergy Corporation, and $392 million of equity provided by Entergy Corporation from available cash and borrowings under its $300 million line of credit. Currently, Entergy is pursuing alternatives to refinance a portion of this debt. Excluding the London Electricity investment, cash from operations, supplemented by cash on hand, was sufficient to meet substantially all investing and financing requirements of the domestic utility companies and System Energy, including capital expenditures, dividends, and debt and preferred stock maturities for the six months ended June 30, 1997. Entergy has been able to fund the capital requirements for its domestic utility companies with cash from operations as discussed above in "Cash Flows". Should additional cash be needed to fund investments or to retire debt, the domestic utility companies and System Energy each have the ability, subject to regulatory approval and compliance with issuance tests, to issue debt or preferred securities to meet such requirements. In addition, to the extent market conditions and interest and dividend rates allow, the domestic utility companies and System Energy will continue to refinance and/or redeem higher cost debt and preferred stock prior to maturity. See Note 4 herein for a discussion of the recent refinancing by Entergy Louisiana. The domestic utility companies may continue to establish special purpose trusts as financing subsidiaries for the purpose of issuing preferred trust securities, such as those issued in 1996 by Entergy Louisiana Capital I and Entergy Arkansas Capital I, and those ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES issued in January 1997 by Entergy Gulf States Capital I. Entergy Corporation, the domestic utility companies, and System Energy also have the ability to effect short-term borrowings. See Notes 4, 5, 6, 7, 9 and 10 in the Form 10-K for additional information on Entergy's capital and refinancing requirements in 1997-2001. As of June 30, 1997, Entergy Corporation had $225 million outstanding under its $300 million bank credit facility, representing the remaining balance of the amount used for the acquisition of London Electricity in February 1997. In addition, Entergy Technology Holding Company (ETHC) had $61 million outstanding under its $250 million bank line of credit as of June 30, 1997. See Note 4 to the Form 10-K for information on the domestic utility companies' and System Energy's short-term borrowing authorizations and bank lines of credit. Financing Uses Productive investment by Entergy Corporation is integral to enhancing the long-term value of its common stock. Entergy Corporation has been expanding its investments in business opportunities overseas as well as in the United States. As of June 30, 1997, Entergy Corporation had acquired or participated in foreign electric ventures in Australia, Argentina, Chile, Pakistan, Peru, and the United Kingdom, and had acquired several telecommunications-based businesses in the United States. As of June 30, 1997, Entergy Corporation had a net investment of $1.3 billion in equity capital in competitive growth businesses. See Note 8 for a discussion of Entergy Corporation's acquisition of London Electricity on February 7, 1997. To make capital investments, fund its subsidiaries, and pay dividends, Entergy Corporation will utilize internally generated funds, cash on hand, funds available under its $300 million bank credit facility, funds received from its dividend reinvestment and stock purchase plan, and bank financings as required. See Note 3 herein for information regarding proceeds from the issuance of common stock under Entergy's dividend reinvestment and stock purchase plan during the six months ended June 30, 1997. See Note 9 in the Form 10- K for a discussion of capital requirements. Entergy Corporation receives funds through dividend payments from its subsidiaries. During the six months ended June 30, 1997, such dividend payments from subsidiaries totaled $175.9 million. In order to improve its capital structure, Entergy Gulf States has not paid common stock dividends since the third quarter of 1994. During the six months ended June 30, 1997, Entergy Corporation paid $212.1 million of common stock dividends. Declarations of dividends on common stock are made at the discretion of Entergy Corporation's Board of Directors. Management will not recommend future changes in dividends to the Board unless warranted by economic circumstances and the then current business environment. See Note 8 in the Form 10-K for information on dividend restrictions. Entergy Corporation and Entergy Gulf States See Notes 1 and 2 regarding River Bend and Cajun litigation. An adverse ruling regarding River Bend could result in up to approximately $273 million of potential write-offs (net of tax) and up to $215 million in refunds of previously collected revenue. Such write-offs and charges could result in substantial net losses being reported in the future by Entergy Gulf States, with resulting adverse adjustments to the common equity of Entergy Corporation and Entergy Gulf States. Adverse resolution of these matters could negatively affect Entergy Gulf States' ability to obtain financing, which could in turn affect Entergy Gulf States' liquidity and ability to resume paying common stock dividends. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND CAPITAL RESOURCES Entergy Corporation and System Energy Under the Capital Funds Agreement, Entergy Corporation has agreed to supply to System Energy sufficient capital to maintain System Energy's equity capital at a minimum of 35% of its total capitalization (excluding short-term debt), to permit the continued commercial operation of Grand Gulf 1, and to pay in full all indebtedness for borrowed money of System Energy when due under any circumstances. In addition, under supplements to the Capital Funds Agreement assigning System Energy's rights thereunder as security for specific debt of System Energy, Entergy Corporation has agreed to make cash capital contributions, if required, to enable System Energy to make payments on such debt when due. The Capital Funds Agreement may be terminated by the parties thereto, subject to the consent of certain creditors. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" in the Form 10-K, including "Open Access Transmission", "Municipalization", "Industry Consolidation", "Functional Unbundling", and "Effects of Alternate Energy Sources on Retail Electric Sales to Industrial and Large Commercial Customers" for a discussion of the increasing competitive pressures facing Entergy and the electric utility industry. See "ANO Matters", and "Property Tax Exemptions" in the Form 10-K for a discussion of other significant issues affecting Entergy. Set forth below are recent developments to the Form 10-K disclosure for the sections presented. Competition and Industry Challenges Transition to Competition Filings See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" in the Form 10-K and Note 2 herein for a discussion of the domestic utility companies' filings with their respective state and local regulators concerning the transition to competition. Entergy Gulf States made a supplemental filing with the PUCT on April 4, 1997, outlining a comprehensive market reform proposal calling for the establishment of retail competition, service quality standards, a regional power exchange, and an independent system operator. Entergy Gulf States requested from the PUCT a reciprocal commitment ensuring the full recovery of prudently incurred investments previously approved by regulators. The PUCT has scheduled hearings on the transition to competition beginning in October 1997. The MPSC conducted hearings in April 1997 on various transition to competition issues, including the recoverability of stranded costs, the potential for cost shifting, and electric supply reliability. In early July the MPSC issued an order directing the MPSC Staff to submit a report by November 1, 1997, outlining a plan for restructuring the electric utility industry in Mississippi. Entergy Arkansas filed a supplement to its transition to competition plan with the APSC on May 1, 1997. This filing is similar to the supplemental filing made by Entergy Gulf States as discussed above. See Note 2 for additional information regarding this filing. In October 1996, Entergy Gulf States and Entergy Louisiana filed proposals with the LPSC designed to achieve an orderly transition to retail electric competition in Louisiana, while protecting certain classes of ratepayers from bearing the burden of cost shifting. See Note 2 for additional information regarding this filing. Hearings on these proposals have been delayed until 1998. In February 1997, the LPSC ruled that certain issues embodied in the Entergy Gulf States and Entergy Louisiana proposals would be addressed in those companies' existing rate dockets, and that certain other issues would be addressed in an ongoing generic regulatory proceeding examining electric industry restructuring. In July 1997, Entergy Gulf States and Entergy Louisiana filed supplemental testimony on asset securitization, market price projections, and potential strandable cost quantification in response to the issues identified by the LPSC. The Council established two new dockets in March 1997 regarding electric and gas utility service competition in the City of New Orleans. One docket will address competitive issues, including the advisability of implementing competition, recoverability and measurement of stranded costs, maximization of consumer savings from competition and minimization of cost shifting, and potential conflicts among federal, state, and local regulators, as such issues relate to electric and gas service currently being provided to New Orleans customers by Entergy New Orleans. The second docket will address the same issues related to the provision of electric service to Algiers customers by Entergy Louisiana. A procedural schedule was established which required comments to ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS be filed in April 1997 and set hearings for May, July and October 1997. Entergy New Orleans intends to file a specific transition to competition plan following these hearings. Retail and Wholesale Rate Issues See Note 2 to the Form 10-K for a discussion of the ongoing trend of regulator mandated rate reductions as well as incentive and performance-based regulation and filings made with state and local regulators regarding an orderly transition to a more competitive market for electricity. See Note 2 herein for a discussion of rate reductions implemented at Entergy Louisiana and Entergy New Orleans during the current period. On July 14, 1997, Entergy Services filed with the FERC its wholesale transmission open access compliance tariff incorporating the requirements of FERC Order No. 888-A. Legislative Activity A number of bills recently have been introduced in the U. S. Congress calling for deregulation of the electric power industry. Included in these proposals are some that would amend or repeal PUHCA and/or PURPA. These bills generally have provisions that would give consumers the ability to choose their own electricity service provider. Entergy Gulf States was an active participant in discussions aimed at developing legislation related to electric utility industry restructuring and competition by the Texas Legislature before it adjourned June 2, 1997. No legislation was passed in Texas during the recent session and the legislature will not convene again until January 1999, by which time Entergy Gulf States believes the PUCT will have acted on its transition to competition filing. The Arkansas Senate has passed a resolution requesting a study of the impact of competition in the electric utility industry on the citizens of Arkansas, the electric utility industry, and the regulatory authority of the APSC. This study is scheduled to begin no later than December 1, 1997. Competitive Growth Businesses Entergy Corporation seeks opportunities to expand its domestic and foreign businesses that are not regulated by domestic state and local utility regulatory authorities. Such business ventures currently include power development and operations and retail services related to the utility business. Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES" for a discussion of Entergy Corporation's 1997 investments in competitive growth businesses. These investments may involve a greater risk than domestic regulated utility enterprises. For the six months ended June 30, 1997, Entergy Corporation's competitive growth businesses increased consolidated net income by approximately $49 million. Entergy Nuclear, Inc. (Entergy Nuclear) began providing management and operations services in February 1997 for an initial period of up to one year to Maine Yankee Atomic Power Company (Maine Yankee) at the Maine Yankee nuclear plant. The creation of Entergy Nuclear and its undertaking with Maine Yankee are authorized by existing SEC orders previously granted to Entergy Enterprises. Entergy Corporation has an ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS application pending at the SEC to create a different structure under which Entergy Nuclear would engage in this business for other nuclear utilities. On August 6, 1997, the board of directors of Maine Yankee announced the permanent closure of the nuclear plant based on economic concerns and uncertainty about the operation of the plant. Entergy Nuclear will honor its short-term contract to provide management services to Maine Yankee to prepare for decommissioning through September 30, 1997 and, at the option of Maine Yankee, through March 31, 1998. As of June 30, 1997, Entergy Corporation controlled 100% of the common shares of London Electricity. For additional information related to this acquisition, see Note 8 herein. Through London Electricity, Entergy expects to gain valuable experience in the deregulated United Kingdom electricity market to apply to the anticipated deregulated electricity market in the United States. London Electricity has already experienced seven years of a partially competitive supply environment and expects to be in a fully competitive supply market beginning April 1, 1998. In conjunction with the acquisition of London Electricity, Entergy established an international retail operations group to coordinate retail electric operations in the United Kingdom, Australia, and Argentina. In February 1997, Entergy Richmond Power Corporation, a wholly- owned subsidiary of Entergy Power Development Corporation, sold its 50% interest in Richmond Power Enterprise LP (owner of a gas-fired electric and steam generation facility), to a third party for $10 million, realizing an after tax gain of $2.7 million. In February 1997, Entergy Corporation announced a joint venture with Hyperion Telecommunications. It is expected that by the end of 1997, the joint venture (to be known as Entergy Hyperion Telecommunications) will offer competitive telephone services primarily to commercial customers in the metropolitan areas of Little Rock, Arkansas, Jackson, Mississippi, and Baton Rouge, Louisiana. In June 1997, Entergy Transener, S.A., a wholly-owned subsidiary of Entergy Power Development Corporation, sold its interest in a consortium that owned 65% of Transener S.A. for $27.5 million, realizing an after-tax gain of $5.8 million. During the second quarter of 1997, Entergy Pakistan Limited, a wholly-owned subsidiary of Entergy Power Development Corporation, sold 25% of its interest in Hub Power Company, Ltd. for $26.9 million, which resulted in an after-tax gain of $9.3 million. During the second quarter of 1997, Entergy Power Chile, S.A., an indirect wholly-owned subsidiary of Entergy Power Development Corporation, purchased a 25% interest in the San Isidro project, a 370 MW gas-fired, combined cycle generating facility under construction in Chile. Entergy Power Chile, S.A. is obligated to fund up to $20 million for the cost of completing the plant, scheduled for commercial operation in 1999. The other owner of the project, which is also the developer, is Empresa Nacional de Electricidad, S.A. (Endesa). On July 1, 1997, Entergy Security acquired the Ranger American group of companies for an aggregate purchase price of approximately $60.8 million. Ranger American is a leading provider of electronic security services in the largest cities in Texas and in Atlanta, Georgia. This expansion increases Entergy Security's customer total to approximately 140,000 and its annual revenues to more than $53 million. See Note 3 for details regarding the Entergy Corporation common stock that was issued in connection with this acquisition. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS Refer to "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" in the Form 10-K, and Note 8 herein, for a discussion of Entergy's major competitive growth businesses. Windfall Profits Tax As a result of Parliamentary elections held on May 1, 1997, the Labour Party gained control of the British government. On July 31, 1997, the British government enacted into law a one-time "windfall profits tax" on privatized industries, including regional electric utilities such as London Electricity. An initial examination of the proposed tax indicates that London Electricity's assessment is approximately 140 million British Pounds (approximately $229 million) which will not be deductible for United Kingdom income tax purposes. Payment of the tax is required in two equal installments, the first to be due on December 1, 1997, and the second installment due a year later. The government also decreased the corporate tax rate in the United Kingdom from the current 33% to 31%, which will be effective as of April 1, 1997. In accordance with SFAS 109, "Accounting for Income Taxes", this reduction in United Kingdom income tax rates will result in a one-time reduction in income tax expense of approximately $65 million to adjust London Electricity's deferred income tax liability to the new rate. Accordingly, the liability for the windfall profits tax (with a corresponding charge against income) and the reduction in London Electricity's deferred income tax liability (with a corresponding reduction in income tax expense), were recorded in July 1997. Waterford 3 Refueling Outage A scheduled 45-day refueling outage for the Waterford 3 nuclear plant began on April 12, 1997. Additional work and two minor incidents caused the outage to be extended from May 27 to mid-June. On May 28, 1997, a start-up transformer at Waterford 3 failed due to an internal fault. A replacement transformer was located and was shipped to Waterford 3, where certain plant configuration changes were made to facilitate its installation. After installation of the replacement transformer, the plant was restarted on July 29, 1997. Cajun - River Bend The RUS entered into an agreement on February 11, 1997 for the sale of Cajun's 30% interest in River Bend to PECO Energy Company (PECO) pursuant to authorization granted in the Bankruptcy Court Order of August 26, 1996. On July 10, 1997, PECO terminated this agreement with the RUS. Under orders of the Bankruptcy Court, RUS now has until mid-October 1997 to determine whether to sell the Cajun interest to another purchaser, to retain it, or to transfer it to Entergy Gulf States at no cost. Labor Agreements During April 1997, Entergy Gulf States and a union representing 1,000 employees in Texas and Louisiana signed a two-year labor contract (expiring August 14, 1999). The contract stipulate that there will be no layoffs in the next two years and wages will be increased 3% in 1997 and 1998. In early July 1997, Entergy Operations and the union representing 317 employees at River Bend, and Entergy Mississippi and the union representing 400 employees signed two-year labor contracts which also stipulates that there will be no layoffs of covered employees over the next two years and that wages will be ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS increased 3% over the next two years. These increases at Entergy Mississippi are to be effective October 15, 1998, and October 15, 1999. The new contract will run from October 1998 to October 2000. Deregulated Utility Operations Entergy Gulf States discontinued regulatory accounting principles in 1989 for its wholesale jurisdiction and steam department, and in 1991 for the Louisiana deregulated portion of River Bend. Operating income from these operations during the three and six months ended June 30, 1997, was $4.6 million and $9.2 million, respectively, compared to $1.8 million and $8.0 million during the comparable periods in 1996. The increase in operating income from these deregulated operations for the three and six months ended June 30, 1997 was principally due to decreased steam products expenses, partially offset by reduced wholesale jurisdiction revenues. The future impact of the deregulated utility operations on Entergy's and Entergy Gulf States' results of operations and financial position will depend on future operating costs, future efficiency and availability of generating units, and future market prices for energy over the remaining life of the assets. Accounting Issues See "MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS - SIGNIFICANT FACTORS AND KNOWN TRENDS" and Note 1 in the Form 10-K for a discussion of the impact of the adoption by Entergy of SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of", effective January 1, 1996. Continued Application of SFAS 71 - As a result of the EPAct, the actions of regulatory bodies, and other factors, the electric utility industry is moving toward a combination of competition and a modified regulatory environment. The domestic utility companies' and System Energy's financial statements currently reflect, for the most part, assets and costs based on existing cost-based ratemaking regulations in accordance with SFAS 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). Continued applicability of SFAS 71 to the domestic utility companies' and System Energy's financial statements requires that rates set by an independent regulator on a cost-of-service basis be charged to and collected from customers. In the event that all or a portion of a utility's operations cease to meet those criteria for various reasons, including deregulation, a change in the method of regulation, or a change in the competitive environment for the utility's regulated services, the utility is required to discontinue application of SFAS 71 for the relevant portion of its operations by eliminating from the balance sheet the effects of any actions of regulators recorded as regulatory assets and liabilities. Discontinuation of the application of SFAS 71 would have a material adverse impact on Entergy's financial statements. The SEC has expressed concern regarding the continuing applicability of SFAS 71 to the financial statements of electric utilities which either have been ordered by regulators to adopt transition to competition plans, or as in a number of other states, are in the process of participating with the state legislature and/or regulators in the development of such plans. While such plans may call for rate caps or decreases, they generally provide for recovery of above market rate generating plant and other regulatory assets (stranded costs). The SEC is concerned that portions of entities subject to such plans may not meet the criteria for the continued application of SFAS 71. The Emerging Issues Task Force of the FASB (EITF) met in May and July of 1997 to address the issues of when such an entity should discontinue the application of SFAS 71, and how SFAS 101 should be applied to a portion of an entity subject to such a plan. As a result of these meetings, a consensus was reached ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS that SFAS 71 should be discontinued at a date no later than when the details of the transition to competition plan for that portion of the entity are known. Additionally, the EITF reached a consensus that stranded costs which are to be recovered through cash flows derived from another portion of the entity which continues to apply SFAS 71 should not be written off and considered regulatory assets of that segment which will continue to apply SFAS 71. The domestic utility companies' and System Energy's financial statements continue to apply SFAS 71 for their regulated operations, except for those portions of Entergy Gulf States' business described in "Deregulated Utility Operations" above. Although discussions with regulatory authorities regarding retail competition have occurred and are expected to continue, no final transition to competition plan has been adopted, and therefore, the regulated operations continue to apply SFAS 71. See Note 1 to the Form 10-K for additional discussion of Entergy's application of SFAS 71. Accounting for Decommissioning Costs - In February 1996, the FASB issued an exposure draft of a proposed SFAS addressing the accounting for decommissioning costs of nuclear generating units as well as liabilities related to the closure and removal of all long- lived assets. See Note 1 for a discussion of proposed changes in the accounting for decommissioning/closure costs and the potential impact of these changes on Entergy. Year 2000 Issues Like many companies, Entergy is currently evaluating its computer software and databases to determine the extent to which modifications are required to prevent problems related to the year 2000, and the resources which will be required to make such modifications. These problems could result in malfunctions in certain software and databases with respect to dates on or after January 1, 2000, unless corrected. Entergy is evaluating the cost of making the necessary modifications required to correct any "Year 2000" problems. Financial Derivatives Derivative instruments have been used by Entergy on a limited basis. Entergy uses financial derivatives only to mitigate business risks and not for speculative purposes. See Notes 7 and 9 to the Form 10-K and Note 4 herein for additional information concerning Entergy's derivative instruments outstanding as of December 31, 1996, and June 30, 1997. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS On February 7, 1997, Entergy Corporation made unconditional its offer to acquire London Electricity. In accordance with the purchase method of accounting, the results of operations for the three and six months ended June 30, 1996 of Entergy Corporation and subsidiaries reported in the Statements of Consolidated Income and Cash Flows do not include London Electricity's results of operations. Consolidated net income for the three and six months ended June 30, 1997 includes a positive effect due to the inclusion of London Electricity results subsequent to February 1, 1997. See Note 8 for additional information regarding London Electricity. Net Income Consolidated net income decreased for the three months ended June 30, 1997 primarily due to a decrease in electric revenues and an increase in other operation and maintenance expense, partially offset by an increase in competitive growth business revenue and a decrease in income tax expense. Consolidated net income increased for the six months ended June 30, 1997 primarily due to the $174 million net of tax write-off of River Bend rate deferrals in January 1996 pursuant to SFAS 121. Excluding this item, net income would have decreased $19.2 million for the six months ended June 30, 1997 primarily due to a decrease in electric revenues and an increase in other operations and maintenance expense, partially offset by an increase in competitive growth business revenue and a decrease in income tax expense. The increase in competitive growth business revenues for the three and six months ended June 30, 1997 was primarily due to the inclusion of London Electricity revenues and increased earnings of CitiPower. London Electricity contributed earnings of $9.4 million or $0.04 per share for the three months ended June 30, 1997 and $25.0 million or $0.11 per share for the six months ended June 30, 1997 to consolidated net income. CitiPower's net income increased primarily due to favorable weather trends and due to restructuring charges that were recorded in 1996. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues associated with Entergy's domestic regulated operations for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($14.8) ($37.8) Rate riders (12.9) (17.4) Fuel cost recovery (39.8) 23.1 Sales volume/weather (39.8) (36.0) Other revenue (including unbilled) (42.6) (29.1) Sales for resale (22.0) (35.8) ------- ------- Total ($171.9) ($133.0) ======= ======= ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Electric operating revenues of the domestic utility companies and System Energy decreased for the three and six months ended June 30, 1997 primarily due to reductions in base revenues, the impact of milder weather in the current period, reductions in other revenue, and a decrease in sales for resale to non-associated utilities. Base revenues decreased primarily due to rate reductions for Louisiana retail customers, aggressive pricing strategies for targeted customer segments, and a change in sales mix from residential and commercial customers to industrial customers at Entergy Gulf States. The decrease in other revenue is primarily due to the impact in 1996 of a non-recurring adjustment to reserve for a potential refund associated with a change in accounting for unbilled revenue in 1993, as well as lower unbilled revenue in the current period. Unbilled revenues decreased primarily due to milder weather in the current period. The decrease in sales for resale to non-associated utilities is primarily due to changes in generation requirements and availability among the domestic utility companies. Fuel cost recovery decreased for the three months ended June 30, 1997 primarily due to lower fuel prices and milder weather, which caused a decrease in energy sales. Fuel cost recovery increased for the six months ended June 30, 1997 due to a PUCT order which approved recovery of under-recovered fuel expenses at Entergy Gulf States. See Note 2 herein for further discussion. Competitive growth business revenues increased for the three and six months ended June 30, 1997 primarily due to the February 1997 acquisition of London Electricity. London Electricity generated revenues of $463.2 million and $854.4 million for the three and six months ended June 30, 1997, respectively. Expenses Operating expenses for the three months ended June 30, 1997 and the portion of the six months ended June 1997 subsequent to February 1 include the operating expenses of London Electricity, which were not included in the prior year's financial statements. Excluding the operating expenses of London Electricity, Entergy's operating expenses for the three and six months ended June 30, 1997 are discussed below. For the three months ended June 30, 1997, operating expenses decreased by approximately $35.4 million primarily due to lower fuel expenses, partially offset by an increase in other operations and maintenance expense. Fuel expenses decreased primarily due to lower fuel prices and a decrease in energy sales as a result of the milder weather in the current period. The increase in other operations and maintenance expense is primarily due to an increase in non-outage related maintenance expense at Waterford 3 and an increase in maintenance expense at certain fossil plants. Operating expenses increased by approximately $32 million for the six months ended June 30, 1997 primarily due to an increase in depreciation, amortization and decommissioning expense and a decrease in rate deferrals, partially offset by a decrease in fuel expenses. The increase in depreciation, amortization, and decommissioning is due to (i) additional depreciation recorded by System Energy associated with the sale and leaseback in 1989 of a portion of Grand Gulf 1 and (ii) plant additions and improvements. Rate deferrals recorded in the first quarter of 1996 relate primarily to the LPSC- approved rate deferral of the Waterford 3 property tax first imposed in 1996. This tax is currently included in base rates. Fuel expenses decreased primarily due to a decrease in energy sales as a result of the milder weather in the current period and lower fuel prices. ENTERGY CORPORATION AND SUBSIDIARIES MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Other Other income increased for the six months ended June 30, 1997 primarily as a result of the 1996 write-off of River Bend rate deferrals pursuant to SFAS 121. Excluding London Electricity, interest on long-term debt decreased for the three and six months ended June 30, 1997 due primarily to ongoing retirement and refinancing of higher cost debt. Interest on debt associated with the London Electricity acquisition more than offset this decrease. Income tax expense decreased for the three months ended June 30, 1997 primarily due to lower pretax income.
ENTERGY CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands, Except Share Data) Operating Revenues: Electric $1,502,742 $1,674,610 $2,954,667 $3,087,678 Natural gas 23,025 28,991 80,521 86,464 Steam products 12,872 15,214 23,961 30,792 Competitive growth businesses 639,451 134,862 1,164,694 247,735 ---------- ---------- ---------- ---------- Total 2,178,090 1,853,677 4,223,843 3,452,669 ---------- ---------- ---------- ---------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 339,778 405,549 738,520 781,313 Purchased power 469,726 189,153 890,688 347,310 Nuclear refueling outage expenses 13,172 13,739 30,408 27,948 Other operation and maintenance 512,830 380,085 938,917 733,297 Depreciation, amortization, and decommissioning 241,286 195,100 469,315 389,667 Taxes other than income taxes 90,205 89,942 183,196 178,913 Rate deferrals (7,909) (11,273) (17,484) (31,075) Amortization of rate deferrals 85,115 90,213 184,178 181,724 ---------- ---------- ---------- ---------- Total 1,744,203 1,352,508 3,417,738 2,609,097 ---------- ---------- ---------- ---------- Operating Income 433,887 501,169 806,105 843,572 ---------- ---------- ---------- ---------- Other Income (Deductions): Allowance for equity funds used during construction 3,035 2,796 6,068 5,354 Write-off of River Bend rate deferrals - - - (194,498) Miscellaneous - net 29,224 12,682 46,617 23,461 ---------- ---------- ---------- ---------- Total 32,259 15,478 52,685 (165,683) ---------- ---------- ---------- ---------- Interest Charges: Interest on long-term debt 205,310 174,704 390,800 347,547 Other interest - net 11,148 10,098 23,053 21,945 Distributions on preferred securities of subsidiaries 4,710 - 8,882 - Allowance for borrowed funds used during construction (2,440) (2,329) (4,877) (4,467) ---------- ---------- ---------- ---------- Total 218,728 182,473 417,858 365,025 ---------- ---------- ---------- ---------- Income Before Income Taxes 247,418 334,174 440,932 312,864 Income Taxes 88,839 127,473 155,868 175,153 ---------- ---------- ---------- ---------- Net Income 158,579 206,701 285,064 137,711 Preferred and Preference Dividend Requirements of Subsidiaries and Other 12,303 18,378 29,026 36,459 ---------- ---------- ---------- ---------- Earnings Applicable to Common Stock $146,276 $188,323 $256,038 $101,252 ========== ========== ========== ========== Earnings per average common share $0.61 $0.83 $1.08 $0.44 Dividends declared per common share $0.45 - $0.90 $0.90 Average number of common shares outstanding 238,577,894 228,036,032 236,865,266 227,908,318 See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: Net income $285,064 $137,711 Noncash items included in net income: Write-off of River Bend rate deferrals - 194,498 Change in rate deferrals/excess capacity-net 223,311 210,399 Depreciation, amortization, and decommissioning 469,315 390,038 Deferred income taxes and investment tax credits (70,123) (49,738) Allowance for equity funds used during construction (5,475) (5,354) Changes in working capital: Receivables 8,750 (101,595) Fuel inventory 37,965 7,348 Accounts payable (23,891) 7,740 Taxes accrued 106,367 63,797 Interest accrued 868 (6,238) Other working capital accounts (98,449) (132,057) Decommissioning trust contributions (41,757) (26,157) Other (51,731) (64,015) ----------- ----------- Net cash flow provided by operating activities 840,214 626,377 ----------- ----------- Investing Activities: Construction/capital expenditures (296,817) (285,411) Allowance for equity funds used during construction 5,475 5,354 Nuclear fuel purchases (52,323) (73,782) Proceeds from sale/leaseback of nuclear fuel 79,512 54,241 Acquisition of London Electricity, net of cash acquired (1,980,631) - Acquisition of CitiPower - (1,156,112) Investment in nonregulated/nonutility properties 78,537 (6,426) Other (20,767) (20,752) ----------- ----------- Net cash flow used in investing activities (2,187,014) (1,482,888) ----------- -----------
ENTERGY CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Financing Activities: Proceeds from the issuance of: General and refunding mortgage bonds 64,827 39,608 First mortgage bonds 84,064 198,250 Bank notes and other long-term debt 1,691,201 947,443 Preferred securities of subsidiaries trust 82,323 - Common stock 166,870 - Retirement of: First mortgage bonds (192,504) (357,016) General and refunding mortgage bonds (634) (30,000) Other long-term debt (21,160) (93,373) Redemption of preferred stock (103,867) (25,580) Changes in short-term borrowings - net 113,104 225,025 Preferred stock dividends paid (27,275) (36,365) Common stock dividends paid (212,141) (199,493) ---------- --------- Net cash flow provided by financing activities 1,644,808 668,499 ---------- --------- Effect of exchange rates on cash and cash equivalents 809 73 ---------- --------- Net increase (decrease) in cash and cash equivalents 298,817 (187,939) Cash and cash equivalents at beginning of period 388,703 533,590 ---------- --------- Cash and cash equivalents at end of period $687,520 $345,651 ========== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $256,899 $354,051 Income taxes $81,165 $159,719 Noncash investing and financing activities: Capital lease obligations incurred - $16,358 Change in unrealized appreciation (depreciation) of decommissioning trust assets $6,268 ($11,103) See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS Current Assets: Cash and cash equivalents: Cash $92,263 $34,807 Temporary cash investments - at cost, which approximates market 595,257 346,782 Special deposits - 7,114 ----------- ----------- Total cash and cash equivalents 687,520 388,703 Notes receivable 8,708 1,384 Accounts receivable: Customer (less allowance for doubtful accounts of $17.2 million in 1997 and $9.2 million in 1996) 534,148 324,687 Other 181,641 99,066 Accrued unbilled revenues 478,558 351,429 Deferred fuel 123,720 122,184 Fuel inventory 101,638 139,603 Materials and supplies - at average cost 370,259 339,622 Rate deferrals 369,289 444,543 Prepayments and other 216,618 151,312 ----------- ----------- Total 3,072,099 2,362,533 ----------- ----------- Other Property and Investments: Decommissioning trust funds 399,719 357,962 Non-regulated investments 489,608 513,058 Other 82,411 59,053 ----------- ----------- Total 971,738 930,073 Utility Plant: Electric 25,189,766 22,811,164 Plant acquisition adjustment - Entergy Gulf States 447,293 455,425 Electric plant under leases 674,049 679,991 Property under capital leases - electric 142,109 147,277 Natural gas 175,081 168,143 Steam products 81,743 81,743 Construction work in progress 472,444 401,676 Nuclear fuel under capital leases 274,587 250,651 Nuclear fuel 60,719 112,625 ----------- ----------- Total 27,517,791 25,108,695 Less - accumulated depreciation and amortization 9,286,199 8,885,572 ----------- ----------- Utility plant - net 18,231,592 16,223,123 ----------- ----------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 251,437 399,493 SFAS 109 regulatory asset - net 1,195,931 1,196,041 Unamortized loss on reacquired debt 207,481 217,664 Other regulatory assets 460,742 435,652 Long-term receivables 212,224 216,082 CitiPower license (net of $23.3 million of amortization) 563,641 606,214 London Electricity license (net of $16.3 million of amortization) 1,552,542 - Other 263,570 379,419 ----------- ----------- Total 4,707,568 3,450,565 ----------- ----------- TOTAL $26,982,997 $22,966,294 =========== =========== See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Currently maturing long-term debt $387,630 $345,620 Notes payable 400,468 20,686 Accounts payable 746,602 554,558 Customer deposits 180,128 155,534 Taxes accrued 340,776 180,340 Accumulated deferred income taxes 54,276 78,010 Interest accrued 206,732 203,425 Dividends declared 8,259 8,950 Obligations under capital leases 152,206 151,287 Other 139,651 184,157 ----------- ----------- Total 2,616,728 1,882,567 ----------- ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,733,064 3,770,760 Accumulated deferred investment tax credits 598,221 607,641 Obligations under capital leases 260,922 247,360 Other 1,502,279 1,298,306 ----------- ----------- Total 7,094,486 5,924,067 ----------- ----------- Long-term debt 9,524,296 7,590,804 Subsidiaries' preferred stock with sinking fund 196,237 216,986 Subsidiary's preference stock 150,000 150,000 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated deferrable debentures 215,000 130,000 Shareholders' Equity: Subsidiaries' preferred stock without sinking fund 345,954 430,955 Common stock, $.01 par value, authorized 500,000,000 shares; issued 240,664,720 shares in 1997 and 234,456,457 shares in 1996 2,407 2,345 Paid-in capital 4,477,900 4,320,591 Retained earnings 2,384,923 2,341,703 Cumulative foreign currency translation adjustment 10,203 21,725 Less - treasury stock (1,123,923 shares in 1997 and 1,496,118 shares in 1996) 35,137 45,449 ----------- ----------- Total 7,186,250 7,071,870 ----------- ----------- Commitments and Contingencies (Notes 1 and 2) TOTAL $26,982,997 $22,966,294 =========== =========== See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Domestic Electric Operating Revenues: Residential $ 454.3 $ 516.5 ($62.2) (12) Commercial 362.4 380.1 (17.7) (5) Industrial 477.0 497.0 (20.0) (4) Governmental 40.4 41.2 (0.8) (2) --------------------------------- Total retail 1,334.1 1,434.8 (100.7) (7) Sales for resale 81.0 103.4 (22.4) (22) Other 87.6 136.4 (48.8) (36) --------------------------------- Total $ 1,502.7 $ 1,674.6 ($171.9) (10) ================================= Billed Electric Energy Sales (Millions of kWh): Residential 5,531 6,305 (774) (12) Commercial 4,952 5,084 (132) (3) Industrial 11,239 10,984 255 2 Governmental 598 591 7 1 --------------------------------- Total retail 22,320 22,964 (644) (3) Sales for resale 1,828 3,235 (1,407) (43) --------------------------------- Total 24,148 26,199 (2,051) (8) ================================= Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Domestic Electric Operating Revenues: Residential $ 956.4 $ 1,023.5 ($67.1) (7) Commercial 730.7 734.6 (3.9) (1) Industrial 973.9 957.3 16.6 2 Governmental 82.0 80.0 2.0 3 --------------------------------- Total retail 2,743.0 2,795.4 (52.4) (2) Sales for resale 157.6 193.6 (36.0) (19) Other 54.1 98.7 (44.6) (45) --------------------------------- Total $ 2,954.7 $ 3,087.7 ($133.0) (4) ================================= Billed Electric Energy Sales (Millions of kWh): Residential 11,931 12,972 (1,041) (8) Commercial 9,847 9,877 (30) - Industrial 22,135 21,429 706 3 Governmental 1,193 1,147 46 4 --------------------------------- Total retail 45,106 45,425 (319) (1) Sales for resale 4,253 5,809 (1,556) (27) --------------------------------- Total 49,359 51,234 (1,875) (4) =================================
ENTERGY ARKANSAS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and six months ended June 30, 1997 as a result of decreased electric operating revenues, partially offset by lower income taxes. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($0.7) $0.2 Rate riders (1.8) (0.4) Fuel cost recovery (0.6) 3.2 Sales volume/weather (13.9) (14.7) Other revenue (including unbilled) (6.3) (16.3) Sales for resale (21.1) (24.7) ------ ------ Total ($44.4) ($52.7) ====== ====== Electric operating revenues decreased for the three and six months ended June 30, 1997 primarily as a result of decreased retail energy sales, sales for resale, and other revenues primarily due to milder weather conditions during the current periods. The decrease in sales for resale resulted from changes in the generation requirements and availability among the domestic utility companies and decreased sales to non-associated companies. Other revenues decreased as a result of decreased unbilled revenues primarily due to milder weather conditions in the current periods. Expenses Operating expenses decreased for the three and six months ended June 30, 1997 primarily due to a decrease in fuel and purchased power expenses. This decrease is due to lower fuel costs and reduced sales caused by milder weather conditions in the current periods. Other Miscellaneous other income - net decreased for the three and six months ended June 30, 1997 due to reduced Grand Gulf 1 carrying charges as a result of a decline in the deferral balance which does not impact net income. Income tax expense decreased for the three and six months ended June 30, 1997 because of lower pretax income.
ENTERGY ARKANSAS, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) Operating Revenues $423,619 $467,990 $798,350 $851,071 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 62,754 66,475 129,347 131,675 Purchased power 109,120 121,631 203,854 220,256 Nuclear refueling outage expenses 5,367 7,541 12,266 15,083 Other operation and maintenance 86,085 85,871 171,801 169,136 Depreciation, amortization, and decommissioning 41,335 40,786 82,784 81,816 Taxes other than income taxes 9,101 10,425 18,529 19,443 Amortization of rate deferrals 28,984 30,024 68,005 66,470 -------- -------- -------- -------- Total 342,746 362,753 686,586 703,879 -------- -------- -------- -------- Operating Income 80,873 105,237 111,764 147,192 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 1,445 1,061 2,888 2,151 Miscellaneous - net 5,090 7,891 10,414 16,130 -------- -------- -------- -------- Total 6,535 8,952 13,302 18,281 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 23,777 24,932 48,227 49,767 Other interest - net 971 1,260 1,900 2,287 Distributions on preferred securities 1,275 - 2,550 - of subsidiary Allowance for borrowed funds used during construction (869) (634) (1,737) (1,299) -------- -------- -------- -------- Total 25,154 25,558 50,940 50,755 -------- -------- -------- -------- Income Before Income Taxes 62,254 88,631 74,126 114,718 Income Taxes 24,169 32,919 26,193 39,738 -------- -------- -------- -------- Net Income 38,085 55,712 47,933 74,980 Preferred Stock Dividend Requirements and Other 2,798 4,426 5,630 8,884 -------- -------- -------- -------- Earnings Applicable to Common Stock $35,287 $51,286 $42,303 $66,096 ======== ======== ======== ======== See Notes to Financial Statements.
ENTERGY ARKANSAS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: Net income $47,933 $74,980 Noncash items included in net income: Change in rate deferrals/excess capacity-net 81,151 69,808 Depreciation, amortization, and decommissioning 82,784 81,816 Deferred income taxes and investment tax credits (30,693) (28,555) Allowance for equity funds used during construction (2,888) (2,151) Changes in working capital: Receivables 29,939 (28,948) Fuel inventory 29,293 23 Accounts payable (22,365) (7,352) Taxes accrued 11,613 15,028 Interest accrued 622 (3,500) Other working capital accounts (33,731) 2,254 Decommissioning trust contributions (7,869) (7,530) Provision for estimated losses and reserves 5,383 2,362 Other (13,509) (10,471) -------- -------- Net cash flow provided by operating activities 177,663 157,764 -------- -------- Investing Activities: Construction expenditures (61,664) (67,212) Allowance for equity funds used during construction 2,888 2,151 Nuclear fuel purchases (36,532) (26,049) Proceeds from sale/leaseback of nuclear fuel 36,553 25,437 -------- -------- Net cash flow used in investing activities (58,755) (65,673) -------- -------- Financing Activities: Proceeds from issuance of first mortgage bonds 84,064 84,256 Retirement of first mortgage bonds (117,587) (112,807) Redemption of preferred stock - (4,000) Dividends paid: Common stock (31,400) (15,300) Preferred stock (5,729) (8,983) -------- -------- Net cash flow used in financing activities (70,652) (56,834) -------- -------- Net increase in cash and cash equivalents 48,256 35,257 Cash and cash equivalents at beginning of period 43,857 11,798 -------- -------- Cash and cash equivalents at end of period $92,113 $47,055 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $41,995 $49,169 Income taxes $40,864 $56,452 Noncash investing and financing activities: Capital lease obligations incurred - $16,358 Change in unrealized appreciation (depreciation) of decommissioning trust assets $5,817 ($7,482) See Notes to Financial Statements.
ENTERGY ARKANSAS, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS Current Assets: Cash and cash equivalents: Cash $11,772 $5,117 Temporary cash investments - at cost, which approximates market: Associated companies 23,184 17,462 Other 57,157 21,278 ---------- ---------- Total cash and cash equivalents 92,113 43,857 Accounts receivable: Customer (less allowance for doubtful accounts of $2.3 million in 1997 and 1996) 54,353 71,144 Associated companies 29,592 45,303 Other 1,215 5,862 Accrued unbilled revenues 111,974 104,764 Fuel inventory - at average cost 28,026 57,319 Materials and supplies - at average cost 82,927 72,976 Rate deferrals 120,706 153,141 Deferred excess capacity 4,424 9,005 Deferred nuclear refueling outage costs 37,977 24,534 Prepayments and other 7,000 7,491 ---------- ---------- Total 570,307 595,396 ---------- ---------- Other Property and Investments: Investment in subsidiary companies - at equity 11,211 11,211 Decommissioning trust fund 221,374 203,274 Other - at cost (less accumulated depreciation) 3,887 5,058 ---------- ---------- Total 236,472 219,543 ---------- ---------- Utility Plant: Electric 4,610,523 4,578,728 Property under capital leases 56,613 57,869 Construction work in progress 116,834 83,524 Nuclear fuel under capital lease 95,040 79,103 Nuclear fuel - 27,500 ---------- ---------- Total 4,879,010 4,826,724 Less - accumulated depreciation and amortization 2,057,738 1,976,204 ---------- ---------- Utility plant - net 2,821,272 2,850,520 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 31,114 75,249 SFAS 109 regulatory asset - net 250,225 244,767 Unamortized loss on reacquired debt 55,647 56,664 Other regulatory assets 94,432 80,257 Other 31,031 31,421 ---------- ---------- Total 462,449 488,358 ---------- ---------- TOTAL $4,090,500 $4,153,817 ========== ========== See Notes to Financial Statements.
ENTERGY ARKANSAS, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Currently maturing long-term debt $17,465 $32,465 Notes payable 667 667 Accounts payable: Associated companies 47,583 91,205 Other 91,346 97,589 Customer deposits 23,917 21,800 Taxes accrued 65,807 54,194 Accumulated deferred income taxes 58,889 70,506 Interest accrued 28,247 27,625 Co-owner advances 18,819 33,873 Deferred fuel cost 12,995 6,955 Obligations under capital leases 53,086 53,012 Other 14,036 17,967 ---------- ---------- Total 432,857 507,858 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 778,092 785,994 Accumulated deferred investment tax credits 106,103 108,307 Obligations under capital leases 98,567 83,940 Other 128,099 113,998 ---------- ---------- Total 1,110,861 1,092,239 ---------- ---------- Long-term debt 1,241,548 1,255,388 Preferred stock with sinking fund 36,027 40,027 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 60,000 60,000 Shareholders' Equity: Preferred stock without sinking fund 116,350 116,350 Common stock, $0.01 par value, authorized 325,000,000 shares; issued and outstanding 46,980,196 shares 470 470 Paid-in capital 590,169 590,169 Retained earnings 502,218 491,316 ---------- ---------- Total 1,209,207 1,198,305 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,090,500 $4,153,817 ========== ========== See Notes to Financial Statements.
ENTERGY ARKANSAS, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 105.2 $ 118.3 ($13.1) (11) Commercial 75.9 77.3 (1.4) (2) Industrial 84.2 87.3 (3.1) (4) Governmental 4.6 4.1 0.5 12 ----------------------------- Total retail 269.9 287.0 (17.1) (6) Sales for resale Associated companies 61.6 75.6 (14.0) (19) Non-associated companies 51.0 58.1 (7.1) (12) Other 41.1 47.3 (6.2) (13) ----------------------------- Total $ 423.6 $ 468.0 ($44.4) (9) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,091 1,274 (183) (14) Commercial 972 1,038 (66) (6) Industrial 1,541 1,567 (26) (2) Governmental 57 57 0 - ----------------------------- Total retail 3,661 3,936 (275) (7) Sales for resale Associated companies 2,906 3,113 (207) (7) Non-associated companies 1,515 2,034 (519) (26) ----------------------------- Total 8,082 9,083 (1,001) (11) ============================= Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 236.6 $ 250.5 ($13.9) (6) Commercial 148.5 147.9 0.6 - Industrial 165.8 165.0 0.8 - Governmental 8.9 8.2 0.7 9 ----------------------------- Total retail 559.8 571.6 (11.8) (2) Sales for resale Associated companies 122.4 135.4 (13.0) (10) Non-associated companies 95.2 106.9 (11.7) (11) Other 21.0 37.2 (16.2) (44) ----------------------------- Total $ 798.4 $ 851.1 ($52.7) (6) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 2,609 2,845 (236) (8) Commercial 1,980 2,034 (54) (3) Industrial 3,111 3,092 19 1 Governmental 117 113 4 4 ----------------------------- Total retail 7,817 8,084 (267) (3) Sales for resale Associated companies 5,880 5,767 113 2 Non-associated companies 3,011 3,708 (697) (19) ----------------------------- Total 16,708 17,559 (851) (5) =============================
ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three months ended June 30, 1997 primarily due to decreased electric operating revenues, partially offset by a decrease in interest on long-term debt and income taxes. Net income increased for the six months ended June 30, 1997 primarily due to the $174 million net of tax write-off of River Bend rate deferrals required by the adoption of SFAS 121 in the first quarter of 1996. Excluding the effect of the write-off, net income for the six months ended June 30, 1997 would have decreased approximately $10.4 million due to decreased electric operating revenues. The decrease in net income is partially offset by reduced other operation and maintenance expense and interest on long-term debt. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($9.6) ($26.5) Fuel cost recovery (0.4) 22.0 Sales volume/weather (2.7) 3.8 Other revenue (including unbilled) (24.3) (7.2) Sales for resale (8.8) (15.9) ------ ------ Total ($45.8) ($23.8) ====== ====== Electric operating revenues decreased for the three months ended June 30, 1997 as a result of decreased other revenue, base revenues, and sales for resale. The decrease in other revenue is primarily due to the impact in 1996 of a non-recurring adjustment to reserve for a potential refund associated with a change in accounting for unbilled revenue in 1993 as well as lower unbilled revenue. Excluding the non- recurring adjustment, unbilled revenue decreased due to the change in generation for the three months ended June 30, 1997 as compared to the change in generation for the three months ended June 30, 1996. Base revenues decreased primarily due to aggressive pricing strategies for targeted customer segments and a change in the sales mix from residential and commercial customers to industrial customers primarily due to the impact of milder weather. Sales for resale decreased primarily due to changes in generation requirements for non- associated customers. ENTERGY GULF STATES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Electric operating revenues decreased for the six months ended June 30, 1997 as a result of decreased base revenue, other revenue, and sales for resale, partially offset by an increase in fuel adjustment revenue. Base revenues decreased primarily due to rate reductions implemented for Louisiana retail customers in February 1997, aggressive pricing strategies for targeted customer segments, and a change in the sales mix from residential and commercial customers to industrial customers primarily due to the impact of milder weather. Sales for resale decreased primarily due to changes in generation requirements for non-associated customers. The decrease in other revenue is primarily due to unbilled revenue, which decreased due to the change in generation for the three months ended June 30, 1997 as compared to the change in generation for the three months ended June 30, 1996. Fuel adjustment revenues increased due to a PUCT order which approved recovery of under-recovered fuel expenses. See Note 2 herein for further discussion. Gas operating revenues increased for the six months ended June 30, 1997 due to an increase in the fixed fuel factor granted by the LPSC. This increase permits recovery of previously deferred gas costs. Steam operating revenues decreased for the three and six months ended June 30, 1997 due to increased customer requirements in 1996. Expenses Fuel expenses, depreciation, amortization, and decommissioning expenses, and amortization of rate deferrals increased for the three and six months ended June 30, 1997. Fuel expenses increased primarily due to a PUCT order which approved recovery of previously under-recovered fuel expenses, as discussed above in "Revenues and Sales". Depreciation, amortization and decommissioning expenses increased primarily due to the purchase of meters and transformers and additions to lines and substations. Amortization of rate deferrals increased based on the LPSC-approved River Bend phase-in- plan. These increases were partially offset by decreased other operation and maintenance expenses and decreased purchased power expenses. The decrease in other operation and maintenance expenses is primarily due to a decrease in the reserve for Cajun's unpaid portion of River Bend related costs which is reflected in long-term receivables. Payments into the registry of the District Court for Entergy Gulf States' portion of expenses for Big Cajun 2, Unit 3, are expected to be recovered during 1997 as a part of the settlement of the disputes between Cajun and Entergy. See Note 1 herein for further discussion. Purchased power decreased due to decreased energy requirements and lower energy prices. Other Other income increased for the six months ended June 30, 1997, primarily due to the write-off of River Bend rate deferrals required by the adoption of SFAS 121 in the first quarter of 1996. Interest charges decreased for the three and six months ended June 30, 1997 due to the retirement of certain high cost long-term debt. Income taxes decreased for the three months ended June 30, 1997 due to lower pretax income. Income taxes increased for the six months ended June 30, 1997 due to higher pretax income.
ENTERGY GULF STATES, INC. STATEMENTS OF INCOME (LOSS) For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) Operating Revenues: Electric $457,739 $503,490 $905,877 $929,667 Natural gas 5,810 6,863 27,911 21,739 Steam products 12,872 15,214 23,961 30,792 -------- -------- -------- -------- Total 476,421 525,567 957,749 982,198 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 138,692 125,057 259,084 242,466 Purchased power 66,428 86,760 145,769 154,594 Nuclear refueling outage expenses 2,573 2,572 5,218 4,932 Other operation and maintenance 92,182 97,730 175,444 194,471 Depreciation, amortization, and decommissioning 53,833 51,504 106,801 102,755 Taxes other than income taxes 26,803 25,205 56,010 51,539 Amortization of rate deferrals 20,267 18,319 40,766 35,963 -------- -------- -------- -------- Total 400,778 407,147 789,092 786,720 -------- -------- -------- -------- Operating Income 75,643 118,420 168,657 195,478 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction 726 739 1,451 1,232 Write-off of River Bend rate deferrals - - - (194,498) Miscellaneous - net 4,488 5,690 8,589 10,630 -------- -------- -------- -------- Total 5,214 6,429 10,040 (182,636) -------- -------- -------- -------- Interest Charges: Interest on long-term debt 41,755 46,476 83,741 92,964 Other interest - net 978 959 3,716 1,909 Distributions on preferred securities of 1,860 - 3,182 - subsidiary Allowance for borrowed funds used during construction (620) (628) (1,239) (1,056) -------- -------- -------- -------- Total 43,973 46,807 89,400 93,817 -------- -------- -------- -------- Income (Loss) Before Income Taxes 36,884 78,042 89,297 (80,975) Income Taxes 9,856 30,902 29,734 24,142 -------- -------- -------- -------- Net Income (Loss) 27,028 47,140 59,563 (105,117) Preferred and Preference Stock Dividend Requirements and Other 4,995 7,066 13,938 14,285 -------- -------- -------- --------- Earnings (Loss) Applicable to Common Stock $22,033 $40,074 $45,625 ($119,402) ======== ======== ======== ========= See Notes to Financial Statements.
ENTERGY GULF STATES, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: Net income (loss) $59,563 ($105,117) Noncash items included in net income (loss): Write-off of River Bend rate deferrals - 194,498 Change in rate deferrals 40,549 35,963 Depreciation, amortization, and decommissioning 106,801 102,755 Deferred income taxes and investment tax credits (1,887) 23,368 Allowance for equity funds used during construction (1,451) (1,232) Changes in working capital: Receivables (35,261) (17,731) Fuel inventory 3,889 (4,962) Accounts payable 17,673 6,912 Taxes accrued 26,282 1,869 Interest accrued (1,218) (16,162) Deferred fuel (205) (48,671) Other working capital accounts 12,274 (31,198) Decommissioning trust contributions (3,227) (2,961) Provision for estimated losses and reserves (17,021) (8,222) Other 6,752 (15,525) -------- ---------- Net cash flow provided by operating activities 213,513 113,584 -------- ---------- Investing Activities: Construction expenditures (59,558) (84,521) Allowance for equity funds used during construction 1,451 1,232 Nuclear fuel purchases - (21,580) Proceeds from sale/leaseback of nuclear fuel - 23,375 --------- ----------- Net cash flow used in investing activities (58,107) (81,494) --------- ----------- Financing Activities: Proceeds from the issuance of: Long-term debt - 780 Preferred securities of subsidiary trust 82,323 - Retirement of: First mortgage bonds (46,917) (65,959) Other long-term debt (425) (425) Redemption of preferred and preference stock (89,367) (4,204) Dividends paid on preferred and preference stock (11,936) (14,198) --------- ----------- Net cash flow used in financing activities (66,322) (84,006) --------- ----------- Net increase (decrease) in cash and cash equivalents 89,084 (51,916) Cash and cash equivalents at beginning of period 122,406 234,604 --------- ----------- Cash and cash equivalents at end of period $211,490 $182,688 ========= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $83,269 $105,598 Income taxes $1,158 $70 Noncash investing and financing activities: Change in unrealized appreciation (depreciation) of decommissioning trust assets $859 ($752) See Notes to Financial Statements.
ENTERGY GULF STATES, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS Current Assets: Cash and cash equivalents: Cash $16,467 $6,573 Temporary cash investments - at cost, which approximates market: Associated companies 51,689 45,234 Other 143,334 70,599 ---------- ---------- Total cash and cash equivalents 211,490 122,406 Accounts receivable: Customer (less allowance for doubtful accounts of $2.0 million in 1997 and 1996) 97,230 87,883 Associated companies 7,083 2,777 Other 40,834 30,758 Accrued unbilled revenues 86,883 75,351 Deferred fuel costs 99,708 99,503 Accumulated deferred income taxes 60,059 56,714 Fuel inventory - at average cost 41,120 45,009 Materials and supplies - at average cost 91,077 86,157 Rate deferrals 69,938 105,456 Prepayments and other 19,312 16,321 ---------- ---------- Total 824,734 728,335 ---------- ---------- Other Property and Investments: Decommissioning trust fund 47,119 41,983 Other - at cost (less accumulated depreciation) 38,652 38,358 ---------- ---------- Total 85,771 80,341 ---------- ---------- Utility Plant: Electric 7,164,941 7,112,021 Natural Gas 47,005 45,443 Steam products 81,743 81,743 Property under capital leases 71,422 72,800 Construction work in progress 110,326 112,137 Nuclear fuel under capital lease 41,631 49,833 ---------- ---------- Total 7,517,068 7,473,977 Less - accumulated depreciation and amortization 2,940,806 2,846,083 ---------- ---------- Utility plant - net 4,576,262 4,627,894 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 102,948 120,158 SFAS 109 regulatory asset - net 383,163 372,817 Unamortized loss on reacquired debt 51,380 54,761 Other regulatory assets 40,884 45,139 Long-term receivables 212,225 216,082 Other 197,970 185,921 ---------- ---------- Total 988,570 994,878 ---------- ---------- TOTAL $6,475,337 $6,431,448 ============ ========== See Notes to Financial Statements.
ENTERGY GULF STATES, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Currently maturing long-term debt $150,865 $160,865 Accounts payable: Associated companies 53,636 55,630 Other 105,208 85,541 Customer deposits 29,026 25,572 Taxes accrued 62,429 36,147 Interest accrued 48,433 49,651 Nuclear refueling reserve 19,488 12,354 Obligations under capital leases 39,639 39,110 Other 27,783 18,186 ---------- ---------- Total 536,507 483,056 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,225,525 1,200,935 Accumulated deferred investment tax credits 217,667 219,188 Obligations under capital leases 69,225 83,524 Deferred River Bend finance charges 21,509 33,688 Other 526,800 539,752 ---------- ---------- Total 2,060,726 2,077,087 ---------- ---------- Long-term debt 1,878,048 1,915,346 Preferred stock with sinking fund 75,210 77,459 Preference stock 150,000 150,000 Company - obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 85,000 - Shareholders' Equity: Preferred stock without sinking fund 51,444 136,444 Common stock, no par value, authorized 200,000,000 shares; issued and outstanding 100 shares 114,055 114,055 Paid-in capital 1,152,575 1,152,689 Retained earnings 371,772 325,312 ---------- ---------- Total 1,689,846 1,728,500 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $6,475,337 $6,431,448 ========== ========== See Notes to Financial Statements.
ENTERGY GULF STATES, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease % (In Millions) Electric Operating Revenues: Residential $ 133.5 $ 141.9 ($ 8.4) (6) Commercial 107.0 109.4 (2.4) (2) Industrial 176.9 177.0 (0.1) - Governmental 8.5 7.8 0.7 9 ----------------------------- Total retail 425.9 436.1 (10.2) (2) Sales for resale Associated companies 4.3 2.8 1.5 54 Non-associated companies 10.8 21.1 (10.3) (49) Other 16.7 43.5 (26.8) (62) ----------------------------- Total $ 457.7 $ 503.5 ($ 45.8) (9) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,644 1,821 (177) (10) Commercial 1,530 1,556 (26) (2) Industrial 4,555 4,163 392 9 Governmental 114 110 4 4 ----------------------------- Total retail 7,843 7,650 193 3 Sales for resale Associated companies 152 84 68 81 Non-associated companies 489 678 (189) (28) ----------------------------- Total 8,484 8,412 72 1 ============================= Six Months Ended Increase/ Description 1997 1996 (Decrease % (In Millions) Electric Operating Revenues: Residential $ 267.1 $ 276.6 ($ 9.5) (3) Commercial 212.3 211.9 0.4 - Industrial 354.9 337.6 17.3 5 Governmental 16.5 14.8 1.7 11 ----------------------------- Total retail 850.8 840.9 9.9 1 Sales for resale Associated companies 5.5 5.5 - - Non-associated companies 24.3 40.2 (15.9) (40) Other 25.3 43.1 (17.8) (41) ----------------------------- Total $ 905.9 $ 929.7 ($ 23.8) (3) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 3,437 3,645 (208) (6) Commercial 3,018 3,018 - - Industrial 8,720 8,064 656 8 Governmental 228 203 25 12 ----------------------------- Total retail 15,403 14,930 473 3 Sales for resale Associated companies 199 140 59 42 Non-associated companies 1,152 1,178 (26) (2) ----------------------------- Total 16,754 16,248 506 3 =============================
ENTERGY LOUISIANA, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and six months ended June 30, 1997 due primarily to decreased electric operating revenues and increased other operation and maintenance expenses. These factors were partially offset by a decrease in income taxes. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($0.2) ($5.9) Fuel cost recovery (23.3) (0.9) Sales volume/weather (15.3) (17.5) Other revenue (including unbilled) (5.1) (0.9) Sales for resale (1.7) (4.2) ------ ------ Total ($45.6) ($29.4) ====== ====== Electric operating revenues decreased for the three months ended June 30, 1997 primarily due to lower fuel adjustment revenues, which do not affect net income, and lower sales volume. Fuel adjustment revenues decreased due to lower fuel prices and reduced generation, as described below in "Expenses". Sales volume decreased due to milder weather during the current period. Electric operating revenues decreased for the six months ended June 30, 1997 primarily due to lower sales volume and due to a decrease in base revenues. Sales volume decreased due to milder weather during the current period. Base revenues decreased due to a base rate reduction that became effective in the third quarter of 1996. Expenses Fuel expenses decreased for the three and six months ended June 30, 1997. This decrease was partially offset by increases in purchased power, other operation and maintenance expenses, and the impact of 1996 rate deferrals. Fuel expense decreased due to lower fuel prices and due to reduced generation resulting from the extended refueling outage at the Waterford 3 nuclear plant. Purchased power increased during the period due to shifting generation requirements as a result of the refueling outage at Waterford 3. Other operation and maintenance expenses increased due to non-refueling outage related contract work and maintenance performed at Waterford 3. Waterford 3 property taxes recorded in 1996 were offset by the recording of the LPSC-approved rate deferral for these taxes. Other Income taxes decreased for the three and six months ended June 30, 1997 due to lower pretax income.
ENTERGY LOUISIANA, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) Operating Revenues $412,263 $457,847 $846,246 $875,614 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 61,063 100,662 173,979 191,342 Purchased power 114,557 100,062 210,753 200,937 Nuclear refueling outage expenses 1,324 3,933 5,299 7,933 Other operation and maintenance 82,301 70,907 156,386 136,677 Depreciation, amortization, and decommissioning 41,095 41,931 85,466 83,672 Taxes other than income taxes 17,581 18,246 35,820 37,980 Rate deferrals - (4,516) - (11,375) Amortization of rate deferrals 6,431 6,886 12,752 13,546 -------- -------- -------- -------- Total 324,352 338,111 680,455 660,712 -------- -------- -------- -------- Operating Income 87,911 119,736 165,791 214,902 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction 219 249 437 526 Miscellaneous - net (276) 442 (917) 728 -------- -------- -------- -------- Total (57) 691 (480) 1,254 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 30,007 31,062 60,090 61,779 Other interest - net 1,276 2,163 3,211 4,499 Distributions on preferred securities of subsidiary 1,575 - 3,150 - Allowance for borrowed funds used during construction (378) (423) (756) (831) -------- -------- -------- -------- Total 32,480 32,802 65,695 65,447 -------- -------- -------- -------- Income Before Income Taxes 55,374 87,625 99,616 150,709 Income Taxes 22,767 32,240 40,837 54,794 -------- -------- -------- -------- Net Income 32,607 55,385 58,779 95,915 Preferred Stock Dividend Requirements and Other 3,254 5,253 6,846 10,168 -------- -------- -------- -------- Earnings Applicable to Common Stock $29,353 $50,132 $51,933 $85,747 ======== ======== ======== ======== See Notes to Financial Statements.
ENTERGY LOUISIANA, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: Net income $58,779 $95,915 Noncash items included in net income: Change in rate deferrals 5,749 13,546 Depreciation, amortization, and decommissioning 85,466 83,672 Deferred income taxes and investment tax credits 1,343 (12,206) Allowance for equity funds used during construction (437) (526) Changes in working capital: Receivables (11,709) (25,733) Accounts payable (11,107) 3,694 Taxes accrued 12,737 40,291 Interest accrued (10,083) (5,901) Other working capital accounts (21,691) (14,593) Decommissioning trust contributions (6,590) (6,593) Provision for estimated losses and reserves 3,951 836 Other 8,836 (16,520) -------- -------- Net cash flow provided by operating activities 115,244 155,882 -------- -------- Investing Activities: Construction expenditures (36,173) (53,592) Allowance for equity funds used during construction 437 526 Nuclear fuel purchases (42,920) - Proceeds from sale/leaseback of nuclear fuel 42,920 - -------- -------- Net cash flow used in investing activities (35,736) (53,066) -------- -------- Financing Activities: Proceeds from the issuance of first mortgage bonds - 113,994 Retirement of: First mortgage bonds (16,000) (130,000) Other long-term debt (194) (233) Redemption of preferred stock (7,500) (7,500) Changes in short-term borrowings - net 13,049 (27,386) Dividends paid: Common stock (51,500) (50,200) Preferred stock (6,744) (10,072) -------- --------- Net cash flow used in financing activities (68,889) (111,397) -------- --------- Net increase (decrease) in cash and cash equivalents 10,619 (8,581) Cash and cash equivalents at beginning of period 23,746 34,370 -------- -------- Cash and cash equivalents at end of period $34,365 $25,789 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $68,469 $68,870 Income taxes $17,805 $48,729 Noncash investing and financing activities: Change in unrealized appreciation (depreciation) of decommissioning trust assets $633 ($1,814) See Notes to Financial Statements.
ENTERGY LOUISIANA INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS Current Assets: Cash and cash equivalents: Cash $11,837 $1,804 Temporary cash investments - at cost, which approximates market 22,528 21,942 ---------- ---------- Total cash and cash equivalents 34,365 23,746 Accounts receivable: Customer (less allowance for doubtful accounts of $1.4 million in 1997 and 1996) 76,314 73,823 Associated companies 14,415 11,606 Other 6,828 7,053 Accrued unbilled revenues 70,513 63,879 Deferred fuel costs 28,453 18,347 Accumulated deferred income taxes - 1,465 Materials and supplies - at average cost 82,119 78,449 Rate deferrals - 5,749 Deferred nuclear refueling outage costs 34,006 5,300 Prepaid income tax 4,808 24,651 Prepayments and other 12,479 10,234 ---------- ---------- Total 364,300 324,302 ---------- ---------- Other Property and Investments: Nonutility property 22,525 22,525 Decommissioning trust fund 58,855 50,481 Investment in subsidiary companies - at equity 14,230 14,230 ---------- ---------- Total 95,610 87,236 Utility Plant: Electric 5,009,817 4,997,456 Property under capital leases 232,582 232,582 Construction work in progress 77,994 56,180 Nuclear fuel under capital lease 72,415 38,157 Nuclear fuel 3,067 34,191 ---------- ---------- Total 5,395,875 5,358,566 Less - accumulated depreciation and amortization 1,960,778 1,881,847 ---------- ---------- Utility plant - net 3,435,097 3,476,719 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 287,009 295,836 Unamortized loss on reacquired debt 35,510 37,552 Other regulatory assets 24,087 30,320 Other 27,389 27,313 ---------- ---------- Total 373,995 391,021 ---------- ---------- TOTAL $4,269,002 $4,279,278 ========== ========== See Notes to Financial Statements.
ENTERGY LOUISIANA, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Currently maturing long-term debt $53,300 $34,275 Notes payable - associated companies 44,115 31,066 Accounts payable: Associated companies 52,586 73,389 Other 66,561 89,550 Customer deposits 60,419 59,070 Taxes accrued 20,127 7,390 Accumulated deferred income taxes 8,045 - Interest accrued 39,166 49,249 Dividends declared 3,252 3,489 Obligations under capital leases 28,000 28,000 Other 6,784 4,940 ---------- ---------- Total 382,355 380,418 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 820,486 831,093 Accumulated deferred investment tax credits 137,088 139,899 Obligations under capital leases 44,415 10,156 Deferred interest - Waterford 3 lease obligation 17,302 16,809 Other 122,804 114,665 ---------- ---------- Total 1,142,095 1,112,622 ---------- ---------- Long-term debt 1,338,276 1,373,233 Preferred stock with sinking fund 85,000 92,500 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated deferrable debentures 70,000 70,000 Shareholders' Equity: Preferred stock without sinking fund 100,500 100,500 Common stock, no par value, authorized 250,000,000 shares; issued and outstanding 165,173,180 shares 1,088,900 1,088,900 Capital stock expense and other (2,321) (2,659) Retained earnings 64,197 63,764 ----------- ----------- Total 1,251,276 1,250,505 ----------- ----------- Commitments and Contingencies (Notes 1 and 2) TOTAL $4,269,002 $4,279,278 ========== ========== See Notes to Financial Statements.
ENTERGY LOUISIANA, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 119.5 $ 139.9 ($ 20.4) (15) Commercial 85.1 90.5 (5.4) (6) Industrial 169.7 182.5 (12.8) (7) Governmental 8.1 8.3 (0.2) (2) ----------------------------- Total retail 382.4 421.2 (38.8) (9) Sales for resale Associated companies 0.5 0.5 0.0 - Non-associated companies 13.2 14.9 (1.7) (11) Other 16.1 21.2 (5.1) (24) ----------------------------- Total $ 412.2 $ 457.8 ($45.6) (10) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,581 1,787 (206) (12) Commercial 1,127 1,156 (29) (3) Industrial 4,268 4,400 (132) (3) Governmental 110 110 0 - ----------------------------- Total retail 7,086 7,453 (367) (5) Sales for resale Associated companies 19 15 4 27 Non-associated companies 220 280 (60) (21) ----------------------------- Total 7,325 7,748 (423) (5) ============================= Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 252.8 $ 275.2 ($ 22.4) (8) Commercial 174.6 176.5 (1.9) (1) Industrial 357.8 358.1 (0.3) - Governmental 17.1 16.8 0.3 2 ----------------------------- Total retail 802.3 826.6 (24.3) (3) Sales for resale Associated companies 0.8 0.7 0.1 14 Non-associated companies 25.1 29.4 (4.3) (15) Other 18.0 18.9 (0.9) (5) ----------------------------- Total $ 846.2 $ 875.6 ($29.4) (3) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 3,304 3,613 (309) (9) Commercial 2,230 2,248 (18) (1) Industrial 8,593 8,613 (20) - Governmental 229 225 4 2 ----------------------------- Total retail 14,356 14,699 (343) (2) Sales for resale Associated companies 26 18 8 44 Non-associated companies 360 513 (153) (30) ----------------------------- Total 14,742 15,230 (488) (3) =============================
ENTERGY MISSISSIPPI, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and six months ended June 30, 1997 primarily due to a decrease in revenues and an increase in other operation and maintenance expenses, partially offset by a decrease in income tax expense. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($1.0) ($1.3) Grand Gulf rate rider (11.1) (17.0) Fuel cost recovery (6.8) 1.3 Sales volume/weather (4.2) (4.2) Other revenue (including unbilled) (7.1) (9.8) Sales for resale (4.4) (7.2) ------ ------ Total ($34.6) ($38.2) ====== ====== Electric operating revenues decreased for the three and the six months ended June 30, 1997 due to decreases in the Grand Gulf 1 rate rider revenues, other revenue, and sales for resale. Revenue from the Grand Gulf 1 rate rider does not affect net income. In connection with an annual MPSC review, in October 1996, Entergy Mississippi's Grand Gulf 1 rate rider was decreased based on the estimate of costs over the next year. Therefore, Grand Gulf 1 rate rider revenues for the three and six months ended June 30, 1997 were lower than revenues for the same period in 1996. The decrease in other revenue is due to the impact of milder weather on unbilled revenue. Sales for resale decreased as a result of reductions in sales to both associated and non-associated companies due to changes in the generation requirements and availability among domestic utility companies. Expenses Fuel expenses decreased for the three and six months ended June 30, 1997 due to the lower cost of purchased power and lower fuel requirements resulting from decreased energy sales. Other operation and maintenance expenses increased as a result of higher contract work and materials and supplies related to maintenance and plant outage expenses for the three and six months ended June 30, 1997. Rate deferrals reducing operating expenses in 1996 and 1997 represent the deferral of Entergy Mississippi's portion of the proposed System Energy rate increase. See Note 2 for a further discussion. Other Income tax expense for the three and six months ended June 30, 1997 decreased because of lower pretax income.
ENTERGY MISSISSIPPI, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) Operating Revenues $212,892 $247,479 $413,220 $451,381 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 26,526 48,080 66,549 87,826 Purchased power 76,215 68,732 146,574 136,044 Other operation and maintenance 33,457 28,828 63,477 56,477 Depreciation and amortization 10,682 10,052 21,381 20,079 Taxes other than income taxes 11,077 11,148 21,413 20,733 Rate deferrals (6,289) (5,372) (13,903) (12,523) Amortization of rate deferrals 20,829 28,728 44,640 54,992 -------- -------- -------- -------- Total 172,497 190,196 350,131 363,628 -------- -------- -------- -------- Operating Income 40,395 57,283 63,089 87,753 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 286 370 572 643 Miscellaneous - net 563 847 251 769 -------- -------- -------- -------- Total 849 1,217 823 1,412 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 10,790 11,517 21,413 22,556 Other interest - net 987 935 2,323 1,874 Allowance for borrowed funds used during construction (231) (297) (462) (521) -------- -------- -------- -------- Total 11,546 12,155 23,274 23,909 -------- -------- -------- -------- Income Before Income Taxes 29,698 46,345 40,638 65,256 Income Taxes 10,299 16,527 12,887 22,513 -------- -------- -------- -------- Net Income 19,399 29,818 27,751 42,743 Preferred Stock Dividend Requirements and Other 1,014 1,392 2,129 2,640 -------- -------- -------- -------- Earnings Applicable to Common Stock $18,385 $28,426 $25,622 $40,103 ======== ======== ======== ======== See Notes to Financial Statements.
ENTERGY MISSISSIPPI, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: Net income $27,751 $42,743 Noncash items included in net income: Change in rate deferrals 71,422 62,928 Depreciation and amortization 21,381 20,079 Deferred income taxes and investment tax credits (13,203) (15,472) Allowance for equity funds used during construction (572) (643) Changes in working capital: Receivables 6,893 (25,853) Fuel inventory 2,112 1,752 Accounts payable (2,733) 15,136 Taxes accrued 18,235 1,132 Interest accrued (2,204) (2,646) Other working capital accounts (2,896) 2,985 Change in other regulatory assets (39,006) (19,431) Other 443 (1,974) -------- -------- Net cash flow provided by operating activities 87,623 80,736 -------- -------- Investing Activities: Construction expenditures (25,426) (42,256) Allowance for equity funds used during construction 572 643 -------- -------- Net cash flow used in investing activities (24,854) (41,613) -------- -------- Financing Activities: Proceeds from the issuance of general and refunding mortgage bonds 64,827 - Retirement of: First mortgage bonds - (25,000) Other long-term debt (15) (15) Redemption of preferred stock (7,000) (9,876) Changes in short-term borrowings - net (50,253) 2,209 Dividends paid: Common stock (19,600) (17,000) Preferred stock (2,142) (2,630) -------- -------- Net cash flow used in financing activities (14,183) (52,312) -------- -------- Net increase (decrease) in cash and cash equivalents 48,586 ($13,189) Cash and cash equivalents at beginning of period 9,498 16,945 -------- -------- Cash and cash equivalents at end of period $58,084 $3,756 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $24,864 $25,928 Income taxes (refund) ($7,039) $23,973 See Notes to Financial Statements.
ENTERGY MISSISSIPPI, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS Current Assets: Cash and cash equivalents: Cash $6,699 $2,384 Special deposits - 7,114 Temporary cash investments - at cost, which approximates market 51,385 - ---------- ---------- Total cash and cash equivalents 58,084 9,498 Accounts receivable: Customer (less allowance for doubtful accounts of $1.4 million in 1997 and 1996) 31,639 44,809 Associated companies 5,311 4,382 Other 1,769 2,014 Accrued unbilled revenues 54,977 49,383 Fuel inventory - at average cost 4,549 6,661 Materials and supplies - at average cost 20,445 17,567 Rate deferrals 140,807 142,504 Prepayments and other 8,647 7,434 ---------- ---------- Total 326,228 284,252 ---------- ---------- Other Property and Investments: Investment in subsidiary companies - at equity 5,531 5,531 Other - at cost (less accumulated depreciation) 7,850 7,923 ---------- ---------- Total 13,381 13,454 ---------- ---------- Utility Plant: Electric 1,650,394 1,633,484 Construction work in progress 52,410 47,373 ---------- ---------- Total 1,702,804 1,680,857 Less - accumulated depreciation and amortization 652,362 635,754 ---------- ---------- Utility plant - net 1,050,442 1,045,103 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 34,863 104,588 SFAS 109 regulatory asset - net 16,781 11,813 Unamortized loss on reacquired debt 8,829 9,254 Other regulatory assets 85,315 46,309 Other 6,434 6,693 ---------- ---------- Total 152,222 178,657 ---------- ---------- TOTAL $1,542,273 $1,521,466 ========== ========== See Notes to Financial Statements.
ENTERGY MISSISSIPPI, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Currently maturing long-term debt $96,000 $96,015 Notes payable - associated companies - 50,253 Accounts payable: Associated companies 30,613 32,878 Other 23,233 23,701 Customer deposits 27,145 26,258 Taxes accrued 44,717 26,482 Accumulated deferred income taxes 57,985 58,634 Interest accrued 18,705 20,909 Other 3,259 3,065 ---------- ---------- Total 301,657 338,195 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 244,588 249,522 Accumulated deferred investment tax credits 24,669 25,422 Other 18,333 19,445 ---------- ---------- Total 287,590 294,389 ---------- ---------- Long-term debt 464,075 399,054 Preferred stock with sinking fund - 7,000 Shareholder's Equity: Preferred stock without sinking fund 57,881 57,881 Common stock, no par value, authorized 15,000,000 shares; issued and outstanding 8,666,357 shares 199,326 199,326 Capital stock expense and other (42) (143) Retained earnings 231,786 225,764 ----------- ---------- Total 488,951 482,828 ----------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $1,542,273 $1,521,466 ========== ========== See Notes to Financial Statements.
ENTERGY MISSISSIPPI, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 68.7 $ 82.7 ($ 14.0) (17) Commercial 61.9 66.7 (4.8) (7) Industrial 40.5 44.0 (3.5) (8) Governmental 6.4 7.1 (0.7) (10) ----------------------------- Total retail 177.5 200.5 (23.0) (11) Sales for resale Associated companies 10.7 13.2 (2.5) (19) Non-associated companies 4.3 6.4 (2.1) (33) Other 20.4 27.4 (7.0) (26) ----------------------------- Total $ 212.9 $ 247.5 ($ 34.6) (14) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 830 972 (142) (15) Commercial 834 831 3 - Industrial 750 735 15 2 Governmental 77 83 (6) (7) ----------------------------- Total retail 2,491 2,621 (130) (5) Sales for resale Associated companies 233 301 (68) (23) Non-associated companies 81 168 (87) (52) ----------------------------- Total 2,805 3,090 (285) (9) ============================= Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 143.9 $ 160.2 ($ 16.3) (10) Commercial 126.4 129.0 (2.6) (2) Industrial 83.5 84.8 (1.3) (2) Governmental 13.1 14.0 (0.9) (6) ----------------------------- Total retail 366.9 388.0 (21.1) (5) Sales for resale Associated companies 21.7 26.8 (5.1) (19) Non-associated companies 9.4 11.7 (2.3) (20) Other 15.2 24.9 (9.7) (39) ----------------------------- Total $ 413.2 $ 451.4 ($ 38.2) (8) ============================= Billed Electric Energy Sales (Millions of kWh): Residential 1,821 2,027 (206) (10) Commercial 1,653 1,608 45 3 Industrial 1,473 1,429 44 3 Governmental 157 164 (7) (4) ----------------------------- Total retail 5,104 5,228 (124) (2) Sales for resale Associated companies 430 570 (140) (25) Non-associated companies 183 284 (101) (36) ----------------------------- Total 5,717 6,082 (365) (6) =============================
ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income decreased for the three and six months ended June 30, 1997 due to a decrease in electric and gas operating revenues and an increase in taxes other than income taxes, partially offset by a decrease in income tax expense. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues and Sales," "Expenses," and "Other" below. Revenues and Sales The changes in electric operating revenues for the three and six months ended June 30, 1997 are as follows: Three Months Ended Six Months Ended Description Increase/(Decrease) Increase/(Decrease) (In Millions) Change in base revenues ($3.3) ($4.3) Fuel cost recovery (8.8) (2.5) Sales volume/weather (3.7) (3.4) Other revenue (including unbilled) (1.0) (0.9) Sales for resale 3.7 2.9 ------ ----- Total ($13.1) ($8.2) ====== ===== Electric operating revenues decreased for the three and six months ended June 30, 1997 as a result of a decrease in base revenues, fuel adjustment revenues, and sales volume, partially offset by an increase in sales for resale. Fuel adjustment revenues decreased because of lower gas prices. Base revenues decreased due to rate reductions implemented during the current period. Sales volume decreased due to milder weather during the current periods. The increase in sales for resale is the result of an increase in electric sales to associated companies primarily due to changes in the generation requirements and availability among the domestic utility companies. Gas operating revenues decreased for the three and six months ended June 30, 1997 due to a lower unit purchase price for gas purchased for resale and a reduction in sales. Milder weather in the current period is primarily responsible for the reduction in sales. Expenses Operating expenses decreased for the three and six months ended June 30, 1997 because of a decrease in fuel and purchased power expenses partially offset by an increase in taxes other than income taxes and the amortization of rate deferrals. The decrease in fuel and purchased power expenses is the result of lower gas prices. Also contributing to the change in fuel and purchased power expenses are the lower generation requirements due to the decrease in electric sales. Taxes other than income taxes increased because of higher franchise taxes resulting from a December 1996 Council order increasing Entergy New Orleans' annual franchise fee from 2.5% to 5% of gross revenues. The increase in the amortization of rate deferrals in the three and six ENTERGY NEW ORLEANS, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS months ended June 30, 1997 is primarily a result of increased over- recovery of Grand Gulf 1 related costs in 1997 compared to 1996. Other Income tax expense decreased for the three and six months ended June 30, 1997 due to lower pretax income.
ENTERGY NEW ORLEANS, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) Operating Revenues: Electric $92,588 $105,701 $182,149 $190,384 Natural gas 17,215 22,128 52,610 64,725 -------- -------- -------- -------- Total 109,803 127,829 234,759 255,109 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel, fuel-related expenses, and gas purchased for resale 25,658 31,584 68,440 73,020 Purchased power 36,382 41,302 72,964 80,041 Other operation and maintenance 17,427 19,065 32,682 35,489 Depreciation and amortization 5,398 5,011 10,591 9,982 Taxes other than income taxes 8,606 6,757 17,492 13,620 Rate deferrals (1,620) (1,384) (3,581) (2,785) Amortization of rate deferrals 8,552 5,886 18,016 10,382 -------- -------- -------- -------- Total 100,403 108,221 216,604 219,749 -------- -------- -------- -------- Operating Income 9,400 19,608 18,155 35,360 -------- -------- -------- -------- Other Income (Deductions): Allowance for equity funds used during construction 80 81 160 155 Miscellaneous - net (11) 288 20 1,062 -------- -------- -------- -------- Total 69 369 180 1,217 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 3,436 3,953 7,059 8,012 Other interest - net 288 320 579 602 Allowance for borrowed funds used during construction (63) (63) (126) (122) -------- -------- -------- -------- Total 3,661 4,210 7,512 8,492 -------- -------- -------- -------- Income Before Income Taxes 5,808 15,767 10,823 28,085 Income Taxes 2,770 5,407 4,967 9,690 -------- -------- -------- -------- Net Income 3,038 10,360 5,856 18,395 Preferred Stock Dividend Requirements and Other 241 241 482 482 -------- -------- -------- -------- Earnings Applicable to Common Stock $2,797 $10,119 $5,374 $17,913 ======== ======== ======== ======== See Notes to Financial Statements.
ENTERGY NEW ORLEANS, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: Net income $5,856 $18,395 Noncash items included in net income: Change in rate deferrals 16,839 15,972 Depreciation and amortization 10,591 9,982 Deferred income taxes and investment tax credits (4,964) 1,167 Allowance for equity funds used during (160) (155) construction Changes in working capital: Receivables 3,129 1,102 Accounts payable 6,217 (3,571) Taxes accrued 5,471 2,295 Interest accrued (631) (501) Other working capital accounts (9,265) (19,728) Other (3,924) (9,992) ------- ------- Net cash flow provided by operating activities 29,159 14,966 ------- ------- Investing Activities: Construction expenditures (3,909) (17,991) Allowance for equity funds used during construction 160 155 ------- -------- Net cash flow used in investing activities (3,749) (17,836) ------- -------- Financing Activities: Proceeds from the issuance of general and refunding mortgage bonds - 39,608 Retirement of: First mortgage bonds (12,000) (23,250) General and refunding mortgage bonds - (30,000) Dividends paid: Common stock (14,700) (18,900) Preferred stock (724) (482) -------- -------- Net cash flow used in financing activities (27,424) (33,024) -------- -------- Net decrease in cash and cash equivalents (2,014) (35,894) Cash and cash equivalents at beginning of period 17,510 49,746 -------- -------- Cash and cash equivalents at end of period $15,496 $13,852 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $7,969 $8,698 Income taxes - net $4,928 $6,299 See Notes to Financial Statements.
ENTERGY NEW ORLEANS, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS Current Assets: Cash and cash equivalents: Cash $2,082 $1,015 Temporary cash investments - at cost, which approximates market: Associated companies 3,871 7,435 Other 9,543 9,060 -------- -------- Total cash and cash equivalents 15,496 17,510 Accounts receivable: Customer (less allowance for doubtful accounts of $0.7 million in 1997 and 1996) 22,049 27,430 Associated companies 1,223 714 Other 2,881 1,764 Accrued unbilled revenues 17,690 17,064 Deferred electric fuel and resale gas costs 5,486 7,290 Materials and supplies - at average cost 13,065 9,904 Rate deferrals 37,838 37,692 Prepayments and other 10,813 7,157 -------- -------- Total 126,541 126,525 -------- -------- Other Property and Investments: Investment in subsidiary companies - at equity 3,259 3,259 -------- -------- Utility Plant: Electric 511,432 503,061 Natural gas 128,076 122,700 Construction work in progress 8,184 18,247 -------- -------- Total 647,692 644,008 Less - accumulated depreciation and amortization 356,851 347,790 -------- -------- Utility plant - net 290,841 296,218 -------- -------- Deferred Debits and Other Assets: Regulatory assets: Rate deferrals 82,513 99,498 SFAS 109 regulatory asset - net 4,242 6,051 Unamortized loss on reacquired debt 1,530 1,647 Other regulatory assets 18,313 15,908 Other 884 890 -------- -------- Total 107,482 123,994 -------- -------- TOTAL $528,123 $549,996 ======== ======== See Notes to Financial Statements.
ENTERGY NEW ORLEANS, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Currently maturing long-term debt $ - $12,000 Accounts payable: Associated companies 12,780 18,757 Other 26,324 14,130 Customer deposits 19,169 18,974 Taxes accrued 6,675 1,204 Accumulated deferred income taxes 5,506 5,584 Interest accrued 4,694 5,325 Provision for rate refund 15,149 19,465 Other 1,390 1,521 -------- -------- Total 91,687 96,960 -------- -------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 67,227 72,895 Accumulated deferred investment tax credits 7,691 7,984 Accumulated provision for property insurance 15,666 15,666 Other 23,367 24,713 -------- -------- Total 113,951 121,258 -------- -------- Long-term debt 168,920 168,888 Shareholders' Equity: Preferred stock without sinking fund 19,780 19,780 Common Shareholder's Equity: Common stock, $4 par value, authorized 10,000,000 shares; issued and outstanding 8,435,900 shares 33,744 33,744 Paid-in capital 36,294 36,294 Retained earnings subsequent to the elimination of the accumulated deficit on November 30, 1988 63,747 73,072 -------- -------- Total 153,565 162,890 -------- -------- Commitments and Contingencies (Notes 1 and 2) TOTAL $528,123 $549,996 ======== ======== See Notes to Financial Statements.
ENTERGY NEW ORLEANS, INC. SELECTED OPERATING RESULTS For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 27.2 $ 33.8 ($ 6.6) (20) Commercial 32.6 36.1 (3.5) (10) Industrial 5.7 6.2 (0.5) (8) Governmental 12.9 13.9 (1.0) (7) ---------------------------- Total retail 78.4 90.0 (11.6) (13) Sales for resale Associated companies 5.1 0.4 4.7 1175 Non-associated companies 1.9 2.9 (1.0) (34) Other 7.2 12.4 (5.2) (42) ---------------------------- Total $ 92.6 $ 105.7 ($ 13.1) (12) ============================ Billed Electric Energy Sales (Millions of kWh): Residential 386 451 (65) (14) Commercial 488 504 (16) (3) Industrial 125 120 5 4 Governmental 239 230 9 4 ---------------------------- Total retail 1,238 1,305 (67) (5) Sales for resale Associated companies 178 14 164 1171 Non-associated companies 38 74 (36) (49) ---------------------------- Total 1,454 1,393 61 4 ============================ Six Months Ended Increase/ Description 1997 1996 (Decrease) % (In Millions) Electric Operating Revenues: Residential $ 55.9 $ 65.5 ($ 9.6) (15) Commercial 68.9 69.3 (0.4) (1) Industrial 11.9 11.8 0.1 1 Governmental 26.5 26.1 0.4 2 ---------------------------- Total retail 163.2 172.7 (9.5) (6) Sales for resale Associated companies 7.0 2.3 4.7 204 Non-associated companies 3.6 5.4 (1.8) (33) Other 8.4 10.0 (1.6) (16) ---------------------------- Total $ 182.2 $ 190.4 ($ 8.2) (4) ============================ Billed Electric Energy Sales (Millions of kWh): Residential 760 842 (82) (10) Commercial 966 969 (3) - Industrial 239 231 8 3 Governmental 460 442 18 4 ---------------------------- Total retail 2,425 2,484 (59) (2) Sales for resale Associated companies 225 59 166 281 Non-associated companies 61 126 (65) (52) ---------------------------- Total 2,711 2,669 42 2 ============================
SYSTEM ENERGY RESOURCES, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Net income for the three and six months ended June 30, 1997 increased slightly primarily as a result of lower interest charges and income tax expense, partially offset by increased nuclear refueling outage expenses and depreciation, amortization, and decommissioning expenses. Significant factors affecting the results of operations and causing variances between the three and six months ended June 30, 1997 and 1996 are discussed under "Revenues," "Expenses," and "Other" below. Revenues Operating revenues recover operating expenses, depreciation, and capital costs attributable to Grand Gulf 1. Capital costs are computed by allowing a return on System Energy's common equity funds allocable to its net investment in Grand Gulf 1 and adding to such amount System Energy's effective interest cost for its debt allocable to its investment in Grand Gulf 1. Operating revenues remained relatively unchanged for the three and six months ended June 30, 1997. See Note 2 herein for a discussion of System Energy's proposed rate increase. Expenses Operating expenses increased for the three and six months ended June 30, 1997 due to higher nuclear refueling outage expenses and higher depreciation, amortization, and decommissioning expenses. Nuclear refueling outage expenses increased due to costs that were deferred from the November 1996 outage, which are now being amortized over an 18 month period beginning December 1996. Prior to this outage, such costs were expensed as incurred and none were incurred during the six months ended June 30, 1996. The increase in depreciation, amortization, and decommissioning expense is due to the recognition of additional depreciation associated with the sale and leaseback in 1989 of a portion of Grand Gulf 1, in accordance with regulatory approval. Other Interest charges decreased for the three and six months ended June 30, 1997 due to the refinancing of higher cost long-term debt in 1996. Income taxes decreased for the three and six months ended June 30, 1997 primarily due a decrease in pretax income and an increase in the amortization of the deferred tax liability.
SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) Three Months Ended Six Months Ended 1997 1996 1997 1996 (In Thousands) (In Thousands) Operating Revenues $161,021 $160,369 $316,682 $316,793 -------- -------- -------- -------- Operating Expenses: Operation and maintenance: Fuel and fuel-related expenses 12,441 12,171 24,458 25,011 Nuclear refueling outage expenses 3,907 - 7,624 - Other operation and maintenance 28,407 26,591 48,797 48,332 Depreciation, amortization, and decommissioning 35,917 32,014 74,713 64,013 Taxes other than income taxes 6,781 6,699 13,206 13,605 -------- -------- -------- -------- Total 87,453 77,475 168,798 150,961 -------- -------- -------- -------- Operating Income 73,568 82,894 147,884 165,832 -------- -------- -------- -------- Other Income: Allowance for equity funds used during construction 280 297 561 647 Miscellaneous - net 1,919 627 3,241 1,466 -------- -------- -------- -------- Total 2,199 924 3,802 2,113 -------- -------- -------- -------- Interest Charges: Interest on long-term debt 31,103 37,021 61,861 74,974 Other interest - net 1,830 2,707 3,611 4,698 Allowance for borrowed funds used during construction (279) (283) (557) (637) -------- -------- -------- -------- Total 32,654 39,445 64,915 79,035 -------- -------- -------- -------- Income Before Income Taxes 43,113 44,373 86,771 88,910 Income Taxes 19,020 20,991 38,333 41,998 -------- -------- -------- -------- Net Income $24,093 $23,382 $48,438 $46,912 ======== ======== ======== ======== See Notes to Financial Statements.
SYSTEM ENERGY RESOURCES, INC. STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1997 and 1996 (Unaudited) 1997 1996 (In Thousands) Operating Activities: Net income $48,438 $46,912 Noncash items included in net income: Depreciation, amortization, and decommissioning 74,713 64,013 Deferred income taxes and investment tax credits (23,444) (16,354) Allowance for equity funds used during construction (561) (647) Changes in working capital: Receivables (7,290) (2,835) Accounts payable 5,297 (967) Taxes accrued 8,374 17,497 Interest accrued 3,212 9,192 Other working capital accounts 6,353 (3,531) Decommissioning trust contributions (6,315) (9,073) FERC Settlement - refund obligation (2,199) (1,942) Provision for estimated losses and reserves 20,699 23,932 Other 4,308 3,151 --------- -------- Net cash flow provided by operating activities 131,585 129,348 --------- -------- Investing Activities: Construction expenditures (8,466) (3,624) Allowance for equity funds used during construction 561 647 Nuclear fuel purchases (39) (1,135) Proceeds from sale/leaseback of nuclear fuel 39 402 --------- -------- Net cash flow used in investing activities (7,905) (3,710) --------- -------- Financing Activities: Proceeds from the issuance of long term debt - 89,192 Retirement of long term debt - (92,700) Changes in short-term borrowings - net - (2,990) Common stock dividends paid (58,700) (46,300) --------- -------- Net cash flow used in financing activities (58,700) (52,798) --------- -------- Net increase in cash and cash equivalents 64,980 72,840 Cash and cash equivalents at beginning of period 92,315 240 --------- -------- Cash and cash equivalents at end of period $157,295 $73,080 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest - net of amount capitalized $57,634 $66,790 Income taxes $42,853 $30,944 Noncash investing and financing activities: Change in unrealized depreciation of decommissioning trust assets ($1,041) ($1,055) See Notes to Financial Statements.
SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) ASSETS Current Assets: Cash and cash equivalents: Cash $134 $26 Temporary cash investments - at cost, which approximates market: Associated companies 45,351 41,600 Other 111,810 50,689 ---------- ---------- Total cash and cash equivalents 157,295 92,315 Accounts receivable: Associated companies 77,807 71,337 Other 3,342 2,522 Materials and supplies - at average cost 65,965 66,302 Deferred nuclear refueling outage costs 16,498 24,005 Prepayments and other 5,976 4,929 ---------- ---------- Total 326,883 261,410 ---------- ---------- Other Property and Investments: Decommissioning trust fund 72,372 62,223 ---------- ---------- Utility Plant: Electric 3,010,761 2,994,445 Electric plant under leases 441,467 447,409 Construction work in progress 39,454 41,362 Nuclear fuel under capital lease 65,501 83,558 ---------- ---------- Total 3,557,183 3,566,774 Less - accumulated depreciation and amortization 1,032,062 974,472 ---------- ---------- Utility plant - net 2,525,121 2,592,302 ---------- ---------- Deferred Debits and Other Assets: Regulatory assets: SFAS 109 regulatory asset - net 254,511 264,758 Unamortized loss on reacquired debt 54,585 57,785 Other regulatory assets 197,711 207,214 Other 14,880 15,601 ---------- ---------- Total 521,687 545,358 ---------- ---------- TOTAL $3,446,063 $3,461,293 ========== ========== See Notes to Financial Statements.
SYSTEM ENERGY RESOURCES, INC. BALANCE SHEETS June 30, 1997 and December 31, 1996 (Unaudited) 1997 1996 (In Thousands) LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Currently maturing long-term debt $70,000 $10,000 Accounts payable: Associated companies 25,665 18,245 Other 16,713 18,836 Taxes accrued 76,197 67,823 Interest accrued 37,407 34,195 Obligations under capital leases 28,000 28,000 Other 1,862 2,306 ---------- ---------- Total 255,844 179,405 ---------- ---------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 591,474 624,020 Accumulated deferred investment tax credits 101,909 103,647 Obligations under capital leases 37,501 55,558 FERC Settlement - refund obligation 50,640 52,839 Other 198,451 165,517 ---------- ---------- Total 979,975 1,001,581 ---------- ---------- Long-term debt 1,359,068 1,418,869 Common Shareholder's Equity: Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares 789,350 789,350 Retained earnings 61,826 72,088 ---------- ---------- Total 851,176 861,438 ---------- ---------- Commitments and Contingencies (Notes 1 and 2) TOTAL $3,446,063 $3,461,293 ========== ========== See Notes to Financial Statements.
ENTERGY CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1. COMMITMENTS AND CONTINGENCIES Cajun - River Bend (Entergy Corporation and Entergy Gulf States) Entergy Gulf States and Cajun, respectively, own 70% and 30% undivided interests in River Bend (operated by Entergy Gulf States), and 42% and 58% undivided interests in Big Cajun 2, Unit 3 (operated by Cajun). These relationships have spawned a number of long- standing disputes and claims between the parties. An agreement setting forth terms for the resolution of all such disputes has been reached by Entergy Gulf States, the Cajun bankruptcy trustee, and the RUS, and was approved by the United States District Court for the Middle District of Louisiana (District Court) on August 26, 1996 (Cajun Settlement). On September 6, 1996, the Committee of Unsecured Creditors in the Cajun bankruptcy proceeding filed a Notice of Appeal to the United States Court of Appeals for the Fifth Circuit (Fifth Circuit), objecting that the order approving the settlement was separate from the approval of a plan of reorganization and, therefore, improper. On August 5, 1997, the Fifth Circuit ruled that the District Court's order approving the settlement was proper. Approvals by the appropriate regulatory agencies have been obtained. The SEC and FERC have approved the transfer of certain Cajun transmission assets to Entergy Gulf States. Management believes that it is probable that the Cajun Settlement will be consummated prior to the end of 1997. See Note 9 of the Form 10-K for additional information regarding the Cajun litigation, Cajun's bankruptcy proceedings, and related filings. The Cajun Settlement includes, but is not limited to, the following elements: (i) Cajun's interest in River Bend has been turned over to the RUS, which has the option to retain the interest, sell it to a third party, or transfer it to Entergy Gulf States at no cost; (ii) Cajun will set aside a total of $125 million for its share of the decommissioning costs of River Bend; (iii) Cajun will transfer certain transmission assets to Entergy Gulf States; (iv) Cajun and Entergy Gulf States will settle transmission disputes and release each other from claims for payment under transmission arrangements, as discussed under "Cajun - Transmission Service" below; (v) all funds paid by Entergy Gulf States into the registry of the District Court will be returned to Entergy Gulf States; (vi) Cajun will be released from its unpaid past, present, and future liability for River Bend costs and expenses; and (vii) all remaining litigation between Cajun and Entergy Gulf States will be dismissed. Based on the District Court's approval of the Cajun Settlement, a litigation accrual established in 1994 for possible losses associated with the Cajun-River Bend litigation was reversed in September 1996. Cajun has not paid its full share of capital costs, operating and maintenance expenses, and other costs for repairs and improvements to River Bend since 1992. Cajun's unpaid portion of River Bend operating and maintenance expenses (including nuclear fuel) and capital costs for the six months ended June 30, 1997 was approximately $23.9 million. The cumulative cost to Entergy Gulf States resulting from Cajun's failure to pay its full share of River Bend-related costs, reduced by the proceeds from the sale by Entergy Gulf States of Cajun's share of River Bend power and payments into the registry of the District Court for Entergy Gulf States' portion of expenses for Big Cajun 2, Unit 3, was $4.8 million as of June 30, 1997. Cajun's unpaid portion of the River Bend related costs is reflected in long-term receivables which is substantially reserved for in other deferred credits. As discussed above, the Cajun Settlement will conclude all disputes regarding the non-payment by Cajun of River Bend operating and maintenance expenses. Cajun continues to pay its share of decommissioning costs for River Bend. The RUS entered into an agreement on February 11, 1997 for the sale of Cajun's 30% interest in River Bend to PECO Energy Company (PECO) pursuant to authorization granted in the Cajun Settlement. On July 10, 1997, PECO terminated this agreement with the RUS and announced that it would not go forward with the acquisition of the Cajun River Bend interest. Cajun - Transmission Service (Entergy Corporation and Entergy Gulf States) Entergy Gulf States and Cajun are parties to FERC proceedings relating to transmission service charge disputes. As a result of the proposed Cajun Settlement, FERC has dismissed or placed in abeyance various proceedings pending before it, to which Cajun or the Cajun bankruptcy trustee are parties, that would be resolved by the Cajun Settlement. See Note 9 in the Form 10-K for additional information regarding these FERC proceedings and FERC orders issued as a result of such proceedings. Under Entergy Gulf States' interpretation of a 1992 FERC order, as modified by FERC's orders issued on August 3, 1995, and October 2, 1995, and as agreed to by the Cajun bankruptcy trustee, Cajun would owe Entergy Gulf States approximately $73.1 million as of June 30, 1997. Entergy Gulf States further estimates that if it were to prevail in its May 1992 motion for rehearing and on certain other issues decided adversely to Entergy Gulf States in the February 1995, August 1995, and October 1995 FERC orders, which Entergy Gulf States has appealed, Cajun would owe Entergy Gulf States approximately $163.8 million as of June 30, 1997. If Cajun were to prevail in its May 1992 motion for rehearing to FERC, and if Entergy Gulf States were not to prevail in its May 1992 motion for rehearing to FERC, and if Cajun were to prevail in appealing FERC's August and October 1995 orders, Entergy Gulf States estimates it would owe Cajun approximately $117.4 million as of June 30, 1997. The above amounts are exclusive of a $7.3 million payment by Cajun on December 31, 1990, which the parties agreed to apply to the disputed transmission service charges. Pending FERC's ruling on the May 1992 motions for rehearing, Entergy Gulf States has continued to bill Cajun utilizing the historical billing methodology and has recorded underpaid transmission charges, including interest, in the amount of $147.6 million as of June 30, 1997. This amount is reflected in long-term receivables with an offsetting reserve in other deferred credits. FERC has determined that the collection of the pre-petition debt of Cajun is an issue properly decided in the bankruptcy proceeding. Refer to "Cajun - River Bend" above for a discussion of the Cajun Settlement. Cajun - Coal Contracts (Entergy Corporation and Entergy Gulf States) On January 13, 1997, Entergy Gulf States filed a declaratory judgment action in the U.S. Bankruptcy Court where the Cajun bankruptcy is pending, seeking a ruling that Entergy Gulf States would not be liable for damages to certain coal suppliers for Big Cajun 2, Unit 3, if the Cajun bankruptcy trustee were to reject their coal contracts as a part of a plan of reorganization in the bankruptcy proceeding. In its pleading, Entergy Gulf States takes the position that it is not a party to, and has no liability under, those coal contracts. On February 12, 1997, the coal suppliers and the Cajun bankruptcy trustee filed a response in the declaratory judgment action and made certain counterclaims and crossclaims. The coal suppliers contend that Entergy Gulf States' declaratory judgment action should be dismissed and, in the alternative, argue that Cajun is Entergy Gulf States' agent in the procurement of coal for Big Cajun 2, Unit 3, and that Entergy Gulf States is a party to and has liability under the coal supply contracts. While Entergy Gulf States believes that it has no obligation under these contracts, the potential liability if Entergy Gulf States' position is not sustained, could be materially adverse to Entergy Gulf States and Entergy Corporation. This matter, which has not been scheduled for a hearing, will be strongly contested by Entergy Gulf States. However, at present there is no basis upon which to predict the timing or outcome of this litigation. Capital Requirements and Financing (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) See Note 9 to the Form 10-K for information on the domestic utility companies' and System Energy's construction expenditures (excluding nuclear fuel), for the years 1997, 1998, and 1999 and long- term debt and preferred stock maturities and cash sinking fund requirements for the period 1997-1999. Nuclear Insurance, Spent Nuclear Fuel, and Decommissioning Costs (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) See Note 9 to the Form 10-K for information on nuclear liability, property and replacement power insurance, related NRC regulations, the disposal of spent nuclear fuel, other high-level radioactive waste, and decommissioning costs associated with ANO, River Bend, Waterford 3, and Grand Gulf 1. The FASB issued an exposure draft of a proposed SFAS (which proposed a 1997 effective date) in February 1996 regarding the recognition, measurement and classification of decommissioning costs for nuclear power plants. The proposed SFAS would require measurement of the liability for closure and removal of long-lived assets (including decommissioning) based on discounted future cash flows. Those future cash flows should be determined by estimating current costs and adjusting for inflation, efficiencies that may be gained from experience with similar activities, and consideration of reasonable future advances in technology. After receiving comments on the exposure draft, the FASB has decided that the effective date for the proposed SFAS will be later than 1997, although a final effective date has not yet been announced. If current electric utility industry accounting practices with respect to nuclear decommissioning and other closure costs are changed, annual provisions for such costs could increase, the estimated cost for decommissioning/closure could be recorded as a liability rather than as accumulated depreciation, and trust fund income from decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. ANO Matters (Entergy Corporation and Entergy Arkansas) Cracks in certain steam generator tubes at ANO 2 were discovered and repaired during an outage in March 1992. Further inspections and repairs were conducted at subsequent refueling and mid-cycle outages, including the most recent refueling outage in May 1997. Turbine modifications were installed in May 1997 to restore most of the output lost due to steam generator fouling and tube plugging. The unit may be approaching the current limit for the number of steam generator tubes that can be plugged with the unit in operation. If the established limit is reached during a future outage, it could become necessary for Entergy Operations to insert sleeves in steam generator tubes that were previously plugged. On October 25, 1996, Entergy Corporation's Board of Directors authorized Entergy Operations to negotiate a contract, with appropriate cancellation provisions, for the fabrication and replacement of the steam generators at ANO 2. Entergy estimates the cost of fabrication and replacement of the steam generators to be approximately $150 million. Entergy Operations has entered into letters of intent for the fabrication and installation, which include a commitment for not more than $7.7 million through August 1997. Contracts are expected to be entered into in 1997. It is anticipated that the steam generators will be installed during a planned refueling outage in 2000. Entergy Operations periodically meets with the NRC to discuss the results of inspections of the steam generator tubes, as well as the timing of future inspections. Environmental Issues (Entergy Arkansas) In May 1995, Entergy Arkansas was named as a defendant in a suit by Reynolds Metals Company (Reynolds), seeking to recover a share of the costs associated with the clean-up of hazardous substances at a site south of Arkadelphia, Arkansas. Reynolds alleges that it has spent $11.2 million to clean-up the site, and that the site was contaminated with PCBs for which Entergy Arkansas bears some responsibility. Entergy Arkansas, voluntarily, at its expense, completed remediation at a nearby substation site and believes that it has no liability for contamination at that portion of the site that is subject to the Reynolds suit and is contesting the lawsuit. An August 1997 trial date has been tentatively scheduled. Regardless of the outcome, Entergy Arkansas does not believe this matter will have a materially adverse effect on its financial condition or results of operations. See "Environmental Regulation" in Item 1 of Part I of the Form 10-K for additional information on the PCB contamination at the two former Reynolds plant sites in Arkansas to which Entergy Arkansas had supplied power. (Entergy Gulf States) Entergy Gulf States has been designated as a potentially responsible party (PRP) for the clean-up of certain hazardous waste disposal sites. Entergy Gulf States is currently negotiating with the EPA and state authorities regarding the clean-up of certain of these sites. As of June 30, 1997, a remaining recorded liability of $19.8 million existed relating to the clean-up of the sites at which Entergy Gulf States has been designated a PRP. See "Environmental Regulation" in Item 1 of Part I of the Form 10-K for additional discussion of the sites where Entergy Gulf States has been designated as a PRP by the EPA and related litigation. (Entergy Louisiana) During 1993, the Louisiana Department of Environmental Quality issued new rules for solid waste regulation, including regulation of wastewater impoundments. Entergy Louisiana has determined that certain of its power plant waste water impoundments were affected by these regulations and chose to upgrade or close them. A remaining recorded liability in the amount of $6.7 million existed at June 30, 1997, for waste water upgrades and closures to be completed by the end of 1997. Cumulative expenditures relating to the upgrades and closures of waste water impoundments were $7.1 million as of June 30, 1997. Waterford 3 Lease Obligations (Entergy Louisiana) On September 28, 1989, Entergy Louisiana entered into three transactions for the sale and leaseback of undivided interests (aggregating approximately 9.3%) in Waterford 3. Upon the occurrence of certain events, Entergy Louisiana may be obligated to pay amounts sufficient to permit the Owner Participants to withdraw from the lease transactions, and Entergy Louisiana may be required to assume the outstanding bonds issued by the Owner Trustee to finance, in part, its acquisition of the undivided interests in Waterford 3. See Note 10 to the Form 10-K and Note 4 herein for further information. Reimbursement Agreement (System Energy) Under a bank letter of credit and reimbursement agreement, System Energy has agreed to a number of covenants relating to the maintenance of certain capitalization and fixed charge coverage ratios. System Energy agreed, during the term of the agreement, to maintain its equity at not less than 33% of its adjusted capitalization (defined in the agreement to include certain amounts not included in capitalization for financial statement purposes). In addition, System Energy must maintain, with respect to each fiscal quarter during the term of the agreement, a ratio of adjusted net income to interest expense (calculated, in each case, as specified in the agreement) of at least 1.60 times earnings. System Energy was in compliance with the above covenants at June 30, 1997. See Note 9 to the Form 10-K for further information. Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) See Note 9 to the Form 10-K for further information relating to lawsuits filed by former employees asserting they were wrongfully terminated and/or discriminated against on the basis of age, race, and/or sex. (Entergy Corporation and Entergy Arkansas) Entergy Corporation and Entergy Arkansas are defendants in a number of lawsuits filed in federal court on behalf of a total of approximately 62 plaintiffs who claim they were illegally terminated from their jobs due to discrimination on the basis of age or race. The first of these lawsuits, originally involving 29 plaintiffs, was tried before a jury beginning in April 1997. Settlements were reached with two of the plaintiffs prior to the trial. On May 1, 1997, the jury rendered findings as to 22 of the plaintiffs indicating that Entergy had no liability to them for discrimination. The jury did find that Entergy had intentionally discriminated against the remaining 5 plaintiffs on the basis of age. As a result, these plaintiffs will be awarded damages equal to twice their back pay plus lost future wages and attorneys' fees. A date for the next phase of the case has not yet been set. A trial date for another suit involving 18 plaintiffs, originally scheduled for May 1997, has been continued with no new date set. Another of the suits is set for trial in November 1997. No trial dates have been set for the remaining cases. (Entergy Corporation and Entergy Gulf States) Entergy Corporation and Entergy Gulf States were defendants in a lawsuit involving approximately 176 plaintiffs filed in state court in Texas by former employees who claim that they lost their jobs as a result of the Merger. The plaintiffs in these cases asserted various claims, including discrimination on the basis of age, race, and/or sex. The court made a preliminary ruling that each plaintiff's claim should be tried separately. However, all of these claims were settled before reaching trial in June 1997. NOTE 2. RATE AND REGULATORY MATTERS River Bend (Entergy Corporation and Entergy Gulf States) In 1988, the PUCT granted Entergy Gulf States a permanent increase in annual revenues of $59.9 million resulting from the inclusion in rate base of approximately $1.6 billion of company-wide River Bend plant investment and approximately $182 million of related Texas retail jurisdiction deferred River Bend costs (Allowed Deferrals). At the same time, the PUCT disallowed as imprudent $63.5 million of company-wide River Bend plant costs and placed in abeyance, with no finding as to prudence, approximately $1.4 billion of company-wide River Bend plant investment and approximately $157 million of Texas retail jurisdiction deferred River Bend operating and carrying costs (Abeyed Deferrals). The PUCT's order has been the subject of several appellate proceedings, culminating in an appeal to the Texas Supreme Court (Supreme Court). On January 31, 1997, the Supreme Court issued an opinion reversing the PUCT's order and remanding the case to the PUCT for further proceedings. The Supreme Court found that the PUCT had prejudiced Entergy Gulf States' rights by attempting to defer a ruling on the abeyed plant costs and incorrectly determined the amount of federal income tax expense that should have been allowed in rates. The Supreme Court ruled that the PUCT could choose either to conduct hearings and take further evidence or to decide the case on the original evidence. On February 18, 1997, the Texas Office of Public Utility Counsel filed a motion for rehearing of the Supreme Court's decision, arguing that the Supreme Court's remand should have instructed the PUCT as to how the case should be dealt with on remand. On July 31, 1997, the Supreme Court overruled the motion for rehearing and issued its mandate that the case be returned to the PUCT for further deliberations. No procedural schedule has yet been issued by the PUCT concerning the case on remand. As of June 30, 1997, the River Bend plant costs disallowed for retail ratemaking purposes in Texas and the River Bend plant costs held in abeyance totaled (net of taxes and depreciation) approximately $12 million and $261 million, respectively. The Allowed Deferrals were approximately $74 million, net of taxes and amortization, as of June 30, 1997. Entergy Gulf States estimates it has collected approximately $215 million of revenues as of June 30, 1997, as a result of the originally ordered rate treatment by the PUCT of these deferred costs. If recovery of the Allowed Deferrals is not upheld, future refunds could be required and future revenues based upon the Allowed Deferrals could also be lost. However, management believes that it is probable that the Allowed Deferrals will continue to be recovered in rates. As a result of the application of SFAS 121, Entergy Gulf States wrote off Abeyed Deferrals of $169 million, net of tax, effective January 1, 1996. In light of the continuing proceedings before the PUCT and the courts (including the January 31, 1997 decision of the Texas Supreme Court), Entergy Gulf States has made no write-offs or reserves for the River Bend plant-related costs. At this time, management and legal counsel are unable to predict the amount of the abeyed and previously disallowed River Bend plant costs, if any, that may ultimately be allowed in Entergy Gulf States' Texas retail rates. In prior proceedings involving other utilities, the PUCT has held that the original cost of nuclear power plants will be recoverable in electric rates to the extent those costs were prudently incurred. In another proceeding Entergy Gulf States has previously filed with the PUCT a cost reconciliation study prepared by Sandlin Associates, management consultants with expertise in the cost analysis of nuclear power plants, which supports the reasonableness of the River Bend costs held in abeyance by the PUCT. This reconciliation study determined that approximately 82% of the River Bend cost increase above the amount included by the PUCT in rate base was a result of changes in federal nuclear safety requirements, and provided other support for the remainder of the abeyed amounts. In particular, there have been four other rate proceedings in Texas involving nuclear power plants. Disallowed investment in the plants ranged from 0% to 15%. Each case was unique, and the disallowances in each were made for different reasons. Appeals of two of these PUCT decisions are currently pending. Based upon the PUCT's prior decisions, management believes that River Bend construction costs were prudently incurred and that it is reasonably possible that it will recover through rates, or otherwise through means such as a deregulated asset plan, all or substantially all of the abeyed River Bend plant costs. In the event of an adverse ruling in this case, a net of tax write-off, as of June 30, 1997, of up to $273 million and up to $215 million in refunds of previously collected revenue could be required. Retail Rate Proceedings Filings with the APSC (Entergy Corporation and Entergy Arkansas) In October 1996, Entergy Arkansas filed a proposal with the APSC designed to achieve an orderly transition to retail electric competition in Arkansas. Entergy Arkansas supplemented its proposal with a May 1, 1997 filing. The proposal includes a rate decrease totaling $158 million over a two year period beginning January 1998 and provides for a universal service charge for customers that remain connected to Entergy Arkansas' electric facilities but choose to purchase their electricity from another source. Although these proposals allow for the complete recovery of the remaining plant investment associated with ANO 1, ANO 2, and Entergy Arkansas' portion of Grand Gulf 1 as of December 31, 1995, over a seven year period, the NRC operating licenses for these plants permit continued operation until the years 2014, 2018, and 2022, respectively. Hearings are expected to begin in September 1997. Filings with the PUCT (Entergy Corporation and Entergy Gulf States) In December 1995, Entergy Gulf States filed a petition with the PUCT for reconciliation of fuel and purchased power expenses for the period January 1, 1994, through June 30, 1995. Entergy Gulf States believes that there was an under-recovered fuel balance, including interest, of $22.4 million as of June 1995. Hearings were concluded in October 1996, and in April 1997 the PUCT issued an order which approved recovery of approximately $18.8 million of the under- recovered fuel balance, including interest. In June 1997, the PUCT issued a subsequent order based on a rehearing, which reduced the approved recovery to $18.5 million. In accordance with the Merger agreement, Entergy Gulf States filed a rate proceeding with the PUCT in November 1996. In April 1996, certain cities served by Entergy Gulf States (Cities) instituted investigations of the reasonableness of Entergy Gulf States' rates. In May 1996, the Cities agreed to forego their pending investigation based on the assurance that any rate decrease ordered in the November 1996 filing will be retroactive to June 1, 1996, and will accrue interest until refunded. The agreement further provides that no base rate increase will be retroactive. Subsequent to the November 1996 filing, the Cities passed ordinances reducing Entergy Gulf States' rates by $43.6 million. Entergy Gulf States has appealed these ordinances to the PUCT, and these appeals have been consolidated in the pending rate proceeding. Included in the November 1996 filing was a proposal to achieve an orderly transition to retail electric competition in Texas, similar to the filing described below that Entergy Gulf States made with the LPSC. This filing with the PUCT will be litigated in four phases as follows: (i) fuel factor/fuel reconciliation phase, of which Entergy Gulf States believes there was an under-recovered fuel balance of $41.4 million, including interest, for the period July 1, 1995 through June 30, 1996; (ii) revenue requirement phase; (iii) cost allocation/rate design phase; and (iv) competitive issues phase. Hearings on the first two phases began in June and July 1997, respectively. No assurance can be given as to the outcome of these hearings. Filings with the LPSC (Entergy Corporation and Entergy Gulf States) On May 31, 1995, Entergy Gulf States filed its second required post-Merger earnings analysis with the LPSC. Hearings on this review were held in December 1995. On October 4, 1996, the LPSC issued an order requiring a $33.3 million annual base rate reduction and a $9.6 million refund. One component of the rate reduction removes from base rates approximately $13.4 million annually of costs that will be recovered in the future through the fuel adjustment clause. On October 23, 1996, Entergy Gulf States appealed the LPSC's order and obtained an injunction to stay the order, except insofar as it requires the $13.4 million reduction, which Entergy Gulf States implemented in November 1996. In addition, pursuant to an October 1996 settlement with the LPSC, Entergy Gulf States will be allowed to recover $8.1 million annually related to certain gas transportation and storage facilities costs. This amount will be applied as an offset against any refund that may be required by a final judgment in Entergy Gulf States' appeal of the second post-Merger earnings review order. On May 31, 1996, Entergy Gulf States filed its third required post-Merger earnings analysis with the LPSC. Based on this earnings filing, on June 1, 1996, Entergy Gulf States implemented a $5.3 million annual rate reduction. Hearings on this filing concluded in March 1997. An additional rate reduction may be required upon the issuance by the LPSC of a final rate order which is expected by the end of 1997. On May 30, 1997, Entergy Gulf States filed its fourth post- Merger earnings analysis with the LPSC. This filing showed a revenue deficiency such that no rate reduction is warranted. Entergy Gulf States' filing will be subject to further review by the LPSC. (Entergy Corporation, Entergy Gulf States, and Entergy Louisiana) In October 1996, Entergy Gulf States and Entergy Louisiana filed proposals with the LPSC designed to achieve an orderly transition to retail electric competition in Louisiana, while protecting certain classes of ratepayers from bearing the burden of cost shifting. The proposals do not increase rates for any customer class. However, these proposals do provide for a universal service charge for customers that remain connected to Entergy Gulf States' or Entergy Louisiana's electric facilities but choose to purchase their electricity from another source. In addition, the proposals include a base rate freeze, which would be put into effect for seven years in the Louisiana areas serviced by Entergy Gulf States and Entergy Louisiana. Although these proposals allow for the complete recovery of the remaining plant investment associated with River Bend, and Waterford 3 as of December 31, 1995, over a seven year period, the NRC operating licenses for these plants permit continued operation until the years 2025 and 2024, respectively. Hearings on these proposals have been delayed until 1998. In February 1997, the LPSC identified certain issues embodied in the Entergy Gulf States and Entergy Louisiana proposals that will be addressed in those companies' existing rate dockets, and other issues that will be addressed in an ongoing generic regulatory proceeding examining electric industry restructuring. On May 30, 1997, Entergy Louisiana filed its annual formula rate plan with the LPSC for the 1996 test year. In conjunction with the filing, Entergy Louisiana proposed to apply one half of the $59 million in 1996 overearnings to accelerate depreciation of the Waterford 3 nuclear plant. In a June 10, 1997 order, the LPSC denied Entergy Louisiana's motion and ordered the Company to implement a prospective rate reduction. Entergy Louisiana implemented this rate reduction on July 1, 1997. Filings with the MPSC (Entergy Corporation and Entergy Mississippi) On March 15, 1997, Entergy Mississippi filed its annual earnings review with the MPSC under its formula rate plan for the 1996 test year. In April 1997, the MPSC issued an order approving a prospective rate reduction of $11.2 million. This rate reduction went into effect May 1, 1997. Entergy Mississippi has initiated discussions with the MPSC regarding an orderly transition to a more competitive market for electricity. In August 1996, Entergy Mississippi filed a proposal with the MPSC for a rate rider to assure recovery of all Grand Gulf costs incurred to serve customers. The rider would maintain current rates for electric service provided by Entergy Mississippi and would apply to customers within Entergy Mississippi's service area who obtain electricity in the future from a source other than Entergy Mississippi. Entergy Mississippi designed this rider to assure that commitments made under the current system of regulation are honored and that cost burdens are not unfairly transferred from departing customers to those who remain on the Entergy Mississippi system. On August 22, 1996, the MPSC remanded this proposal and established a generic docket to consider competition for retail electric service. Hearings on this docket concluded in April 1997. The MPSC issued an order in July 1997 calling for continued study of electric power industry deregulation by the commission's staff, with a report due to the MPSC by November 1, 1997. Filings with the Council (Entergy Corporation and Entergy New Orleans) The Council issued a resolution in February 1997 indicating that it will conduct an investigation of the justness and reasonableness of Entergy New Orleans' allowed rate of return, base rates, and adjustment clauses. The Council conducted hearings in April 1997 on the issue of rate of return, and directed Entergy New Orleans to make a cost of service and revenue requirement filing on May 1, 1997. In April 1997, Entergy New Orleans proposed a $16 million prospective rate reduction in order to resolve the disputed rate of return and other issues raised in the first phase of the proceeding. The proposed settlement would also postpone the cost of service and revenue requirement filing until September 1997. A settlement conference was held in June 1997 and Entergy New Orleans increased the proposed rate reduction to $18 million. The Council accepted the settlement offer and Entergy New Orleans implemented the $18 million rate reduction (retroactive to May 1, 1997) in July 1997. A procedural schedule has not been set with respect to the other issues. Proposed Rate Increase (System Energy) System Energy filed an application with FERC on May 12, 1995, for a $65.5 million rate increase. The request seeks changes to System Energy's rate schedule, including increases in the revenue requirement associated with decommissioning costs, the depreciation rate, and the rate of return on common equity. The request also includes a proposed change in the accounting recognition of nuclear refueling outage costs from that of expensing those costs as incurred to the deferral and amortization method described in Note 1 in the Form 10-K with respect to Entergy Arkansas. On December 12, 1995, System Energy implemented a $65.5 million rate increase, subject to refund. Management has decided to record a reserve for a portion of the rate increase. Hearings on System Energy's request began in January 1996 and were completed in February 1996. On July 11, 1996, the ALJ issued an initial decision in this proceeding that agreed with certain of System Energy's proposals, including the change in accounting for nuclear refueling outage costs, while rejecting a proposed increase in return on common equity and recommending a slight decrease. The ALJ also rejected the proposed change in the decommissioning cost methodology. The decision of the ALJ is preliminary and may be modified in the final decision from FERC which is expected at any time. Management is unable to predict the final outcome of the rate increase request or the amount of any refunds in excess of reserves that may be required. (Entergy Mississippi) Entergy Mississippi's allocation of the proposed System Energy wholesale rate increase is $21.6 million annually. In July 1995, Entergy Mississippi filed a schedule with the MPSC that defers the retail recovery of the System Energy rate increase. The deferral plan, which was approved by the MPSC, began in December 1995, the effective date of the System Energy rate increase, and will end after the issuance of a final order by FERC. The final amount of the deferred rate increase is to be amortized over 48 months beginning in October 1998. (Entergy New Orleans) Entergy New Orleans' allocation of the proposed System Energy wholesale rate increase is $11.1 million annually. In February 1996, Entergy New Orleans filed a plan with the Council to defer 50% of the amount of the System Energy rate increase. The deferral began in February 1996 and will end after the issuance of a final order by FERC. NOTE 3. COMMON STOCK (Entergy Corporation) During the six months ended June 30, 1997, Entergy Corporation issued 372,195 shares of common stock, reducing the amount held as treasury stock by approximately $10 million. Entergy Corporation issued these shares to meet the requirements of its various stock plans. In addition, Entergy Corporation received proceeds of $158.9 million from the issuance of 6,208,263 shares of common stock under its dividend reinvestment and stock purchase plan during the six months ended June 30, 1997. On July 1, 1997, Entergy Corporation issued 813,161 shares of common stock at a value of $21.5 million in connection with the acquisition of the security monitoring company, Ranger American. NOTE 4. LONG-TERM DEBT (Entergy Corporation) See Note 7 of the Form 10-K for a discussion of Entergy Power UK plc's credit facility. Approximately 1.015 billion British Pounds (1.67 billion US dollars) of variable rate borrowings were outstanding under this facility as of June 30, 1997. The weighted average interest rate on the borrowings outstanding as of June 30, 1997 was 7.92%. Entergy Power UK plc (Entergy Power UK) entered into several interest rate swaps to reduce the impact of interest rate changes on its debt related to the London Electricity acquisition. The interest rate swap agreements involve the exchange of floating rate interest payments for fixed rate interest payments over the life of the agreements. Entergy Power UK recognizes interest expense currently based on the fixed rate of interest resulting from use of these swap agreements. If the counterparties to an interest rate swap agreement were to default on contractual payments, Entergy Power UK could be exposed to increased costs related to replacing the original agreement. However, Entergy Power UK does not anticipate nonperformance by any counterparty to any interest rate swap in effect at June 30, 1997. At June 30, 1997, Entergy Power UK was a party to a notional amount of 600 million British Pounds of interest rate swaps with maturity dates ranging from March 1999 to September 2001. An Entergy subsidiary signed an agreement with several banks on January 5, 1996, to obtain a revolving credit facility for the acquisition of CitiPower. The subsidiary entered into several interest rate swaps to reduce the impact of interest rate changes on its debt related to the CitiPower acquisition. See Note 7 of the Form 10-K for a discussion of the credit facility and the interest rate swap agreements. The interest rate swap agreements involve the exchange of floating rate interest payments for fixed rate interest payments over the life of the agreements. Interest expense is recognized currently based on the fixed rate of interest resulting from use of these swap agreements. Entergy enters into interest rate swaps as part of its overall risk management strategy and does not hold or issue material amounts of derivative financial instruments for trading purposes. Entergy accounts for its interest rate swaps in accordance with the concepts established in SFAS 80, "Accounting for Futures Contracts", and various Emerging Issues Task Force pronouncements. If the interest rate swaps were to be sold or terminated, any resulting gain or loss would be deferred and amortized over the remaining life of the debt instrument being hedged by the interest rate swaps. If the debt instrument being hedged by the interest rate swaps was to be extinguished, any resulting gain or loss attributable to the swaps would be recognized in the period in which the debt was extinguished. (Entergy Corporation and Entergy Louisiana) Entergy Louisiana is the lessee of three separate undivided interests in Unit 3 of the Waterford Steam Electric Generating Station under three separate, but substantially identical, long-term net leases. The lessors under such leases acquired the undivided interests (aggregating approximately 9.3%) in Waterford 3 from Entergy Louisiana in three separate sale-leaseback transactions that occurred in 1989. Approximately 87.7% of the aggregate consideration paid by the Lessors for their respective undivided interests was provided to the Lessors from the issuance of Waterford 3 Secured Lease Obligation Bonds (Initial Series Bonds) in 1989. As of June 30, 1997, the outstanding debt consisted of three series of bonds with interest rates ranging from 10.30% to 10.67% and maturity dates ranging from 2005 to 2017. In July 1997, Entergy Louisiana issued $307,632,000 Waterford 3 Secured Lease Obligation Bonds, 8.09% Series due 2017, to refinance the outstanding Initial Series Bonds. Upon the occurrence of certain events, Entergy Louisiana may be obligated to pay amounts sufficient to permit the Owner Participants to withdraw from the lease transactions, and Entergy Louisiana may be required to assume the outstanding bonds issued by the Owner Trustee to finance, in part, its acquisition of the undivided interests in Waterford 3. See Note 10 to the Form 10-K for further information. (Entergy Mississippi) On July 15, 1997, Entergy Mississippi retired $50 million of its 6.95% Series General and Refunding Bonds and $46 million of its 11.20% Series General and Refunding Bonds upon maturity. (Entergy Gulf States) On July 1, 1997, Entergy Gulf States retired, pursuant to sinking fund requirements, $50 million of its 9.72% Series Debentures due 1998. NOTE 5. RETAINED EARNINGS (Entergy Corporation) On July 25, 1997, Entergy Corporation's Board of Directors declared a common stock dividend of 45 cents per share payable on September 1, 1997, to holders of record on August 13, 1997. NOTE 6. RESTRUCTURING COSTS (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans) In 1994 and 1995, Entergy implemented various restructuring programs to reduce the number of employees and consolidate offices and facilities. The programs were designed to reduce costs and improve operating efficiencies. The restructuring liability associated with these programs was $3.2 million as of December 31, 1996. Approximately $2.8 million of restructuring charges were incurred through June 30, 1997, resulting in a remaining liability of $.4 million. The restructuring charges primarily include employee severance costs related to the expected termination of approximately 2,750 employees in various groups. As of June 30, 1997, substantially all of these employees had either been terminated or accepted voluntary separation packages under the restructuring plan. In December 1996, Entergy recorded $21.3 million of restructuring charges (of which $18 million was recorded by Entergy Services) associated with the transition to competition. Approximately $11.1 million of charges related to the transition to competition were incurred through June 30, 1997, resulting in a remaining liability of $10.2 million. NOTE 7. ACCOUNTING ISSUES (Entergy Corporation) New Accounting Standard - In March 1997, the FASB issued SFAS 128, "Earnings per Share", effective for financial statements for periods ending after December 15, 1997. This statement will simplify the computation of earnings per share for many companies by eliminating calculation provisions which were required by the prior earnings per share standard, Accounting Principles Board Opinion 15. The adoption of SFAS 128 is not expected to have a material effect on the calculation of earnings per share for Entergy Corporation. In May and July, 1997, the EITF of the FASB met regarding EITF Issues No. 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of SFAS 71, "Accounting for the Effects of Certain Types of Regulation", and SFAS 101, "Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71". As a result of these meetings, a consensus was reached that SFAS 71 should be discontinued at a date no later than when the details of the transition to competition plan for that portion of the entity are known. Additionally, the EITF reached a consensus that stranded costs which are to be recovered through cash flows derived from another portion of the entity which continues to apply SFAS 71 should not be written off and considered regulatory assets of that segment which will continue to apply SFAS 71. NOTE 8. ACQUISITION OF LONDON ELECTRICITY (Entergy Corporation) On December 18, 1996, Entergy made a formal cash offer to acquire London Electricity for $2.1 billion. London Electricity is a regional electric company serving approximately two million customers in the metropolitan area of London, England. The offer was approved by authorities in the United Kingdom, and as of February 7, 1997, the offer was made unconditional. Entergy, through a wholly owned subsidiary, now controls 100% of the common shares of London Electricity. Entergy has included the results of operations of London Electricity in its results of operations beginning February 1, 1997, based on management's determination that effective control was achieved on that date. The acquisition was financed with $1.7 billion of debt that is non-recourse to Entergy Corporation and $392 million of equity provided by Entergy Corporation from available cash and borrowings under its $300 million line of credit. The cost of the London Electricity license is being amortized on a straight-line basis over a 40 year period beginning February 1, 1997. As of June 30, 1997, the unamortized balance of the license was approximately $1.6 billion, which is based on a preliminary purchase price allocation. In accordance with the purchase method of accounting, the three and six months ended June 30, 1997, results of operations for Entergy Corporation reported in its Statements of Consolidated Income and Cash Flows do not reflect London Electricity's results of operations for any period prior to February 1, 1997. The pro forma combined revenues, net income, and earnings per common share of Entergy Corporation presented below give effect to the acquisition as if it had occurred on January 1, 1997. This pro forma information is not necessarily indicative of the results of operations that would have occurred had the acquisition been consummated for the period for which it is being given effect. The three and six months ended June 30, 1996 pro forma information is not available for comparative purposes. Six Months Ended June 30, 1997 (In Thousands of U.S. Dollars, Except Share Data) Operating revenues $4,422,537 Net income $ 287,579 Earnings per average common share $ 1.09 On July 31, 1997, the British government enacted into law a one- time "windfall profits tax" on privatized industries, including regional electric utilities such as London Electricity. An initial examination of the proposed tax indicates that London Electricity's liability is approximately 140 million British Pounds (approximately $229 million) which will not be deductible for United Kingdom income tax purposes. Payment of the tax is required in two equal installments, the first to be due on December 1, 1997, and the second installment due a year later. The government also decreased the corporate tax rate in the United Kingdom from the current 33% to 31%, which will be effective as of April 1, 1997. In accordance with SFAS 109, "Accounting for Income Taxes", this reduction in United Kingdom income tax rates will result in a one-time reduction in income tax expense of approximately $65 million to adjust London Electricity's deferred income tax liability to the new rate. Accordingly, the liability for the windfall profits tax (with a corresponding charge against income) and the reduction in London Electricity's deferred income tax liability (with a corresponding reduction in income tax expense), were recorded in July 1997. __________________________________ In the opinion of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy, the accompanying unaudited condensed financial statements contain all adjustments (consisting primarily of normal recurring accruals and reclassifying previously reported amounts to conform to current classifications) necessary for a fair statement of the results for the interim periods presented. However, the business of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and Entergy New Orleans is subject to seasonal fluctuations, with the peak period occurring during the summer months. The results for the interim periods presented should not be used as a basis for estimating results of operations for a full year. ENTERGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings Employment Litigation (Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, and Entergy New Orleans) See "Employment Litigation" in Item 1 of Part I of the Form 10-K for information relating to lawsuits filed by former employees asserting they were wrongfully terminated and/or discriminated against due to age, race, and/or sex. See "Employment Litigation" in Note 1 herein for developments that have occurred since the filing of the Form 10-K. Federal Income Tax Audit (Entergy Corporation, Entergy Louisiana, and System Energy) In August 1994, Entergy received an IRS report covering the federal income tax audit of Entergy Corporation and subsidiaries for the years 1988 - 1990. The report asserted an $80 million tax deficiency for the 1990 consolidated federal income tax returns related primarily to the utilization of accelerated investment tax credits associated with Waterford 3 and Grand Gulf. Changes to the initial report, made in the IRS appeal process, reduced the assessment to $58 million. In March 1997, Entergy Corporation received notification that the IRS National Office had resolved the audit in Entergy's favor and that no additional tax payments would be due. Cajun - Coal Contracts (Entergy Corporation and Entergy Gulf States) See "Cajun - Coal Contracts" in Note 1 herein for developments that have occurred since the filing of Form 10-K. Taxes Paid Under Protest (Entergy Corporation and Entergy Louisiana) Since the mid-1980's, Entergy Louisiana and the tax authorities of St. Charles Parish, Louisiana (Parish), the parish in which Waterford 3 is located, have disputed use taxes on nuclear fuel paid under protest by Entergy Louisiana. Entergy Louisiana has been successful in lawsuits in the Parish with regard to recovering these taxes, plus interest, and also with regard to Parish lease tax issues pertaining to fuel financing arrangements. In June 1995, Entergy Louisiana received a favorable decision from the Louisiana Fifth Circuit Court of Appeals that confirmed that no such use and lease taxes are due. In May 1997, the Parish and Entergy Louisiana settled all pending use and lease tax litigation. This settlement includes returns to Entergy Louisiana of additional payments under protest on nuclear fuel and the dismissal of nuclear fuel related suits against Entergy Louisiana and/or the fuel lessors. The suits by Entergy Louisiana with regard to state use tax paid under protest on nuclear fuel are still pending. Item 4. Submission of Matters to a Vote of Security Holders Election of Board of Directors Entergy Corporation The annual meeting of stockholders of Entergy Corporation was held on May 9, 1997. The following matters were voted on and received the specified number of votes for, abstentions, votes withheld (against), and broker non-votes: 1. Election of Directors: Votes Broker Name of Nominee Votes For Abstentions Withheld Non-Votes W. Frank Blount 204,019,263 N/A 1,723,668 N/A John A. Cooper, Jr. 204,030,546 N/A 1,712,385 N/A Lucie J. Fjeldstad 204,059,200 N/A 1,683,731 N/A Norman C. Francis 203,945,806 N/A 1,797,125 N/A Robert v. d. Luft 204,095,766 N/A 1,647,165 N/A Edwin Lupberger 203,720,662 N/A 2,022,269 N/A Kinnaird R. McKee 203,926,940 N/A 1,815,991 N/A Paul W. Murrill 204,035,147 N/A 1,707,784 N/A James R. Nichols 204,032,347 N/A 1,710,584 N/A Eugene H. Owen 204,017,280 N/A 1,725,651 N/A John N. Palmer, Sr. 204,119,836 N/A 1,623,095 N/A Robert D. Pugh 203,939,504 N/A 1,803,427 N/A Wm. Clifford Smith 204,044,210 N/A 1,698,721 N/A Bismark A. Steinhagen 204,108,780 N/A 1,634,151 N/A 2. Appointment of independent public accountants, Coopers & Lybrand L.L.P., for the year 1997: 202,841,564 votes for; 2,147,815 votes against; 753,552 abstentions; and broker non-votes are not applicable. (Entergy Arkansas) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Arkansas: Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, R. Drake Keith, Edwin Lupberger, Jerry L. Maulden, and Gerald D. McInvale. (Entergy Gulf States) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Gulf States: John J. Cordaro, Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, Karen R. Johnson, Edwin Lupberger, Jerry L. Maulden, and Gerald D. McInvale. (Entergy Louisiana) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Louisiana: John J. Cordaro, Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, Edwin Lupberger, Jerry L. Maulden, and Gerald D. McInvale. (Entergy Mississippi) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy Mississippi: Frank F. Gallaher, Donald C. Hintz, Jerry D. Jackson, Edwin A. Lupberger, Jerry L. Maulden, Gerald D. McInvale, and Donald E. Meiners. (Entergy New Orleans) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of Entergy New Orleans: Frank F. Gallaher, Jerry D. Jackson, Edwin A. Lupberger, Jerry L. Maulden, Gerald D. McInvale, and Daniel F. Packer. (System Energy) A consent in lieu of the annual meeting of the common stockholder was executed on May 27, 1997. The consent was signed on behalf of Entergy Corporation, the holder of all issued and outstanding shares of common stock. The common stockholder, by such consent, elected the following individuals to serve as directors constituting the Board of Directors of System Energy: Donald C. Hintz, Edwin Lupberger, Jerry L. Maulden, and Gerald D. McInvale. Item 5. Other Information Earnings Ratios (Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy) The domestic utility companies and System Energy have calculated ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred dividends pursuant to Item 503 of Regulation S-K of the SEC as follows: Ratios of Earnings to Fixed Charges Twelve Months Ended December 31, June 30, 1992 1993 1994 1995 1996 1997 Entergy Arkansas 2.28 3.11(b) 2.32 2.56 2.93 2.63 Entergy Gulf States 1.72 1.54 .36(c) 1.86 1.47 2.32 Entergy Louisiana 2.79 3.06 2.91 3.18 3.16 2.82 Entergy Mississippi 2.37 3.79(b) 2.12 2.92 3.40 2.93 Entergy New Orleans 2.66 4.68(b) 1.91 3.93 3.51 2.73 System Energy 2.04 1.87 1.23 2.07 2.21 2.32 Ratios of Earnings to Combined Fixed Charges and Preferred Dividends Twelve Months Ended December 31, June 30, 1992 1993 1994 1995 1996 1997 Entergy Arkansas 1.86 2.54(b) 1.97 2.12 2.44 2.27 Entergy Gulf States (a) 1.37 1.21 .29(c) 1.54 1.19 1.91 Entergy Louisiana 2.18 2.39 2.43 2.60 2.64 2.43 Entergy Mississippi 1.97 3.08(b) 1.81 2.51 2.94 2.57 Entergy New Orleans 2.36 4.12(b) 1.73 3.56 3.22 2.48 (a) "Preferred Dividends" in the case of Entergy Gulf States also include dividends on preference stock. (b) Earnings for the year ended December 31, 1993, include $81 million, $52 million, and $18 million for Entergy Arkansas, Entergy Mississippi, and Entergy New Orleans, respectively, related to the change in accounting principle to provide for the accrual of estimated unbilled revenues. (c) Earnings for the year ended December 31, 1994, for Entergy Gulf States were not adequate to cover fixed charges and combined fixed charges and preferred dividends by $144.8 million and $197.1 million, respectively. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits* ** 4(a) - Eleventh Supplemental Indenture, dated as of June 1, 1997, to Entergy Mississippi's Mortgage and Deed of Trust, dated as of February 1, 1988 (filed as Exhibit A-2(a) to Rule 24 Certificate dated June 27, 1997 in File No. 70-8719). 4(b) - Credit Facility Agreement, dated as of December 17, 1996, for Entergy Power UK PLC and ABN Amro Bank, N.V., Bank of America International Limited, Union Bank of Switzerland as amended by amendments 1, 2, and 3 dated February 6, 1997, March 18, 1997, and June 30, 1997, respectively. 23(a) - Consent of Sandlin Associates. 27(a) - Financial Data Schedule for Entergy Corporation and Subsidiaries as of June 30, 1997. 27(b) - Financial Data Schedule for Entergy Arkansas as of June 30, 1997. 27(c) - Financial Data Schedule for Entergy Gulf States as of June 30, 1997. 27(d) - Financial Data Schedule for Entergy Louisiana as of June 30, 1997. 27(e) - Financial Data Schedule for Entergy Mississippi as of June 30, 1997. 27(f) - Financial Data Schedule for Entergy New Orleans as of June 30, 1997. 27(g) - Financial Data Schedule for System Energy as of June 30, 1997. 99(a) - Entergy Arkansas Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(b) - Entergy Gulf States Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(c) - Entergy Louisiana Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(d) - Entergy Mississippi Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(e) - Entergy New Orleans Computation of Ratios of Earnings to Fixed Charges and of Earnings to Combined Fixed Charges and Preferred Dividends, as defined. 99(f) - System Energy's Computation of Ratios of Earnings to Fixed Charges, as defined. ** 99(g) - Annual Reports on Form 10-K of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy for the fiscal year ended December 31, 1996, portions of which are incorporated herein by reference as described elsewhere in this document (filed with the SEC in File Nos. 1-11299, 1-10764, 1- 2703, 1-8474, 0-320, 0-5807, and 1-9067, respectively). ** 99(h) - Quarterly Reports on Form 10-Q of Entergy Corporation, Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, and System Energy for the quarter ended March 31, 1997, portions of which are incorporated herein by reference as described elsewhere in this document (filed with the SEC in File Nos. 1-11299, 1-10764, 1- 2703, 1-8474, 0-320, 0-5807, and 1-9067, respectively). ___________________________ Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Entergy Corporation agrees to furnish to the Commission upon request any instrument with respect to long-term debt that is not registered or listed herein as an Exhibit because the total amount of securities authorized under such agreement does not exceed ten percent of Entergy Corporation and its subsidiaries on a consolidated basis. * Reference is made to a duplicate list of exhibits being filed as a part of this report on Form 10-Q for the quarter ended June 30, 1997, which list, prepared in accordance with Item 102 of Regulation S-T of the SEC, immediately precedes the exhibits being filed with this report on Form 10-Q for the quarter ended June 30, 1997. ** Incorporated herein by reference as indicated. (b) Reports on Form 8-K Entergy A current report on Form 8-K, dated July 2, 1997, was filed with the SEC on July 11, 1997, reporting information under Item 5. "Other Events." Entergy Louisiana A current report on Form 8-K, dated June 26, 1997, was filed with the SEC on July 14, 1997, reporting information under Item 5. "Other Events" and Item 7. " Financial Statements and Exhibits." EXPERTS The statements attributed to Sandlin Associates regarding the analysis of River Bend construction costs of Entergy Gulf States in Note 2 to Entergy Corporation and Subsidiaries Consolidated Financial Statements, "Rate and Regulatory Matters," have been reviewed by such firm and are included herein upon the authority of such firm as experts. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries. ENTERGY CORPORATION ENTERGY ARKANSAS, INC. ENTERGY GULF STATES, INC. ENTERGY LOUISIANA, INC. ENTERGY MISSISSIPPI, INC. ENTERGY NEW ORLEANS, INC. SYSTEM ENERGY RESOURCES, INC. /s/ Louis E. Buck Louis E. Buck Vice President, Chief Accounting Officer and Assistant Secretary (For each Registrant and for each as Principal Accounting Officer) Date: August 8, 1997 EX-4 2 Exhibit 4(b) AGREEMENT DATED 17th December, 1996 1,250,000,000 Pounds CREDIT FACILITY FOR ENTERGY POWER UK PLC ARRANGED BY ABN AMRO BANK N.V. BANK OF AMERICA INTERNATIONAL LIMITED UNION BANK OF SWITZERLAND THIS AGREEMENT is dated 17th December, 1996 between:- (1) ENTERGY POWER UK PLC (Registered No. 3261188) (the "Company"); (2) ABN AMRO BANK N.V., BANK OF AMERICA INTERNATIONAL LIMITED and UNION BANK OF SWITZERLAND as arrangers (in this capacity the "Arrangers"); (3) ABN AMRO BANK N.V. as issuing bank (in this capacity the "Issuing Bank"); (4) THE FINANCIAL INSTITUTIONS listed in Schedule 1 as banks (the "Banks"); and (5) ABN AMRO BANK N.V. as agent (in this capacity the "Agent"). IT IS AGREED as follows:- 1. INTERPRETATION 1.1 Definitions In this Agreement:- "Accounting Date" means the last day of each financial quarter of the Company. "Accounting Period" means any period of approximately three months or one year ending on an Accounting Date for which accounts are required to be prepared for the purposes of this Agreement. "Acquisition" means the acquisition by the Company of any Shares pursuant to the Offer and/or pursuant to open market purchases. "Act" means the Electricity Act 1989 and, unless the context otherwise requires, all subordinate legislation made pursuant to it. "Adjusted Capital and Reserves" has the meaning given to it in Clause 19.28 (Financial covenants). "Affiliate" means a Subsidiary or a Holding Company of a person and any other Subsidiary of that Holding Company. "Applicable Accounting Principles" means accounting principles and practices, which at the date of this Agreement are generally accepted in the United Kingdom and approved by the Institute of Chartered Accountants of England and Wales and which are consistent with the accounting principles and practices applied in the preparation of the Base Financial Statements. "Auditors" means Coopers and Lybrand or any other "Big Six" firm of accountants or any other firm (approved by the Agent) of independent public accountants of international standing recognised and authorised by the Institute of Chartered Accountants of England and Wales which is appointed by the Company to audit the consolidated annual accounts of the Company. "Available Surplus Cashflow" means that part of any Surplus Cashflow which has, pursuant to Clause 19.15(b) (Distributions), been paid (whether by way of dividend, loan repayment, interest or loan) to the Company by the Target. "Base Financial Statements" means the audited annual consolidated accounts of the Target for and as at the end of the financial year of the Target ended 31st March, 1996. "Beneficiary" means a holder of a Loan Note. "Bond Issues" means: (a) the pounds 100,000,000 8 per cent. bonds due 2003; and (b) the pounds 100,000,000 8-5/8 per cent. bonds due 2005, issued by the Target. "Borrower" means the Company or, upon its becoming a Borrower in accordance with Clause 28.4 (Target as Borrower), the Target. "Borrower Accession Agreement" means a letter substantially in the form of Part II of Schedule 5 with such amendments as the Agent may approve. "Borrowing" means Financial Indebtedness (without double counting) adjusted as follows: (a) any interest, dividends, commission, fees or other like financing charges, and any item falling within paragraph (g) of the definition of Financial Indebtedness, shall be excluded, save in each case to the extent capitalised or more than 15 days overdue for payment; (b) in respect of any bonds, notes, debentures, loan stocks and/or other debt securities issued at a discount or redeemable at a premium and constituting a Borrowing, the issue price thereof, together with any applicable discount or premium recognised or required by the Applicable Accounting Principles to be recognised at the time of calculation (other than amounts required by the Applicable Accounting Principles to be accounted for as interest) in the accounts of the relevant person (were any then to be prepared), shall be included; (c) in respect of paragraphs (d) and (e) of the definition of Financial Indebtedness (but in the case of paragraph (d), only where no interest or similar charge is charged), only the principal amount thereof as determined by the Applicable Accounting Principles or (in the case of paragraph (e)) the capitalised value (as so determined) of any items falling thereunder shall be included; (d) any item falling within paragraph (f) of the definition of Financial Indebtedness which is in respect of any sum excluded by paragraph (a) or (c) above shall be excluded; and (e) any item falling within paragraph (f)(ii) of the definition of Financial Indebtedness shall be included only to the extent that the same has been or (in accordance with the Applicable Accounting Principles) ought to be given a value in the latest or next Accounts, or in any notes to those Accounts. "Business Day" means a day (other than a Saturday or a Sunday) on which banks are open for business in London. "Cancellation Date" means the date of withdrawal or lapse of the Offer in accordance with its terms. "Capitalisation Ratio" has the meaning given to it in Clause 19.28 (Financial covenants). "Cashflow" means, for any period for which it is being tested, Consolidated EBITDA for that period, but adjusted so as to: (a) add back any taxes refunded during that period; (b) deduct any increase or add any reduction in working capital which occurs during that period; (c) deduct any taxes accrued or paid during that period (adjusted in the case of VAT for any VAT input); (d) deduct outflows and add inflows of cash effect resulting from any Extraordinary Items; (e) deduct any capital expenditure or costs or expenses of a capital nature paid during that period and any other expenditure not already taken into account which is required to be paid under the Licence, any Licence Undertaking or any applicable law or regulation during the following financial quarter; and (f) take no account of any book profits or losses arising from the disposal of any assets. "Certain Funds Period" means the period beginning on the date of issue of the Press Release and ending on the earlier of: (a) the date which falls three months after the Unconditional Acceptances Date; (b) the date which falls seven months after the date of issue of the Press Release; and (c) the date which falls seven days after the Cancellation Date; or, if prior to that date the Company has given notice under section 429 of the Companies Act 1985 to shareholders who have not accepted the Offer, any longer period as may be required to enable the Company to acquire shares within the period it is permitted to do so under Section 428 to 430 of the Companies Act 1985 following the announcement of the Offer. "Clean-Up Date" means the date falling 180 days after the Target becomes a Subsidiary of the Company. "Code" means the City Code on Takeovers and Mergers. "Commitment" means, in respect of a Bank, its Facility A Commitment, Facility B Commitment or Facility C Commitment, and "Commitments" means the aggregate of its Facility A Commitment, Facility B Commitment and Facility C Commitment. "Consolidated EBITDA" has the meaning given to it in Clause 19.28 (Financial covenants). "Consolidated Net Interest Payable" has the meaning given to it in Clause 19.28 (Financial covenants). "Consolidated Net Total Borrowings" has the meaning given to it in Clause 19.28 (Financial covenants). "Consolidated Total Interest Payable" has the meaning given to it in Clause 19.28 (Financial covenants). "Dangerous Substance" means any radioactive emissions, noise, any natural or artificial substance (whether in the form of a solid, liquid, gas or vapour) the generation, transportation, storage, treatment, use or disposal of which (whether alone or in combination with any other substance) including (without limitation) any controlled, special, hazardous, toxic, radioactive or dangerous substance or waste, gives rise to a risk of causing harm to man or any other living organism or damaging the Environment or public health or welfare. "Debenture" means a debenture executed by the Company in favour of the Agent substantially in the form of Schedule 7. "Default" means an Event of Default or an event which, with the giving of notice, expiry of any applicable grace period, determination of materiality or fulfilment of any other applicable condition specified (in any such case) in Clause 20 (Default) (or any combination of the foregoing), would constitute an Event of Default. "Director General" means the person appointed from time to time by the Secretary of State to hold office as the Director General of Electricity Supply for the purpose of the Act. "Double Taxation Treaty" means any convention between the government of the United Kingdom and any other government for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains. "Drawdown Date" means the date of the advance of a Loan. "Environment" means any of the following media, the air (including, without limitation, the air within buildings and the air within other natural or man-made structures above or below ground), water (including, without limitation, ground and surface water) and land (including, without limitation, surface and sub-surface soil). "Environmental Claim" means any claim by any person: (a) in respect of any loss or liability suffered or incurred by that person as a result of or in connection with any violation of Environmental Law; or (b) that arises as a result of or in connection with Environmental Contamination and that could give rise to any remedy or penalty (whether interim or final) that may be enforced or assessed by private or public legal action or administrative order or proceedings, including, without limitation, any such claim arising from injury to persons, property or natural resources. "Environmental Contamination" means each of the following and their consequences: (a) any release, emission, leakage or spillage of any Dangerous Substance at or from any site owned, occupied or used by any member of the Group into any part of the Environment; or (b) any accident, fire, explosion or sudden event at any site owned, occupied or used by any member of the Group which is directly or indirectly caused by or attributable to any Dangerous Substance; or (c) any other pollution of the Environment. "Environmental Law" means all applicable laws (including, without limitation, common law), regulations, directing codes of practice, circulars, guidance notices and the like having legal effect (whether in the United Kingdom or elsewhere) concerning pollution or the protection of human health, the Environment, the conditions of the work place or the generation, transportation, storage, treatment or disposal of Dangerous Substances. "Environmental Licence" means any authorisation required by any Environmental Law. "Event of Default" means an event specified as such in Clause 20.1 (Events of Default). "Exceptional Items" has the meaning given to it in Clause 19.28 (Financial Covenants). "Expiry Date" means the expiry date of the Guarantee, as specified in the Guarantee. "Extraordinary Items" has the meaning given to it in Clause 19.28 (Financial Covenants). "Facility" means Facility A, Facility B or Facility C. "Facility A" means the facility referred to as such in Clause 2.1(a) (Facilities). "Facility A Commitment" means: (a) in relation to a Bank which is a Bank on the date of this Agreement, the amount in Sterling set out in the Syndication Letter; and (b) in relation to a Bank which becomes a Bank after the date of this Agreement, the amount of a Facility A Commitment acquired by it under Clause 28 (Changes to the Parties), to the extent not transferred, cancelled or reduced under this Agreement. "Facility A Final Repayment Date" means the date which falls five years after the date of this Agreement. "Facility A Loan" means a loan made by the Banks under Facility A or the principal amount outstanding of that loan. "Facility A Outstandings" means, at any time, the aggregate of the Guarantee Outstandings and the Facility A Loans at that time. "Facility B" means the facility referred to as such in Clause 2.1(b) (Facilities). "Facility B Commitment" means: (a) in relation to a Bank which is a Bank on the date of this Agreement, the amount in Sterling set out in the Syndication Letter; and (b) in relation to a Bank which becomes a Bank after the date of this Agreement, the amount of a Facility B Commitment acquired by it under Clause 28 (Changes to the Parties), to the extent not transferred, cancelled or reduced under this Agreement. "Facility B Final Repayment Date" means the date falling two years after the date of this Agreement. "Facility B Loan" means, subject to Clause 10 (Interest Periods), a loan made by the Banks under Facility B or the principal amount outstanding of that loan. "Facility B Repayment Date" means each date for the payment of a Facility B Repayment Instalment. "Facility B Repayment Instalment" means each instalment for the repayment of Facility B Loans referred to in Clause 8 (Repayment). "Facility B Term Date" means the last day of the Certain Funds Period. "Facility C" means the facility referred to as such in Clause 2.1(c) (Facilities). "Facility C Commitment" means: (a) in relation to a Bank which is a Bank on the date of this Agreement, the amount in Sterling set out in the Syndication Letter; and (b) in relation to a Bank which becomes a Bank after the date of this Agreement, the amount of a Facility C Commitment acquired by it under Clause 28 (Changes to the Parties), to the extent not transferred, cancelled or reduced under this Agreement. "Facility C Final Repayment Date" means the date which falls five years after the date of this Agreement. "Facility C Loan" means a loan made by the Banks under Facility C or the principal amount outstanding of that loan. "Facility Office" means the office notified by a Bank to the Agent:- (a) on or before the date it becomes a Bank; or (b) by not less than 5 Business Days' notice, as the office through which it will perform all or any of its obligations under this Agreement. "Fee Letter" means the letter dated the date of this Agreement between the Arrangers and the Company, or the letter dated the date of this Agreement between the Company and the Agent, setting out the amount of various fees referred to in Clause 22 (Fees). "Final Maturity Date" means the later of the Facility A Final Repayment Date and the Facility C Final Repayment Date. "Final Repayment Date" means the Facility A Final Repayment Date, the Facility B Final Repayment Date or the Facility C Final Repayment Date. "Finance Document" means:- (a) this Agreement; (b) a Fee Letter; (c) the Debenture; (d) a Novation Certificate; (e) the Syndication Agreement; (f) a Borrower Accession Agreement; (g) a Subordination Agreement; (h) a Swap Document; or (i) any other document designated as such by the Agent and the Company. "Finance Party" means an Arranger, a Bank, the Issuing Bank or the Agent. "Financial Indebtedness" means any indebtedness for, or for interest or other charges relating to, or otherwise in respect of or pursuant to:- (a) moneys borrowed or raised, including, without limitation: (i) monies raised by the sale of receivables or other financial assets on terms (and to the extent) that recourse may be had to the vendor in the event of non-payment of those receivables or financial assets when due; (ii) monies raised under acceptance credit facilities; and (iii)monies raised through the issue of bonds, notes, debentures, bills, loan stocks and other debt securities (including any debt security convertible, but not at the relevant time converted, into share capital); but any Subordinated Debt or Project Finance Indebtedness (other than indebtedness referred to in paragraph (f)(iii) below) shall not constitute Financial Indebtedness; (b) the acquisition cost of assets or services to the extent payable on deferred payment terms after the time of acquisition or possession by the party liable (whether or not evidenced by any bond, note, debenture, bill, loan stock or other debt security), excluding: (i) retentions which are normal in the trade concerned and not entered into primarily as a means of raising finance; (ii) any payment relating to construction works or the acquisition of fixed assets which will become payable only upon fulfilment of conditions relating to or comprising completion or commissioning of certain stages in such works or in the supply programme or the granting of any planning permission for such works or fixed assets and which has not yet become payable by reason of the non-fulfilment of any such condition; and (iii)any such cost payable on deferred payment terms which are normal in the business concerned and not entered into primarily as a means of raising finance, and which do not involve any deferral of payment of any sum for more than six months; (c) moneys received in consideration for the supply of goods and/or services to the extent received more than six months before the due date for their supply (but excluding any liability in respect of bona fide advance payments and deposits received from customers in the ordinary course of trade); (d) instalments under conditional sale agreements entered into primarily as a method of raising finance; (e) payments under leases (whether in respect of land, machinery, equipment or otherwise) and payments under hire purchase agreements and similar agreements and instruments, in each case where those leases, agreements or instruments are treated as finance leases in accordance with the Applicable Accounting Principles; (f) (i) any guarantee, indemnity, letter of credit or other legally binding instrument to assure payment of, or against loss in respect of non-payment of, any of the indebtedness specified in this definition and any counter- indemnity in respect of any thereof; and/or (ii) any legally binding agreement or other instrument entered into in connection with any of the indebtedness specified in this definition requiring, or giving any person the right (contingently or otherwise) to require, that any other person invest in, make advances to, purchase assets of or maintain the solvency or financial condition of any other person; and/or (iii)any recourse under any form of assurance, undertaking or support of a type referred to in paragraph (b)(iii) of the definition of "Project Finance Indebtedness"; (g) any interest rate and/or currency swap, and any other interest or currency protection, hedging or financial futures transaction or arrangement; or (h) transactions which involve or have the commercial effect of the borrowing of commodities as part of an arrangement for or in substitution for the raising of finance, the value of indebtedness concerned for this purpose being the sum which must be paid and/or the value in money terms of the commodities which must be delivered by the "borrower" to, or to the order of, the "lender" "First Test Date" means the first date on which a financial covenant in Clause 19.28(c) (Financial covenants) is tested, being: (a) in the case of Clause 19.28(c)(i) (Financial covenants), 30th June, 1997; and (b) in the case of Clause 19.28(c)(ii) (Financial covenants): (i) if the Target becomes a member of the Group within 6 weeks of the end of the then current quarterly Accounting Period, the last day of the next quarterly Accounting Period; or (ii) in all other cases, the last day of the quarterly Accounting Period in which the Target becomes a member of the Group. "Group" means at any time the Company and its Subsidiaries at that time. "Guarantee" means the guarantee to be issued by the Issuing Bank in favour of the Beneficiaries, substantially in the form of Schedule 6. "Guarantee Outstandings" means, at any time, the amount of the maximum liability (whether actual or contingent) of the Banks under the Guarantee. "Holding Company" has the meaning given to it in Section 736 of the Companies Act 1985. "Information Memorandum" means the Information Memorandum prepared by the Company in connection with the Syndication. "Initial Capital Injection" means an amount (in a minimum aggregate amount as specified in the Syndication Letter) of paid up equity share capital or paid in capital contributions, or any combination of the two, to be subscribed for in, or on lent to, the Company by the Parent prior to any Request being made. "Interest Period" means each period selected in accordance with Clause 10 (Interest Periods). "Issue Date" means the date of issue of the Guarantee. "LIBOR" means the arithmetic mean (rounded upward to the nearest four decimal places) of the rates, as supplied to the Agent at its request, quoted by the Reference Banks to leading banks in the London interbank market at or about 11.00 a.m. on the first day of an Interest Period for the offering of deposits in Sterling for a period comparable to the Interest Period. "Licence" means a public electricity supply licence held by a member of the Group and issued pursuant to Section 6(1) of the Act, as modified or supplemented from time to time. "Licenceholder" means at any time the member of the Group which then holds a Licence. "Licence Undertaking" means any undertaking or assurance given in connection with the Offer by any one or more of the Company, the Target or any Affiliate of any of them to the Director General or the Secretary of State concerning the management and/or ownership of and/or other matters concerning the Target once it has become a Subsidiary of the Company. "Loan" means a Facility A Loan, a Facility B Loan or a Facility C Loan. "Loan Note" means any loan note offered or issued by the Company to shareholders of the Target in connection with the Offer. "Major Default" means an Event of Default arising as a result of an act of, omission by, or circumstance affecting the Company (other than one relating to the Target or its Subsidiaries) and which is referred to in Clause 20.2 (Non-payment) or Clauses 20.6 (Insolvency) to 20.8 (Appointment of receivers and managers) inclusive or 20.10 (Analogous proceedings) to 20.12 (Unlawfulness) inclusive. "Majority Banks" means, at any time, Banks:- (a) whose participations in all Loans then outstanding aggregate more than 662/3 per cent. of all Loans then outstanding; or (b) if there are no Loans then outstanding, whose Commitments then aggregate more than 662/3 per cent. of the Total Commitments; or (c) if there are no Loans then outstanding and the Total Commitments have been reduced to zero, whose Commitments aggregated more than 662/3 per cent. of the Total Commitments immediately before the reduction. "Margin" means, subject to Clause 11.1(b) (Interest Rate) and to paragraph (d) below and with effect from each applicable Margin Adjustment Date: (a) in respect of a Facility A Loan, at any time when the Capitalisation Ratio is: (i) greater than 80 per cent., 1.50 per cent. per annum; (ii) equal to or less than 80 per cent., but greater than 75 per cent., 1.15 per cent. per annum; (iii)equal to or less than 75 per cent., but greater than 70 per cent., 0.90 per cent. per annum; (iv) equal to or less than 70 per cent., but greater than 65 per cent., 0.70 per cent. per annum; (v) equal to or less than 65 per cent., but greater than 60 per cent., 0.575 per cent. per annum; (vi) equal to or less than 60 per cent., but greater than 55 per cent., 0.45 per cent. per annum; and (vii)equal to or less than 55 per cent., 0.30 per cent. per annum, subject to a maximum, until the date falling six months after the date of this Agreement, of 1.25 per cent. per annum; (b) in respect of a Facility B Loan: (i) for the period from the date of this Agreement up to (and including) the date falling three months after the date of this Agreement, 0.25 per cent. per annum; and (ii) thereafter, the Margin which would be applicable to a Facility A Loan, as set out in paragraph (a) above; (c) in respect of a Facility C Loan: (i) at any time on or prior to the date on which the Facility B Loans are prepaid or repaid in full, the Margin which would be applicable to a Facility A Loan, as set out in paragraph (a) above; and (ii) thereafter, 0.25 per cent. per annum; and (d) if, on the first anniversary of the date of this Agreement, the Facility B Loans have not been fully repaid or prepaid, then either:- (i) the Company will procure a guarantee of the outstanding Facility B Loans on terms and from an entity acceptable to all of the Banks in their sole discretion in which case:- (A) the Margin on the Facility B Loans shall be the same Margin which would be applicable to a Facility A Loan, as set out in paragraph (a) above; and (B) the provisions of paragraph (b) of Clause 8 (Repayment) shall not apply; or (ii) if the Company has not procured a guarantee of the outstanding Facility B Loans on terms and from an entity acceptable to all of the Banks in their sole discretion, then:- (A) from the first anniversary of the date of this Agreement up to the date falling 18 months after the date of this Agreement, the Margin for Facility A Loans, Facility B Loans and Facility C Loans shall increase to 0.50 per cent. per annum above the rate which otherwise would be applicable under paragraph (a), (b) or (c) above; and (B) from the date falling 18 months after the date of this Agreement up to and including the Facility B Final Repayment Date, the Margin on Facility A Loans, Facility B Loans and Facility C Loans shall increase to 1 per cent. per annum above the rate which otherwise would be applicable under paragraph (a), (b) or (c) above. "Margin Adjustment Date" means in respect of a Loan: (a) the Business Day following any Subsequent Capital Injection; (b) the first day of the first Interest Period for that Loan commencing after each determination of the Capitalisation Ratio following delivery by the Company of a certificate under Clause 19.2(c)(i) or (ii) (Financial information); and (c) if paragraph (d)(ii) of the definition of Margin is applicable, the first anniversary of the date of this Agreement and/or the date falling 18 months after the date of this Agreement, as appropriate. "Material Subsidiary" means: (a) the Target; (b) any member of the Group (other than the Company and any Project Finance Subsidiary): (i) which is the Licenceholder; or (ii) whose pre-tax profits represent at least ten per cent. of the consolidated pre-tax profits of the Group; or (iii) the book value of whose gross assets represents at least ten per cent. of the consolidated gross assets of the Group, and for this purpose: (A) in the case of a company which itself has Subsidiaries, the calculation shall be made by using the consolidated pre-tax profits or gross assets, as the case may be, of it and its Subsidiaries; (B) all calculations of consolidated pre-tax profits or gross assets shall be made by reference to: (1) the latest accounts of the relevant company (or, as the case may be, a consolidation of the accounts of it and its Subsidiaries) used for the purpose of the then latest unaudited quarterly or audited annual consolidated accounts of the Group delivered to the Agent under Clause 19.2 (Financial information); and (2) those unaudited quarterly or, as the case may be, audited annual consolidated accounts of the Group; and shall be made in accordance with the Applicable Accounting Principles; or (c) any member of the Group (other than the Company and any Project Finance Subsidiary) which is not otherwise a Material Subsidiary under this definition but to which any Material Subsidiary transfers in any annual Accounting Period all or substantially all of its assets; the Material Subsidiary from which the assets were transferred shall cease to be a Material Subsidiary unless and until it is shown to be a Material Subsidiary under any other paragraph of this definition. In the event of any dispute as to whether a Subsidiary is or is not at any time a Material Subsidiary the question shall be referred to the Auditors for determination according to the provisions of this definition (acting as experts at the cost of the Company) and their decision shall be conclusive and binding on the Parties in the absence of manifest error. "Minimum Subsequent Capital Injection" means the minimum aggregate amount (as specified in the Syndication Letter) of Subsequent Capital Injections. "MLA Cost" means the cost imputed to the Banks of compliance with the Mandatory Liquid Assets requirements of the Bank of England during each Interest Period, determined in accordance with Schedule 3. "MMC Referral" means a referral of the Offer by the Secretary of State to the Monopolies and Mergers Commission. "Novation Certificate" has the meaning given to it in Clause 28.3 (Procedure for novations). "Offer" means the offer made or proposed to be made for the Shares by or on behalf of the Company to the shareholders of the Target substantially on the terms referred to in the Press Release, as such offer may be amended, extended, varied and/or waived. "Offer Costs" means all costs, fees and expenses (including taxes or similar charges thereon) and all stamp, documentary, registration and similar taxes or charges incurred by or on behalf of the Company in connection with the Offer, including the preparation, negotiation and entry into of the Finance Documents. "Offer Documents" means each of the documents issued or to be issued by the Company to the shareholders of the Target (including the forms of acceptance) in respect of the Offer. "Offer Utilisation" means any of the following Utilisations:- (a) a Facility A Loan or Facility B Loan borrowed for the purpose of financing or refinancing the costs of the Acquisition or consideration payable to Share Option Holders and Loan Note Holders in connection with the Acquisition; or (b) the Guarantee. "Panel" means The Panel on Takeovers and Mergers. "Parent" means Entergy Power UK Holding Limited (Registered No. 3261305). "Party" means a party to this Agreement. "Permitted Transaction" means: (a) a reconstruction, amalgamation, reorganisation, merger or consolidation of a Borrower or a Material Subsidiary on terms approved by the Majority Banks; (b) a disposal of assets permitted by the terms of this Agreement; or (c) a solvent liquidation, dissolution or winding-up of a Material Subsidiary (other than the Target or the Licenceholder) which does not have a Material Adverse Effect. "Pooling and Settlement Agreement" means the agreement dated 30th March, 1990 made by the Target with the National Grid Company plc and others setting out the rules and procedures for the operation of an electricity trading pool and of a settlement system. "Press Release" means the press release referred to in Part I of Schedule 2 to be made by or on behalf of the Company announcing the terms of the Offer. "Project Finance Indebtedness" means any Borrowing which finances the acquisition, development, ownership and/or operation of an asset: (a) which is incurred by a Project Finance Subsidiary; or (b) in respect of which the person or persons to whom the Borrowing is or may be owed by the relevant debtor (whether or not a member of the Group) has or have no recourse whatsoever to any member of the Group (other than to a Project Finance Subsidiary) for its repayment other than: (i) recourse to the debtor for amounts limited to the cash flow or net cash flow (other than historic cash flow or historic net cash flow) from the asset; and/or (ii) recourse to the debtor for the purpose only of enabling amounts to be claimed in respect of that Borrowing in an enforcement of any Security Interest given by the debtor over the asset or the income, cash flow or other proceeds deriving from the asset (or given by any shareholder or the like in the debtor over its shares or like interest in the capital of the debtor) to secure the Borrowing but only if: (A) the extent of the recourse to the debtor is limited solely to the amount of any recoveries made on any such enforcement; and (B) that person or persons are not entitled, by virtue of any right or claim arising out of or in connection with that Borrowing, to commence proceedings for the winding up or dissolution of the debtor or to appoint or procure the appointment of any receiver, trustee or similar person or officer in respect of the debtor or any of its assets (other than the assets the subject of that Security Interest); and/or (iii) recourse to the debtor generally, or directly or indirectly to a member of the Group, under any form of assurance, undertaking or support, which recourse is limited to a claim for damages (other than liquidated damages and damages required to be calculated in a specified way) for breach of an obligation (other than a payment obligation or an obligation to procure payment by another or an indemnity in respect thereof or any obligation to comply or to procure compliance by another with any financial ratios or other tests of financial condition) by the person against whom such recourse is available. "Project Finance Subsidiary" means any Subsidiary of the Company (other than the Licenceholder): (a) which is a company whose principal assets and business are constituted by the ownership, acquisition, development and/or operation of an asset whether directly or indirectly; (b) none of whose Borrowings in respect of the financing of the ownership, acquisition, development and/or operation of an asset benefits from any recourse whatsoever to any member of the Group (other than the Subsidiary itself or another Project Finance Subsidiary) in respect of its repayment, except as expressly referred to in paragraph (b)(iii) of the definition of Project Finance Indebtedness in this Clause 1.1 (Definitions); and (c) which has been designated as such by the Company by notice to the Agent. However, the Company may give notice to the Agent at any time that any Project Finance Subsidiary is no longer a Project Finance Subsidiary, whereupon it shall cease to be a Project Finance Subsidiary. "Qualifying Bank" means:- (a) a bank as defined in Section 840A of the Income and Corporation Taxes Act 1988 which, for the purposes of Section 349 of the Income and Corporation Taxes Act 1988, is within the charge to United Kingdom corporation tax as regards any interest received by it under this Agreement, except that, if that Section is repealed, modified, extended or re- enacted, the Agent may at any time and from time to time (acting reasonably) amend this definition to reflect such repeal, modification, extension or enactment by giving notice of the amended definition to the Company; or (b) a person carrying on a bona fide banking business who is resident (as such term is defined in the appropriate Double Taxation Treaty) in a country with which the United Kingdom has an appropriate Double Taxation Treaty giving residents of that country full exemption from United Kingdom taxation on interest and does not carry on business in the United Kingdom through a permanent establishment with which the indebtedness under this Agreement in respect of which the interest is paid is effectively connected. "Reduction Date" means the date falling three years after the date of this Agreement. "Reference Banks" means, subject to Clause 28.5 (Reference Banks), the principal London offices of ABN AMRO Bank N.V., Bank of America National Trust and Savings Association and Union Bank of Switzerland. "Relevant Percentage" means, in relation to a Bank, the proportionate liability of that Bank under the Guarantee, being the proportion its Commitments bear to the Total Commitments, expressed as a percentage. "Repayment Date" means a Facility B Repayment Date or the last day of the Interest Period of a Facility A Loan or a Facility C Loan. "Request" means a request made by a Borrower for a Loan or the Guarantee, substantially in the form of Schedule 4. "Rollover Loan" means a Facility A Loan or a Facility C Loan, the principal amount of which is less than or equal to an outstanding Facility A Loan or Facility C Loan, as the case may be, and whose Drawdown Date coincides with the Repayment Date of that outstanding Facility A Loan or Facility C Loan, as the case may be. "Secretary of State" means the Secretary of State as referred to in the Act. "Security Account" has the meaning given to it in the Debenture. "Security Interest" means any mortgage, pledge, lien, charge, assignment, hypothecation or security interest or any other agreement or arrangement having the effect of conferring security. "Share Option" means an option to acquire shares in the Target. "Share Option Holder" means any holder of a Share Option. "Shares" means all the issued shares (and Share Options) in the capital of the Target (including any shares of the Target issued while the Offer remains open for acceptance). "Sterling" means the lawful currency for the time being of the United Kingdom. "Subordinated Debt" means a separate unsecured loan to the Company from a shareholder, or an Affiliate of a shareholder, of the Company and/or any other person permitted under this Agreement which: (a) has a maturity date falling after the later of Facility A Final Repayment Date and the Facility C Final Repayment Date; (b) is not capable of acceleration (other than in the event of insolvency or an insolvency proceeding) whilst any amount may be or become payable by any Borrower under the Finance Documents or any of the Commitments remain in effect; and (c) is subordinated (as regards priority of payment, ranking, rights of enforcement and all other rights) as to principal, interest and all other amounts payable on or in respect thereof and any and all claims (including for damages) related thereto to all amounts which may be or become payable by the Borrowers under the Finance Documents, all in accordance with a Subordination Agreement. "Subordination Agreement" means a subordination agreement entered, or to be entered, into by the Agent, the Company and any other person in respect of Subordinated Debt, substantially in the form of Schedule 9. "Subsequent Capital Injection" means (following the Initial Capital Injection) either: (a) another contribution of paid up equity capital in the Company either by way of the issuing by the Company of additional share capital or by way of capital contribution; and/or (b) another loan to the Company, constituting Subordinated Debt, where the aggregate of the proceeds of the equity capital issued, transferred or contributed and/or the principal amount of the Subordinated Debt are to be applied in prepayment of the Loans to the extent required by Clause 9.6 (Mandatory prepayment/cancellation). "Subsidiary" means:- (a) a subsidiary within the meaning of Section 736 of the Companies Act 1985, as amended by Section 144 of the Companies Act 1989; and (b) for the purposes of Clauses 19.28 (Financial covenants) and any financial information relating to the Group, a subsidiary undertaking within the meaning of Section 21 of the Companies Act 1989. "Surplus Cashflow" means, for any period for which Cashflow is calculated, Cashflow for that period less the obligations of the Group in respect of Financial Indebtedness which are actually paid during that period. "Swap Document" means any interest rate hedging agreement (substantially in the form agreed by the Company and the Agent prior to the date of this Agreement) entered into by the Company with any of the Banks party to this Agreement as at the date of this Agreement and any confirmation entered into pursuant to any such agreement. "Syndication" means the primary syndication (including the initial syndication to sub-underwriters and the subsequent general syndication) by the Arrangers of the Facilities. "Syndication Agreement" means an agreement substantially in the form of Part III of Schedule 5. "Syndication Letter" means a letter dated the date of this Agreement from the Arrangers to the Company in respect of the Syndication and other matters. "Target" means London Electricity plc (Registered no. 2366852). "Total Commitments" means the aggregate of the Total Facility A Commitments, the Total Facility B Commitments and the Total Facility C Commitments, being 1,250,000,000 pounds at the date of this Agreement. "Total Facility A Commitments" means the aggregate for the time being of the Facility A Commitments, being the amount agreed in the Syndication Letter. "Total Facility B Commitments" means the aggregate for the time being of the Facility B Commitments, being the amount agreed in the Syndication Letter. "Total Facility C Commitments" means the aggregate for the time being of the Facility C Commitments, being the amount agreed in the Syndication Letter. "Unconditional Acceptances Date" means the date on which the Offer is declared or becomes unconditional as to acceptances. "Utilisation" means a Loan or the Guarantee. "Utilisation Date" means a Drawdown Date or the Issue Date. 1.2 Construction (a) In this Agreement, unless the contrary intention appears, a reference to: (i) "assets" includes properties, revenues and rights of every description; an "authorisation" includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration and notarisation; something having a "Material Adverse Effect" is to its having, or being reasonably likely to have, a material adverse effect on the ability of a Borrower to perform and comply with: (A) its payment obligations under any Finance Document; or (B) its obligations under Clause 19.28 (Financial Covenants); or (C) any other of its material obligations under the Finance Documents; a "month" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that: (1) if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that calendar month; or (2) if an Interest Period commences on the last Business Day of a calendar month, that Interest Period shall end on the last Business Day in the calendar month in which it is to end; and a "regulation" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law, but if not having the force of law being of a type with which the person concerned is accustomed to comply) of any governmental body, agency, department or regulatory, self-regulatory or other authority or organisation; (ii) a provision of a law is a reference to that provision as amended or re-enacted; (iii) a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement; (iv) a person includes its successors and permitted assigns; (v) a Finance Document or another document is a reference to that Finance Document or that other document as amended, novated, supplemented, replaced or renewed; and (vi) a time of day is a reference to London time. (b) Unless the contrary intention appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement. (c) The index to and the headings in this Agreement are for convenience only and are to be ignored in construing this Agreement. 2. THE FACILITIES 2.1 Facilities Subject to the terms of this Agreement, the Banks irrevocably grant to the Borrowers the following facilities:- (a) Facility A - a committed guarantee and revolving credit facility under which, when requested by the Company:- (i) the Issuing Bank shall issue the Guarantee in an amount which, when aggregated with the amount of any Facility A Loans outstanding at that time, does not exceed the Total Facility A Commitments at that time; or (ii) the Banks shall make to the Company Loans up to an aggregate amount which, when aggregated with the Guarantee Outstandings at that time, does not exceed the Total Facility A Commitments at that time; (b) Facility B - a committed term loan facility under which the Banks shall, when requested by the Company, make to the Company Loans up to an aggregate amount not exceeding, at any time, the Total Facility B Commitments at that time; and (c) Facility C - a committed revolving credit facility under which the Banks shall, when requested by the Target, make to the Target Loans up to an aggregate amount not exceeding, at any time, the Total Facility C Commitments at that time. No Bank is obliged to lend at any time more than its Commitment(s). 2.2 Nature of a Finance Party's rights and obligations (a) The obligations of a Finance Party under the Finance Documents are several. Failure of a Finance Party to carry out those obligations does not relieve any other Party of its obligations under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents. (b) The rights of a Finance Party under the Finance Documents are divided rights. A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce those rights. 2.3 Change of currency (a) If more than one currency or currency unit are at the same time recognised by the laws of any country as the lawful currency of that country, then: (i) any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the lawful currency or currency unit of that country designated by the Agent; and (ii) any translation from one currency or currency unit to another shall be at the official rate of exchange legally recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Agent acting in accordance with any applicable law on rounding or, if there is no such law, acting reasonably in accordance with its market practice. (b) If a change in any currency of a country occurs, this Agreement will be amended to the extent the Agent (acting reasonably) specifies to be necessary to reflect the change in currency and to put the Banks (and, if possible and practicable, the Borrowers) in the same position, so far as possible, that they would have been in if no change in currency had occurred. 3. PURPOSE AND AVAILABILITY (a) (i) The Company shall apply each Facility A Loan made to it towards:- (A) financing or refinancing the cost of the Acquisition and the fees, costs and expenses associated with the Acquisition, including under the procedures in Sections 428-430 of the Companies Act 1985; (B) financing or refinancing the consideration payable to Share Option Holders and Loan Note Holders in connection with the Acquisition; or (C) its working capital or general corporate purposes. (ii) The Guarantee is to be issued for the purpose of guaranteeing the obligations of the Company under the Loan Notes. (iii) Facility A Loans may be borrowed and the Guarantee may be issued, subject to the terms of this Agreement, at any time after the Unconditional Acceptances Date and prior to the Facility A Final Repayment Date. (b) (i) The Company shall apply each Facility B Loan made to it towards:- (A) financing or refinancing the cost of the Acquisition and the fees, costs and expenses associated with the Acquisition, including under the procedures in Sections 428-430 of the Companies Act 1985; (B) financing or refinancing the consideration payable to Share Option Holders and Loan Note Holders in connection with the Acquisition; or (C) financing the purchase of Shares in the market up to a maximum aggregate shareholding of 29.9 per cent. of the Shares. (ii) Facility B Loans may be borrowed, subject to the terms of this Agreement, at any time on or before the Facility B Term Date. (c) (i) Upon its becoming a Borrower, the Target shall apply each Facility C Loan made to it towards:- (A) refinancing any facilities of the Target (excluding the refinancing of any Bond Issues) outstanding at the date on which the Target becomes a Subsidiary of the Company; or (B) its working capital and general corporate purposes. (ii) Facility C Loans may be borrowed by the Target, subject to the terms of this Agreement, at any time after the Target becomes a Borrower and prior to the Facility C Final Repayment Date. (d) Without affecting the obligations of any Borrower in any way, no Finance Party is bound to monitor or verify the application of any Utilisation. 4. CONDITIONS PRECEDENT 4.1 Documentary conditions precedent (a) The obligations of each Finance Party to the Borrowers under this Agreement are subject to the condition precedent that the Agent has notified the Company and the Banks that it has received all of the documents set out in Part I of Schedule 2. (b) The documents referred to in paragraph (a) above must be (except for those mentioned in paragraph 4 of Part I of Schedule 2) in a form agreed by the Company and the Agent prior to the date of this Agreement or in form and substance satisfactory to the Agent. The Agent shall promptly notify the Company and the Banks of receipt of those documents. 4.2 Further conditions precedent Subject to Clause 4.3 (Conditions precedent during the Certain Funds Period), the obligations of each Bank to participate in a Utilisation are subject to the further conditions precedent that:- (a) on both the date of the Request and the Utilisation Date:- (i) the representations and warranties in Clause 18 (Representations and warranties) to be repeated on those dates are correct in all material respects and will be correct in all material respects immediately after the Utilisation is made; and (ii) no Default or (in the case of a Rollover Loan) no Event of Default is outstanding or will result from the Utilisation; (b) it would not cause the Facility A Outstandings, the Facility B Loans or the Facility C Loans to exceed the Total Facility A Commitments, the Total Facility B Commitments or the Total Facility C Commitments, as the case may be; and (c) it would not result in there being more than 15 Utilisations outstanding at any time. 4.3 Conditions precedent during the Certain Funds Period Notwithstanding Clause 4.2 (Further conditions precedent) but without prejudice to Clause 4.1 (Documentary conditions precedent), the obligations of a Bank to participate in an Offer Utilisation during the Certain Funds Period is only subject to the conditions precedent that:- (a) on both the date of the Request and the Drawdown Date for that Offer Utilisation:- (i) the representations and warranties to be made by the Company in respect of itself and set out in Clauses 18.2(a) (Status), 18.3 (Power and authority), 18.4 (Legal validity) and 18.5 (Non- conflict) are correct in all material respects and will be correct in all material respects immediately after the Utilisation is made; (ii) no Major Default is outstanding or will result from the Utilisation; and (iii) the Office of Fair Trading has indicated in writing that there will be no MMC Referral or, in the case of a Facility B Loan for the purpose referred to in Clause 3(b)(i)(C) (Purpose and Availability), there has been no MMC Referral; (b) in the case of the first Loan borrowed during the Certain Funds Period, all of the Initial Capital Injection has been, or together with the proceeds of that Loan will on the Drawdown Date be, applied in financing or refinancing the cost of the Acquisition and the fees, costs and expenses associated with the Acquisition; (c) it would not cause the Facility A Outstandings to exceed the Total Facility A Commitments or the Facility B Loans to exceed the Total Facility B Commitments; and (d) it would not result in there being more than 15 Utilisations outstanding at any time. 4.4 Lapse of the Offer If the Offer is withdrawn or lapsed, then, without prejudice to the other terms of this Agreement, no further Loans may be made on or after the Cancellation Date. 5. UTILISATIONS 5.1 Receipt of Requests (a) A Borrower may utilise a Facility by way of a Loan if the Agent receives, not later than the relevant time, a duly completed Request. (b) The Company may utilise Facility A by way of the Guarantee if the Agent receives, not later than the relevant time, a duly completed Request. (c) The relevant time for: (i) a Loan to be made to finance purchases of Shares in the market is 4.00 p.m. on the Business Day before its Drawdown Date; (ii) any other Loan is 9.00 a.m. on the Business Day before its Drawdown Date; and (iii) the Guarantee is 9.00 a.m. on the Business Day before the Issue Date. 5.2 Completion of Requests for Loans A Request for a Loan will not be regarded as having been duly completed unless:- (a) it specifies whether the Loan is a Facility A Loan, a Facility B Loan or a Facility C Loan and the purpose for which the Loan is to be used; (b) the Drawdown Date is a Business Day falling: (i) in the case of a Facility A Loan, on or after the Unconditional Acceptances Date and before the Facility A Final Repayment Date; (ii) in the case of a Facility B Loan, after the date of this Agreement and before the Facility B Term Date; and (iii) in the case of a Facility C Loan, on or after the Unconditional Acceptances Date and before the Facility C Final Repayment Date; (c) the principal amount of the Loan is a minimum of 10,000,000 pounds and an integral multiple of 5,000,000 pounds; (d) the Interest Period specified complies with Clause 10 (Interest Periods); and (e) the payment instructions comply with Clause 12 (Payments). Each Request is irrevocable. 5.3 Completion of Request for the Guarantee The Request for the Guarantee will not be regarded as having been duly completed unless it specifies: (a) the maximum amount of the Guarantee, which must be a minimum amount of 10,000,000 pounds and an amount which would not cause the Facility A Outstandings to exceed the Total Facility A Commitments; (b) the Issue Date, being a Business Day falling after the Unconditional Acceptances Date and before the Facility A Repayment Date; (c) the Expiry Date, which shall be not later than Facility A Repayment Date; (d) the delivery instructions for the Guarantee; and (e) the form of the Guarantee, which must be attached to the Request and be substantially in the form of Schedule 6. Each Request is irrevocable. 5.4 Amount of each Bank's participation in the Utilisation (a) The amount of a Bank's participation in a Loan will be the proportion of the Loan which its Commitments bear to the Total Commitments on the proposed Drawdown Date. (b) The amount of a Bank's participation in the Guarantee will be the proportion of the maximum amount of the Guarantee which its Commitments bears to the Total Commitments. 5.5 Notification of the Banks (a) The Agent shall promptly notify each Bank of the details of the requested Loan and the amount of its participation in the Loan. (b) The Agent shall notify the Issuing Bank and each Bank of the details of the requested Guarantee, including, in the case of each Bank, its Relevant Percentage in relation to the Guarantee. 5.6 Payment of Proceeds Subject to the terms of this Agreement, each relevant Bank shall make its participation in a Loan available to the Agent for the relevant Borrower on the relevant Drawdown Date. 5.7 Delivery of Guarantee Subject to the terms of this Agreement: (a) the Issuing Bank will execute the Guarantee prior to or on (but to be effective from) the date requested in the Request as the Issue Date; and (b) the Issuing Bank shall (through the Agent) issue the Guarantee on the Issue Date. If the Guarantee is executed by the Issuing Bank before the Issue Date and/or the amount of the Guarantee is known, then, subject to the terms of this Agreement, the Agent is authorised to insert, on behalf of the Issuing Bank, the Issue Date and/or the relevant amount in the Guarantee on receipt of the relevant Request. 6. CLAIMS UNDER THE GUARANTEE 6.1 Notification of claim If a Beneficiary makes a claim under the Guarantee in accordance with its terms, the Issuing Bank shall promptly notify the Agent of the claim. If a claim has been made on the Issuing Bank and notified to the Agent, the Agent shall promptly notify the Company and each Bank specifying:- (a) the latest date on which payment may be made in respect of the claim (the "Payment Date"); (b) the amount of the claim (the "Claimed Amount") and each Bank's Relevant Percentage of the Claimed Amount; and (c) the details of the Issuing Bank's account to which payment is to be made. 6.2 Payment by the Company The Company shall, not later than 9.30 a.m. on the Business Day preceding the Payment Date, pay to the Issuing Bank the Claimed Amount. 6.3 Payment by the Banks (a) If the Issuing Bank has not received the Claimed Amount from the Company by 9.30 a.m. on the Business Day preceding the Payment Date, it shall notify the Agent by not later than 10.30 a.m. on that day. (b) The Agent shall, if notified under paragraph (a) above, notify each Bank not later than 12.00 noon on the same day. (c) Each Bank shall, if notified under paragraph (b) above, pay to the Issuing Bank, not later than 12.00 noon on the Payment Date, that Bank's Relevant Percentage of the unpaid amount of the Claimed Amount. 6.4 Default by Banks (a) If any Bank (a "Defaulting Bank") fails to make any payment due from it for the account of the Issuing Bank under Clause 6.3 (Payment by the Banks), then until the Issuing Bank has been reimbursed in respect thereof in full (but without prejudice to the obligations of that Defaulting Bank to make such payment): (i) the Defaulting Bank shall hold on trust for the Issuing Bank the benefit of any security now or hereafter created to secure the obligations of the Borrowers under this Agreement and to which that Defaulting Bank would have been entitled had it made such payment; and (ii) for the purposes of determining the constitution of the Majority Banks: (A) the Issuing Bank shall be treated as having a Facility A Commitment equal to that of the Defaulting Bank (in addition to the Facility A Commitment (if any) which the Issuing Bank already had in its capacity as a Bank); and (B) that Defaulting Bank shall be treated, for such purpose only, as having no Facility A Commitment. (b) The rights conferred upon the Issuing Bank in this Clause 6.4 are in addition to any other rights which it may have against a Defaulting Bank. 6.5 Indemnity by the Banks Without limiting the liability of the Company under this Agreement, each Bank shall forthwith on demand indemnify the Issuing Bank for its Relevant Percentage of any liability or loss incurred by the Issuing Bank in any way relating to or arising out of its acting as the Issuing Bank, except to the extent that the liability or loss arises directly from the Issuing Bank's gross negligence or wilful misconduct. 7. COUNTER-INDEMNITY 7.1 Indemnity from the Company (a) The Company agrees to pay to the Agent for the account of each Bank on demand from the Agent an amount equal to and in the same currency as each amount demanded in accordance with paragraph (b) below of, or paid out by, the Bank under Clause 6.3 (Payment by the Banks) in respect of the Guarantee and undertakes to indemnify and hold harmless each Finance Party from and against all liabilities, costs, losses, damages and expenses (other than those of the type dealt with by Clauses 13.1 (Gross- up) and 15.1 (Increased costs)) which any Finance Party may incur or sustain by reason of or arising in any way whatsoever in connection with or by reference to the issue of the Guarantee or its performance of the obligations expressed to be assumed by it under the Guarantee save to the extent that any such liability, cost, loss, damage or expense: (i) is caused by the wilful misconduct, default or gross negligence of the Finance Party concerned; or (ii) represents a day to day cost of the Finance Party incurred by it in the ordinary course of its business in connection with or by reference to the issue of the Guarantee or the performance of the obligations expressed to be assumed by it under or related to the Guarantee. (b) The Company and each Bank unconditionally and irrevocably: (i) authorises and directs the Issuing Bank to pay any prima facie valid demand under and in accordance with the Guarantee issued for its account without requiring proof of the agreement of the Company or any Bank that the amounts so demanded or paid are or were due and notwithstanding that the Company may dispute the validity of any such request, demand or payment; (ii) confirm that the Issuing Bank deals in documents only and shall not be concerned with the legality of the claim or any other underlying transaction or any set off, counterclaim or defence as between the Company and any Beneficiary of the Guarantee; and (iii) agree that the Issuing Bank need not have regard to the sufficiency, accuracy or genuineness of any such demand or any certificate or statement in connection therewith or any incapacity of or limitation upon the powers of any person signing or issuing such demand, certificate or statement which appears on its face to be in order and agree that the Issuing Bank shall not be obliged to enquire as to any such matters and may assume that any such demand, certificate or statement which appears on its face to be in order is correct and properly made. 7.2 Waiver of defences The Company agrees that its obligations under this Clause 7 shall not be affected by any act, omission, matter or thing which but for this provision might operate to release or otherwise exonerate the Company from its obligations under this Clause 7 in whole or in part, including without limitation and whether or not known to the Company:- (a) any time or waiver granted by or composition with any Finance Party, a Beneficiary or any other person; (b) any taking, variation, compromise, renewal or release of, or refusal or neglect to perfect or enforce, any rights, remedies or securities available to any Finance Party or any other person arising under the Finance Documents; or (c) any variation or replacement of any Finance Document or any other document so that references to that Finance Document or other document shall include each such variation or replacement. 7.3 Continuing indemnity (a) The obligations of the Company under this Clause 7 shall be continuing obligations, shall extend to the ultimate balance of all amounts expressed to be payable by each Borrower under the Finance Documents and shall continue in force notwithstanding any intermediate payment in whole or in part of amounts payable under this Clause 7. (b) A certificate in writing signed by one of the Agent's officers and certifying the total amount due from the Company shall be prima facie evidence of the matters so certified. 7.4 Rights of subrogation Until all amounts which are or may become payable by the Borrowers under the Finance Documents have been irrevocably paid in full, the Company shall not, by virtue of any payment made by it under or in connection with or referable to this Clause 7 or otherwise, be subrogated to any rights, security or moneys held or received by any Finance Party or be entitled at any time to exercise, claim or have the benefit of any right of contribution or subrogation or similar right against any Finance Party. 7.5 Additional Security The obligations of the Company under this Clause 7 shall be in addition to and shall not be in any way prejudiced by any collateral or other security now or hereafter held by any Finance Party as security or any lien to which that Finance Party may be entitled. 7.6 Preservation of Rights No invalidity or unenforceability of all or any part of this Clause 7 shall affect any rights of indemnity or otherwise which any Finance Party would or may have in the absence of or in addition to this Clause 7. 8. REPAYMENT (a) Subject to paragraph (b) below, each Borrower shall repay each Loan made to it in full on its Repayment Date to the Agent for the Banks. (b) (i) The Company shall, subject to sub-paragraph (ii) below, repay each Facility B Loan on the Facility B Final Repayment Date. (ii) If, on the first anniversary of the date of this Agreement: (1) any amount is owing to the Banks under or in respect of any Facility B Loan; and (2) the Company has not procured an effective guarantee of such amount on terms and from an entity acceptable to all the Banks in their sole discretion; then Facility B Loans shall be repaid by the Company on each date set out below in an amount equal to the relevant percentage set opposite that date of the then outstanding Facility B Loans: Date Repayment Instalment 1st anniversary of the 20 per cent. of the date Facility B Loans then of this Agreement outstanding 15 months after the date 25 per cent. of the of this Agreement Facility B Loans then outstanding 18 months after the date 33 1/3 per cent. of the of this Agreement Facility B Loans then outstanding 21 months after the date 50 per cent. of the of this Agreement Facility B Loans then outstanding 2nd anniversary of the date 100 per cent. of the of this Agreement Facility B Loans then outstanding. (c) Subject to the terms of this Agreement, amounts repaid under Facility A or Facility C may subsequently be re- borrowed. 9. PREPAYMENT AND CANCELLATION 9.1 Automatic cancellation of the Total Commitments (a) The Facility A Commitment of each Bank shall be automatically cancelled at close of business on the Facility A Final Repayment Date. (b) The Facility B Commitment of each Bank shall be automatically cancelled at close of business on the Facility B Term Date. (c) The Facility C Commitment of each Bank shall be automatically cancelled at close of business on the Facility C Final Repayment Date. 9.2 Voluntary cancellation (a) The Company may, by giving not less than 2 Business Days' prior notice to the Agent, cancel the unutilised portion of the Total Facility A Commitments or the Total Facility B Commitments in whole or in part (but, if in part, in a minimum amount of 10,000,000 pounds and an integral multiple of 5,000,000 pounds). Any cancellation in part shall be applied against the relevant Commitment of each Bank pro rata. (b) The Target may, by giving not less than 2 Business Days' prior notice to the Agent, cancel the unutilised portion of the Total Facility C Commitments in whole or in part (but, if in part, in a minimum amount of 10,000,000 pounds and an integral multiple of 5,000,000pounds). Any cancellation in part shall be applied against the Facility C Commitment of each Bank pro rata. 9.3 Voluntary prepayment A Borrower may at any time, by giving not less than 5 Business Days' prior notice to the Agent, prepay a Loan in whole or in part (but, if in part, in minimum amounts of 10,000,000 pounds), subject to Clause 25 (Indemnities). 9.4 Additional right of prepayment and cancellation If any Borrower is required to pay any amount to a Bank under Clause 13 (Taxes) or Clause 15 (Increased Costs), the Borrower may, whilst the circumstances giving rise to the requirement continue, serve a notice of prepayment and cancellation on that Bank through the Agent. In this event:- (a) on the date falling 5 Business Days after the date of service of the notice: (i) each Borrower shall prepay that Bank's participation in any Loans made to it together with all other amounts payable by it to that Bank under this Agreement; and (ii) the Company shall pay cash cover into a Security Account in an amount equal to that Bank's Relevant Percentage of the maximum aggregate actual and contingent liability of the Banks under the Guarantee; and (b) the Bank's Commitments shall be cancelled on the date of service of the notice. 9.5 Mitigation If circumstances arise which would, or would on the giving of notice, result in: (a) any additional amounts becoming payable under Clause 13.1 (Gross-up); or (b) any amount becoming payable under Clause 15.1 (Increased costs); or (c) any prepayment or cancellation under Clause 16 (Illegality), then, without limiting the obligations of the Borrowers under this Agreement and without prejudice to the terms of Clauses 13.1 (Gross-up), 15.1 (Increased costs) and 16 (Illegality), each Bank shall, in consultation with the Company, take such reasonable steps as may be open to it to mitigate or remove the relevant circumstance, including (without limitation) the transfer with the Company's consent as specified in Clause 28.2 (Transfers by Banks) of its rights and obligations under this Agreement to another bank or financial institution, unless to do so might (in the opinion of the Bank) have a material adverse effect on its business, operations or financial condition or be contrary to its banking policies or be otherwise prejudicial to it. 9.6 Mandatory prepayment/cancellation (a) (i) At any time when the Capitalisation Ratio is stated (in a compliance certificate provided at the end of each quarterly Accounting Period under Clause 19.2(c)(ii) (Financial information)) to exceed 65 per cent., the Company shall provide a calculation of Available Surplus Cashflow, Surplus Cashflow and Cashflow in that compliance certificate. (ii) At the same time as the Company delivers to the Agent the compliance certificate referred to in paragraph (a) above, it shall pay an amount equal to: (1) if, at that time, the Capitalisation Ratio exceeds 70 per cent., 100 per cent. of the Available Surplus Cashflow (or such lesser amount as will, when applied by the Agent under paragraph (c) below, reduce the Capitalisation Ratio to 70 per cent.); and (2) if, at that time, the Capitalisation Ratio exceeds 65 per cent. but is equal to or lower than 70 per cent., 50 per cent. of the Available Surplus Cashflow at that time (or such lesser amount as will, when applied by the Agent under paragraph (c) below, reduce the Capitalisation Ratio to 65 per cent.), to the Agent to be placed in a Security Account. (b) The Company shall, immediately upon receipt, pay an amount equal to the net proceeds of any Subsequent Capital Injection into a Security Account. (c) (i) Subject to sub-paragraph (ii) below, the Agent shall, on the last day of each Interest Period for a Facility B Loan, apply the amount standing to the credit of a Security Account and referred to in paragraphs (a) and (b) above, together with any interest accrued on that amount, in or towards prepayment of the Facility B Loans. (ii) The Company may require the Agent to apply the net proceeds of a Subsequent Capital Injection at any time prior to the date the Agent is required to do so under sub-paragraph (i) above by giving 5 Business Days' notice to the Agent. (d) Any amount in a Security Account in excess of the Facility B Loans outstanding on the date of application by the Agent under paragraph (c) above shall be applied as follows: (i) if applicable, an amount equal to the Minimum Subsequent Capital Injection less the amount applied in prepayment of the Facility B Loans will (notwithstanding any other term of this Agreement) be treated as Cashflow and, to the extent required under paragraph (a) above, be applied in prepayment of the Facility A Loans in accordance with this Clause; and (ii) if the net proceeds of any Subsequent Capital Injection received by the Company exceed the Minimum Subsequent Capital Injection, the amount of any excess may, unless a Default is outstanding, be distributed by the Company to the Parent. The Total Facility B Commitments and the Total Facility A Commitments shall be cancelled by the amount of any prepayment of Facility B Loans or Facility A Loans, as the case may be, on the date of the prepayment. (e) If a MMC Referral occurs, then the unutilised portion of the Total Commitments shall be automatically cancelled on the following Business Day as though this was a voluntary cancellation under Clause 9.2 (Voluntary cancellation). The Company shall notify the Agent forthwith upon becoming aware of a MMC Referral. 9.7 Mandatory reduction of Commitments On the Reduction Date, the Total Facility A Commitments and the Total Facility C Commitments shall be reduced by the amount (if any) required to ensure that the Capitalisation Ratio on that date does not exceed 65 per cent. 9.8 Miscellaneous provisions (a) Any notice of prepayment and/or cancellation under this Agreement is irrevocable. The Agent shall notify the Banks promptly of receipt of any such notice. (b) All prepayments under this Agreement shall be made together with accrued interest on the amount prepaid. (c) No prepayment or cancellation is permitted except in accordance with the express terms of this Agreement. (d) (i) Subject to the terms of this Agreement, amounts prepaid under Facility A and Facility C pursuant to Clause 9.3 (Voluntary prepayment) may subsequently be re-borrowed. (ii) No other amount prepaid may subsequently be re- borrowed. (iii) No amount of the Total Commitments cancelled under this Agreement may subsequently be reinstated. 10. INTEREST PERIODS 10.1 Interest Periods (a) Each Facility B Loan will have successive Interest Periods. The first Interest Period will commence on the Drawdown Date for that Facility B Loan and subsequent Interest Periods will commence on expiry of its preceding Interest Period. (b) Each Facility A Loan and each Facility C Loan will have one Interest Period only. (c) Interest Periods may, subject to the other provisions of this Clause 10, be for an approved duration or an optional duration and:- (i) "approved duration" means a period of 1, 3 or 6 months; and (ii) "optional duration" means any other period (other than an approved duration) of up to 12 months. 10.2 Selection of Interest Periods (a) The Company may select an Interest Period for a Facility B Loan in its Request (in the case of the first Interest Period) or in a notice received by the Agent not later than 9.00 a.m. on the Business Day before the commencement of that Interest Period (in the case of subsequent Interest Periods). (b) If a Borrower fails to select a subsequent Interest Period for a Facility B Loan in accordance with the notice specified in paragraph (a) above, the Interest Period will, subject to the other provisions of this Clause 10, be 3 months. (c) The relevant Borrower may select an Interest Period for each Facility A Loan or Facility C Loan, as the case may be, in its Request. 10.3 Selection of an optional duration (a) If a Borrower selects an Interest Period of an optional duration, it may also select in the relevant Request or notice an Interest Period of an approved duration to apply if the selection of an Interest Period of an optional duration becomes ineffective in accordance with paragraph (b) below. (b) If:- (i) a Borrower requests an Interest Period of an optional duration; and (ii) the Agent receives notice from a Bank not later than 3.00 p.m. on the Business Day before the beginning of that Interest Period that it does not agree to the request, the Interest Period for the proposed Loan shall be the alternative period of an approved duration specified in the relevant Request or notice or, in the absence of any alternative selection, 3 months. (c) If the Agent receives a notice from a Bank under paragraph (b) above, it shall notify the relevant Borrower and the Banks promptly of the new Interest Period for the proposed Loan. 10.4 Repayment Dates and the Reduction Date (a) If an Interest Period for a Facility B Loan would otherwise overrun the Facility B Final Repayment Date, that Interest Period shall be shortened so that it ends on the Facility B Final Repayment Date. If Clause 8(b)(ii) (Repayment) is applicable, the Agent may also shorten any Interest Period for a Facility B Loan (and may redesignate any Facility B Loan as two Facility B Loans) to ensure that the aggregate principal amount of Facility B Loans with an Interest Period ending on a Facility B Repayment Date is not less than the Facility B Repayment Instalment due on that Facility B Repayment Date. (b) If an Interest Period for a Facility A Loan or a Facility C Loan would otherwise overrun the Reduction Date or (as appropriate) the Facility A Final Repayment Date or the Facility C Final Repayment Date, it shall be shortened so that it ends on the Reduction Date or the relevant Repayment Date, as the case may be. 10.5 Consolidation Notwithstanding Clause 10.2 (Selection of Interest Periods), the first Interest Period of each Facility B Loan shall end on the same day as the then current Interest Period for any other Facility B Loan. On the last day of those Interest Periods, those Facility B Loans shall be consolidated and treated as one Facility B Loan. 10.6 Splitting (a) The Company may give notice to the Agent by not later than 9.00 am on the Business Day before the commencement of an Interest Period for a Facility B Loan that it wishes that Facility B Loan to be split into two or more Facility B Loans, each such part being a minimum of 10,000,000 pounds. (b) Each such part of a Facility B Loan will be treated as a separate Facility B Loan. (c) The Company may not split any Facility B Loan if, as a result, there would then be more than 15 Utilisations outstanding at that time. 10.7 Other adjustments The Agent and the Company may enter into such other arrangements as they may agree for the adjustment of Interest Periods and the consolidation and/or splitting of Facility B Loans. 10.8 Notification The Agent shall notify the relevant Borrower and the Banks of the duration of each Interest Period promptly after ascertaining its duration. 11. INTEREST 11.1 Interest rate (a) The rate of interest on each Loan for each of its Interest Periods is the rate per annum determined by the Agent to be the aggregate of the applicable:- (i) Margin; (ii) LIBOR; and (iii) MLA Cost. (b) If, in respect of any Accounting Period, the Company does not comply with its obligations under Clause 19.2 (a)(i), (b)(i) or (c) (Financial information), the applicable Margin in respect of each Loan from the date of the Company's non-compliance until the date on which that non- compliance is remedied, shall be adjusted so that: (i) prior to the date on which the Facility B Loans are repaid or prepaid in full, the applicable Margin for each Loan shall be 1.50 per cent. per annum (adjusted, if necessary, to take into account the application of paragraph (d) of the definition of "Margin" in Clause 1.1 (Definitions)) or (if the non- compliance occurs prior to the date falling six months after the date of this Agreement) 1.25 per cent. per annum; and (ii) subsequently, the Margin applicable to each Facility A Loan or Facility C Loan shall be the next Increment up from the applicable Margin for that Loan in the previous quarterly Accounting Period. (c) For the purposes of paragraph (b) above, an "Increment" is the difference between each level of the Margin in sub- paragraphs (i) to (vii) of paragraph (a) of the definition of "Margin" in Clause 1.1 (Definitions). 11.2 Due dates Except as otherwise provided in this Agreement, accrued interest on each Loan is payable by the relevant Borrower on the last day of each Interest Period and also, in the case of a Loan with an Interest Period longer than six months, on the date falling six months after the commencement of the Interest Period. 11.3 Default interest (a) (i) If a Borrower fails to pay any amount payable by it under the Finance Documents, it shall forthwith on demand by the Agent pay interest on the overdue amount from the due date up to the date of actual payment, as well after as before judgement, at a rate (the "default rate") determined by the Agent to be 1 per cent per annum (or, at any time prior to the date on which the Facility B Loans are repaid or prepaid in full, 2 per cent. per annum) above, subject to sub-paragraph (ii) below, the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted a Sterling Loan for such successive Interest Periods of such duration as the Agent may reasonably determine having regard to the likely duration of the default (each a "Designated Interest Period"). (ii) If the overdue amount is a principal amount of a Loan and it becomes due and payable prior to the last day of an Interest Period for that Loan, then:- (1) the first Designated Interest Period for that overdue sum will be the unexpired portion of that Interest Period; and (2) the rate of interest on the overdue amount for that first Designated Interest Period will be 1 per cent per annum or (at any time prior to the date on which the Facility B Loans are repaid or prepaid in full) 2 per cent. per annum above the rate on the overdue amount under Clause 11.1 (Interest rate) immediately before the due date. After the expiry of the first Designated Interest Period for that overdue amount, the rate on the overdue amount will be calculated in accordance with sub-paragraph (i) above. (b) The default rate will be determined on each Business Day or the first day of the relevant Designated Interest Period, as appropriate. (c) If the Agent determines that Sterling deposits are not at the relevant time being made available by the Reference Banks to leading banks in the London interbank market, the default rate will be determined by reference to the cost of funds to the Banks from whatever sources Banks may reasonably select, having due regard to the likely duration of the default. (d) Default interest will be compounded at the end of each Designated Interest Period. 11.4 Notification of rates of interest The Agent shall promptly notify each relevant Party of the determination of a rate of interest under this Agreement. 12. PAYMENTS 12.1 Place All payments by a Borrower or a Bank under the Finance Documents shall be made to the Agent to its account at such office or bank in the U.K. as it may notify to that Borrower or Bank for this purpose. 12.2 Currency and Funds Payments under the Finance Documents to the Agent shall be made in Sterling for value on the due date at such times as the Agent may specify to the Party concerned as being customary at the time for the settlement of transactions in Sterling. 12.3 Distribution (a) Each payment received by the Agent under this Agreement for another Party shall, subject to the paragraphs below, be made available by the Agent to that Party by payment to its account with such bank in the U.K. as it may notify to the Agent for this purpose by not less than 5 Business Days' prior notice. (b) Where the Repayment Date for an outstanding Facility A Loan or Facility C Loan coincides with the Drawdown Date for a new Facility A Loan or Facility C Loan, as the case may be, the Agent shall apply the relevant new Loan in or towards repayment of the relevant outstanding Loan so that:- (i) where the amount of the outstanding Loan exceeds the amount of the new Loan, the relevant Borrower shall only be required to repay the excess; and (ii) where the amount of the outstanding Loan is exactly the same as the amount of the new Loan, the relevant Borrower shall not be required to make any payment. (c) The Agent may apply any amount received by it for a Borrower in or towards payment (on the date and in the currency and funds of receipt) of any amount due from a Borrower under this Agreement or in or towards the purchase of any amount of any currency to be so applied. (d) Where a sum is to be paid under this Agreement to the Agent for the account of another Party, the Agent is not obliged to pay that sum to that Party until it has established that it has actually received that sum. The Agent may, however, assume that the sum has been paid to it in accordance with this Agreement and, in reliance on that assumption, make available to that Party a corresponding amount. If the sum has not been made available but the Agent has paid a corresponding amount to another Party, that Party shall forthwith on demand refund the corresponding amount to the Agent together with interest on that amount from the date of payment to the date of receipt, calculated at a rate determined by the Agent to reflect its cost of funds. 12.4 Set-off and counterclaim All payments made by a Borrower under the Finance Documents shall be made without set-off or counterclaim. 12.5 Non-Business Days (a) If a payment under the Finance Documents is due on a day which is not a Business Day, the due date for that payment shall instead be the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not). (b) During any extension of the due date for payment of any principal under this Agreement interest is payable on the principal at the rate payable on the original due date. 12.6 Partial payments (a) If the Agent receives a payment insufficient to discharge all the amounts then due and payable by the Borrowers under the Finance Documents, the Agent shall apply that payment towards the obligations of the Borrowers under the Finance Documents in the following order:- (i) first, in or towards payment pro rata of any unpaid fees, costs and expenses of the Agent and the Issuing Bank under this Agreement; (ii) secondly, in or towards payment pro rata of any accrued fees due but unpaid under Clause 22.2 (Commitment fee); (iii) thirdly, in or towards payment pro rata of any accrued interest and guarantee fee due but unpaid under this Agreement; (iv) fourthly, in or towards payment pro rata of any principal due but unpaid under this Agreement and any amount payable under the Swap Documents; and (v) fifthly, in or towards payment pro rata of any other sum due but unpaid under this Agreement. (b) The Agent shall, if so directed by all the Banks, vary the order set out in sub-paragraphs (a)(ii) to (v) above. (c) Paragraphs (a) and (b) above shall override any appropriation made by a Borrower. 13. TAXES 13.1 Gross-up All payments by a Borrower under the Finance Documents shall be made without any deduction and free and clear of and without deduction for or on account of any taxes, except to the extent that the Borrower is required by law to make payment subject to any taxes. If any tax or amounts in respect of tax must be deducted, or any other deductions must be made, from any amounts payable or paid by a Borrower, or paid or payable by the Agent to a Bank, under the Finance Documents, the Borrower shall pay such additional amounts as may be necessary to ensure that the relevant Bank receives a net amount equal to the full amount which it would have received had payment not been made subject to tax or other deduction. 13.2 Tax receipts All taxes required by law to be deducted or withheld by a Borrower from any amounts paid or payable under the Finance Documents shall be paid by the relevant Borrower when due and the Borrower shall, within 15 days of the payment being made, deliver to the Agent for the relevant Bank evidence satisfactory to that Bank (including all relevant tax receipts) that the payment has been duly remitted to the appropriate authority. 13.3 Refund of Tax Credits If:- (a) a Borrower makes a payment under Clause 13.1 (Gross- up) (a "Tax Payment") in respect of a payment to a Bank under the Finance Documents; and (b) that Bank determines in good faith that it has obtained a refund of tax or obtained and used a credit against tax on its overall net income (a "Tax Credit") which that Bank is able to identify in good faith as attributable to that Tax Payment, then, if it determines, acting in good faith, that it can do so without any adverse consequences for the Bank, that Bank shall forthwith reimburse that Borrower, such amount as that Bank in its absolute discretion determines to be such proportion of that Tax Credit as will leave that Bank (after that reimbursement) in no better or worse position in respect of its worldwide tax liabilities than it would have been in if no Tax Payment had been required. A Bank shall have an absolute discretion as to whether to claim any Tax Credit (and, if it does claim, the extent, order and manner in which it does so) and whether any amount is due from it under this Clause 13.3) (and, if so, what amount and when). No Bank shall be obliged to disclose any information regarding its tax affairs and computations. 13.4 Qualifying Bank (a) Each Bank party to this Agreement on the date of this Agreement represents that it is a Qualifying Bank on the date of this Agreement. Any bank or financial institution which becomes a Bank after the date of this Agreement represents to the Company on the date it becomes a Party that, as at that date, it is a Qualifying Bank. (b) If, otherwise than as a result of the introduction of, change in, or any change in the interpretation, administration or application of, any law or regulation, any Double Taxation Treaty or any practice or concession of the United Kingdom Inland Revenue occurring after the date a Bank becomes a Party, the Bank is not or ceases to be a Qualifying Bank, the Company will not be liable to pay to that Bank under Clause 13.1 (Gross-up) any amount in respect of taxes levied or imposed by the United Kingdom or any taxing authority of or in the United Kingdom in excess of the amount it would have been obliged to pay if that Bank had been or had not ceased to be a Qualifying Bank. (c) Any Bank which falls within paragraph (b) of the definition of Qualifying Bank shall deliver to the Company, on the date it becomes a Bank, a duly completed form from the tax authorities in the country in which it is booking its participation in a Loan such that the Company may apply to the Inland Revenue for a direction to the Company under the Double Taxation Relief (Taxes on Income) (General) Regulations 1970 that the Company should not, on account of the relevant Double Taxation Treaty, pay any interest due to the Bank under the Finance Documents under deduction of United Kingdom tax. The Bank concerned shall, upon the request of the Company, promptly and duly (if it is able to do so) execute and deliver any and all such further instruments and documents which are required for the purpose of obtaining such a direction. (d) Each Bank shall notify the Company through the Agent as soon as it is aware that it ceases to be a Qualifying Bank. 14. MARKET DISRUPTION (a) If a Reference Bank does not supply an offered rate by 11.30 a.m. on a Drawdown Date, the applicable LIBOR shall, subject to paragraph (b) below, be determined on the basis of the quotations of the remaining Reference Banks. (b) If, in relation to any proposed Loan:- (i) no, or only one, Reference Bank supplies a rate for the purposes of determining the applicable LIBOR or the Agent otherwise determines that adequate and fair means do not exist for ascertaining the applicable LIBOR; or (ii) the Agent receives notification from Banks whose participations in a Loan exceed 50 per cent. of that Loan that, in their opinion:- (A) matching deposits may not be available to them in the London interbank market in the ordinary course of business to fund their participations in that Loan for the relevant Interest Period; or (B) the cost to them of matching deposits in the London interbank market would be in excess of the relevant LIBOR, the Agent shall promptly notify the Company and the relevant Banks of the fact and that this Clause 14 is in operation. (c) After any notification under paragraph (b) above:- (i) (A) in the case of a Loan which has not been made, unless the relevant Borrower notifies the Agent to the contrary before close of business on the day it received the notification under paragraph (b) above, the Loan shall still be made but it shall have an Interest Period of one month and the interest payable on that Loan shall be determined in accordance with sub- paragraphs (ii) to (vi) below; and (B) in the case of a Facility B Loan after it has been borrowed, that Facility B Loan shall continue but it shall have an Interest Period of one month and the interest payable on that Loan shall be determined in accordance with sub- paragraphs (ii) to (vi) below; (ii) promptly after receipt of the notification, the relevant Borrower and the Agent shall enter into negotiations in good faith for a period of not more than one month with a view to agreeing a substitute basis for determining the rate of interest and/or funding applicable to the Loan affected by the notification; (iii) any substitute basis agreed under sub-paragraph (ii) above shall be, with the prior consent of all the Banks, binding on all the Parties; (iv) if no substitute basis is agreed under sub- paragraph (ii) above, each Bank (through the Agent) shall certify on or before the last day of the Interest Period to which the notification relates an alternative basis for maintaining its participation in that Loan; (v) any alternative basis referred to in sub-paragraph (iv) above may include an alternative method of fixing the interest rate, alternative Interest Periods or alternative currencies but it must reflect the cost to the Banks of funding their participations in that Loan from whatever sources each relevant Bank may reasonably select (each Bank's cost of funding being certified by that Bank with a copy to the Agent) plus the Margin and (if applicable) any MLA Cost; and (vi) each alternative basis so certified shall be binding on the Borrowers and the certifying Bank and treated as part of this Agreement. 15. INCREASED COSTS 15.1 Increased costs (a) Subject to Clause 15.2 (Exceptions), the Company shall forthwith on demand by a Finance Party pay that Finance Party the amount of any increased cost incurred by it as a result of: (i) the introduction of, or any change in, or any change in the interpretation or application of, any law or regulation after the date of this Agreement; or (ii) compliance with any regulation made after the date of this Agreement, including any law or regulation relating to taxation, change in currency of a country or reserve asset, special deposit, cash ratio, liquidity or capital adequacy requirements or any other form of banking or monetary control. (b) In this Agreement "increased cost" means:- (i) an additional cost incurred by a Finance Party or its Holding Company as a result of the Finance Party having entered into, or performing, maintaining or funding its obligations under, this Agreement; or (ii) that portion of an additional cost incurred by a Finance Party or its Holding Company in the Finance Party making, funding or maintaining all or any advances comprised in a class of advances formed by or including the participations in the Loans made or to be made under this Agreement as is attributable to the Finance Party making, funding or maintaining those participations; or (iii) a reduction in any amount payable to a Finance Party or its Holding Company or the effective return to a Finance Party under this Agreement or on its capital or that of its Holding Company; or (iv) the amount of any payment made by a Finance Party or its Holding Company, or the amount of interest or other return foregone by a Finance Party or its Holding Company, calculated by reference to any amount received or receivable by a Finance Party from any other Party under this Agreement. 15.2 Exceptions Clause 15.1 (Increased costs) does not apply to any increased cost:- (a) compensated for by the payment of the MLA Cost; (b) compensated for by the operation of Clause 13 (Taxes) or which would have been compensated for but for the operation of Clause 13.4(b) (Qualifying Bank); (c) attributable to any change in the rate of tax on the overall net income of a Bank or its Holding Company (or the overall net income of a division or branch of the Bank or its Holding Company) imposed in the jurisdiction in which its principal office or Facility Office is situate; (d) attributable to the relevant Bank (or its Holding Company) having entered into a commitment to lend to a third party which is, at the time of that commitment, in breach of the relevant law or regulation; or (e) incurred in consequence of the implementation, as contemplated at the date of this Agreement, of the matters set out in: (i) the report of the Basle Committee on Bank Regulation and Supervisory Practices dated July 1988 and entitled "International Convergence of Capital Measurement and Capital Standards" (including in particular but without limitation any directive of the Bank of England implementing that report in the United Kingdom); (ii) the Directive of the Council of the European Communities on a Solvency Ratio for Credit Institutions (89/647/EEC of 18 December 1989); and/or (iii) the Directive of the Council of the European Communities on Own Funds of Credit Institutions (89/299/EEC of 17 April 1989), unless it results from any change after the date of this Agreement in, or in the interpretation or application of, those matters as contemplated on the date of this Agreement. 16. ILLEGALITY If it is or becomes unlawful or contrary to any regulation in any jurisdiction for a Bank to give effect to any of its obligations as contemplated by this Agreement or to fund or maintain its participation in any Loan, then:- (a) the Bank shall promptly notify the Company through the Agent accordingly; and (b) (i) each Borrower shall, on the latest day permitted by the relevant law or regulation, prepay that Bank's participation in all Loans made to it together with all other amounts payable by it to that Bank under this Agreement; and (ii) the Bank's Commitments shall be cancelled; (iii) if the Bank is the Issuing Bank and the Guarantee has not yet been issued, the Guarantee shall not be issued; and (iv) if the Guarantee has been issued, demand that the Company shall, on the latest date permitted by the relevant law or regulation, provide cash cover to it in a Security Account in an amount equal to that Bank's Relevant Percentage of (or, if the Bank is the Issuing Bank, an amount equal to) the maximum aggregate actual and contingent liability of the Banks under the Guarantee. In this event, the Company shall use reasonable endeavours to procure the release of the Bank from its obligations under the Finance Documents and, to the extent that the Bank is released from its obligations under the Finance Documents, the Bank shall repay to the Company any amount provided to that Bank by way of cash cover together with interest on the amount which that Bank reasonably considers that it has earned on the amount during the period for which the cash cover was retained by it. 17. GUARANTEE 17.1 Guarantee The Company irrevocably and unconditionally:- (a) as principal obligor guarantees to each Finance Party prompt performance by the Target of all its obligations under the Finance Documents; (b) undertakes with each Finance Party that whenever the Target does not pay any amount when due under or in connection with any Finance Document, the Company shall within two Business days of demand by the Agent pay that amount as if the Company instead of the Target were expressed to be the principal obligor; and (c) indemnifies each Finance Party on demand against any loss or liability suffered by it if any obligation so guaranteed by the Company is or becomes unenforceable, invalid or illegal. 17.2 Continuing guarantee This guarantee is a continuing guarantee and will extend to the ultimate balance of all sums payable by the Target under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part. 17.3 Reinstatement (a) Where any discharge (whether in respect of the obligations of the Target or any security for those obligations or otherwise) is made in whole or in part or any arrangement is made on the faith of any payment, security or other disposition which is avoided or must be restored on insolvency, liquidation or otherwise without limitation, the liability of the Company under this Clause 17 (Guarantee) shall continue as if the discharge or arrangement had not occurred. (b) Each Finance Party may concede or compromise any claim that any payment, security or other disposition is liable to avoidance or restoration. 17.4 Waiver of defences The obligations of the Company under this Clause 17 (Guarantee) will not be affected by an act, omission, matter or thing which, but for this provision, would reduce, release or prejudice any of its obligations under this Clause 17 (Guarantee) or prejudice or diminish those obligations in whole or in part, including (whether or not known to it or any Finance Party):- (a) any time or waiver granted to, or composition with, the Target or other person; (b) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, the Target or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security; (c) any incapacity or lack of powers, authority or legal personality of or dissolution or change in the members or status of the Target or any other person; (d) any variation (however fundamental) or replacement of a Finance Document or any other document or security so that references to that Finance Document in this Clause 17 (Guarantee) shall include each variation or replacement; (e) any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security, to the intent that the obligations of the Company under this Clause 17 (Guarantee) shall remain in full force and its guarantee be construed accordingly, as if there were no unenforceability, illegality or invalidity; or (f) any postponement, discharge, reduction, non- provability or other similar circumstance affecting any obligation of the Target under a Finance Document resulting from any insolvency, liquidation or dissolution proceedings or from any law, regulation or order so that each such obligation shall for the purposes of the obligations of the Company under this Clause 17 (Guarantee) be construed as if there were no such circumstance. 17.5 Immediate recourse The Company waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from the Target before claiming from the Company under this Clause 17 (Guarantee). 17.6 Appropriations Until all amounts which may be or become payable by the Target under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may:- (a) refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and the Target shall not be entitled to the benefit of the same; and (b) hold in an interest bearing suspense account any moneys received from the Company or on account of the liability of the Company under this Clause 17 (Guarantee). 17.7 Non-competition Until all amounts which may be or become payable by the Target under or in connection with the Finance Documents have been irrevocably paid in full, the Company shall not after a claim has been made or by virtue of any payment or performance by it under this Clause 17 (Guarantee):- (a) be subrogated to any rights, security or moneys held, received or receivable by any Finance Party (or any trustee or agent on its behalf) or be entitled to any right of contribution or indemnity in respect of any payment made or moneys received on account of the Company's liability under this Clause 17 (Guarantee); (b) claim, rank, prove or vote as a creditor of the Target or its estate in competition with any Finance Party (or any trustee or agent on its behalf); or (c) receive, claim or have the benefit of any payment, distribution or security from or on account of the Target, or exercise any right of set-off as against the Target. The Company shall hold in trust for and forthwith pay or transfer to the Agent for the Finance Parties any payment or distribution or benefit of security received by it contrary to this Clause 17.7. 17.8 Additional security This guarantee is in addition to and is not in any way prejudiced by any other security now or subsequently held by any Finance Party. 18. REPRESENTATIONS AND WARRANTIES 18.1 Representations and warranties (a) The Company makes the representations and warranties set out in this Clause 18 (Representations and warranties) to each Finance Party. (b) The Target makes the representations and warranties expressed to be made by it in this Clause 18 (Representations and warranties) in respect of itself and its Subsidiaries only. 18.2 Status (a) It is a limited liability company, duly incorporated and validly existing under the Companies Act 1985; (b) it has the power to own its assets and carry on its business as it is being conducted; and (c) as at the date of this Agreement, the Parent is the beneficial owner of all the shares in the Company. 18.3 Powers and authority It has the power to enter into and perform, and has taken all necessary action to authorise the entry into, performance and delivery of, the Finance Documents to which it is or will be a party and the transactions contemplated by those Finance Documents. 18.4 Legal validity Each Finance Document to which it is or will be a party constitutes, or when executed in accordance with its terms will constitute, its legal, valid, binding and enforceable obligation. 18.5 Non-conflict The entry into and performance by it of, and the transactions contemplated by, the Finance Documents do not and will not:- (a) conflict with any law or regulation, judicial or official order or any Licence or Licence Undertaking; or (b) conflict with its constitutional documents; or (c) conflict with any document which is binding upon any member of the Group or any asset of any member of the Group (other than a financing agreement to which the Target or any Subsidiary of the Target is a party, the Borrowing in respect of which is refinanced prior to the Clean-Up Date) to an extent or in a manner which has a Material Adverse Effect. 18.6 No default (a) No Event of Default or (unless this representation is being repeated or deemed to be repeated on the date of a Request or a Drawdown Date in respect of a Rollover Loan) other Default is outstanding or will result from any Utilisation; and (b) with effect from the Clean-Up Date, no other event is outstanding which constitutes a default under any document which is binding on any member of the Group or any asset of any member of the Group to an extent or in a manner which has a Material Adverse Effect. 18.7 Authorisations Subject to due registration of the Debenture at Companies House under section 395 of the Companies Act 1985, all authorisations required by the laws of England or the terms of any Licence or Licence Undertaking in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, the Finance Documents have been obtained or effected (as appropriate) and are in full force and effect. 18.8 Accounts (a) In the case of the Company, the audited consolidated accounts of the Group most recently delivered to the Agent under this Agreement:- (i) have been prepared in accordance with Applicable Accounting Principles; and (ii) fairly represent the consolidated financial condition of the Group as at the date to which they were drawn up. (b) In the case of the Target, its audited consolidated accounts most recently delivered to the Agent:- (i) have been prepared in accordance with Applicable Accounting Principles; and (ii) fairly represent its consolidated financial condition as at the date to which they were drawn up. 18.9 Litigation No litigation, arbitration or administrative proceedings are current or, to its knowledge, pending or threatened: (a) to restrain the entry into, exercise of any of its rights, and/or performance or enforcement of or compliance with any of its obligations, under the Finance Documents; or (b) which have a Material Adverse Effect. 18.10 Information (a) All material written factual information supplied by it to the Finance Parties (including any such information contained in any package of information provided or to be provided by the Arrangers on behalf of the Company to potential sub-underwriters) in connection with the Finance Documents before, on or after the date of this Agreement is true, complete and accurate in all material respects as at its date; (b) that information did not omit as at its date any information which would make the information supplied misleading in any material respect; (c) any expressions of opinion or intention and any forecasts and projections (including, without limitation, in relation to the financial model referred to in paragraph 9 of Schedule 2 Part I) contained in that information were arrived at after careful consideration and were based on reasonable assumptions; (d) as at the date of this Agreement, nothing has occurred (which has not been disclosed to the Arrangers prior to the date of this Agreement) between the date the information was provided and the date of this Agreement which renders the information contained in it untrue or misleading in any material respect; and (e) the Press Release and the Offer Documents and any other public documents relating to the Offer furnished to the Agent contain all the material terms of the Offer and the Offer Documents reflect the terms of the Press Release in all material respects. 18.11 Information Memorandum (a) All material factual information contained in the Information Memorandum was true (or, in the case of information provided by any person other than the Company or its advisers, was true to the best of its knowledge and belief) in all material respects at the date (if any) ascribed to it in the Information Memorandum or (if none) at the date of the relevant component of the Information Memorandum; (b) any expressions of opinion or intention and any forecasts and projections contained in the Information Memorandum were arrived at after careful consideration and were based on reasonable assumptions; (c) as at the date of the Syndication Agreement, the Information Memorandum, taken as a whole, was not misleading in any material respect and did not omit to disclose any matter failure to disclose which would result in any material information contained in the Information Memorandum being misleading in any material respect in the context of the Finance Documents. 18.12 Environmental Matters With effect from the Clean-Up Date: (a) each member of the Group has obtained all material Environmental Licences required for the carrying on of its business as then conducted and is in compliance in all material respects with: (i) the terms and conditions of those Environmental Licences; and (ii) all other applicable Environmental Law, which, in each case, if not obtained or complied with, has a Material Adverse Effect and there are, to its knowledge, no circumstances which may materially prevent or interfere with such compliance in the future; (b) so far as the Company is aware (after due enquiry), no Dangerous Substance has been used, disposed of, generated, stored, transported, dumped, released, deposited, buried or emitted at, on from or under any site or premises (whether or not owned, leased, occupied or controlled by any member of the Group and including any offsite waste management or disposal location utilised by any member of the Group) in circumstances where this has a Material Adverse Effect; and (c) so far as the Company is aware (after due enquiry), there is no Environmental Claim (whether in respect of any site previously or currently owned or occupied by any member of the Group or otherwise) pending or threatened, and there are no past or present acts, omissions, events or circumstances that would be likely to form the basis of any Environmental Claim (whether in respect of any site previously or currently owned or occupied by any member of the Group or otherwise), against it which, in each case, is reasonably likely to be determined against it and which, if so determined, has a Material Adverse Effect. 18.13 Assets Each Borrower is the legal and/or beneficial owner of all its assets free from any Security Interests (other than any Security Interests permitted under Clause 19.9(b) (Negative pledge)). 18.14 No Commitment As at the first Utilisation Date, the Company does not have any material commitments or Financial Indebtedness other than those arising under the Finance Documents, the Offer, any Offer Costs or in respect of the Licence or any Licence Undertaking. 18.15 Licence With effect from the Clean-Up Date: (a) the Licence is in full force and effect; (b) there exist no material breaches of the terms of the Licence or Licence Undertakings; and (c) there are no circumstances in existence which would entitle the Director General or the Secretary of State to seek to revoke the Licence. 18.16 Times for making representations and warranties The representations and warranties set out in this Clause 18 (Representations and warranties):- (a) (i) in the case of the Company: (A) are made by the Company, unless it is expressly provided to the contrary, on the date of this Agreement; or (B) in the case of Clause 18.11 (Information Memorandum), is deemed to be made by the Company on the date of the Syndication Agreement (but only if this date is no longer than 6 months after the Unconditional Acceptances Date); and (ii) in the case of the Target, will be deemed to be made by it on the date it executes a Borrower Accession Agreement; and (b) (with the exception of Clauses 18.2(c) (Status) and 18.11 (Information Memorandum)) are deemed to be made by each Borrower on the date of each Request and each Drawdown Date with reference to the facts and circumstances then existing, except that, during the Certain Funds Period for an Offer Utilisation, only the representations and warranties of the Company in Clauses 18.2(a) (Status), 18.3 (Powers and authority), 18.4 (Legal validity) and 18.5 (Non- conflict) will be deemed to be made by the Company on the date of each Request and each Utilisation Date for an Offer Utilisation with reference to the facts and circumstances then existing. 18.17 Qualifications to representations The representations and warranties contained in Clauses 18.4 (Legal validity) and 18.7 (Authorisations) shall (where applicable) be subject, as to matters of law only, to the qualifications in the legal opinions referred to in paragraph 10 of Schedule 2 Part I and paragraph 9 of Schedule 2 Part II. 19. UNDERTAKINGS 19.1 Duration The undertakings in this Clause 19 (Undertakings) remain in force from the date of this Agreement for so long as any amount is or may be outstanding under this Agreement or any Commitment is in force. 19.2 Financial information The Company shall supply to the Agent in sufficient copies for all the Banks:- (a) as soon as the same are available (and in any event within 120 days of the end of each of its financial years):- (i) the audited consolidated accounts of the Group for that financial year; and (ii) the audited consolidated accounts of the Target and its Subsidiaries for that financial year; (b) as soon as the same are available (and in any event within 60 days of the end of the first half-year of each of its financial years and within 45 days of the end of each quarter of each of its financial years):- (i) the unaudited consolidated accounts of the Group for that half-year or that quarter, as the case may be; and (ii) the unaudited consolidated accounts of the Target and its Subsidiaries for that half-year or that quarter, as the case may be; and (c) (i) together with the accounts specified in paragraph (a)(i) above, a certificate signed by its auditors setting out in reasonable detail computations establishing compliance or non-compliance with Clause 19.28 (Financial covenants) as at the date to which those accounts were drawn-up; (ii) together with the accounts specified in paragraph (b)(i) above, a certificate signed by two of its senior authorised officers on its behalf setting out in reasonable detail computations establishing compliance or non- compliance with Clause 19.28 (Financial covenants) as at the date to which those accounts were drawn-up; and (d) within 5 Business Days of them being delivered to the Director General under Condition 2 of Part II of the Licence, the accounting statements delivered to the Director General by the Target. 19.3 Information - miscellaneous Each Borrower shall supply to the Agent:- (a) all documents despatched by it (in the case of the Target) to its public shareholders (or any class of them) or (in the case of either Borrower) its creditors (or any class of them), other than any creditors in respect of Subordinated Debt, at the same time as they are despatched; (b) promptly upon becoming aware of them, details of any litigation, arbitration or administrative proceedings which are current, threatened or pending, and which: (i) if adversely determined, have a Material Adverse Effect; or (ii) would involve liability or potential liability of 10,000,000 pounds or more (or its equivalent in other currencies); or (iii) involves the Director-General, the Secretary of State, the Licence or any Licence Undertaking; (c) during the period from the date of issue and approval of the Information Memorandum by the Company to the earlier of: (i) the date six months after the Unconditional Acceptances Date; and (ii) the close of Syndication as determined and confirmed to the Company by the Agent, in reasonable detail notice of any matters of which it is aware (whether occurring prior to, on or after the date of approval and issue of the Information Memorandum) which cause the Information Memorandum when read without knowledge of such matters to be inaccurate or misleading in any material respect; (d) promptly upon becoming aware that any material modifications to the Licence are being proposed by the Director General or the Target and/or that any Licence Undertaking is being requested by the Director General or the Secretary of State, reasonable details of those modifications and/or that Licence Undertaking, to be updated from time to time to reflect any changes; (e) unless the Agent has already received them, copies of any Licence Undertakings in force at the date the Target becomes a Subsidiary of the Company and, thereafter, promptly after the giving of any Licence Undertaking; and (f) promptly, such further information in the possession or control of any member of the Group regarding its financial condition and operations as any Finance Party may reasonably request and which the Company is able to provide without breaching any legal obligation or regulation, in sufficient copies for all of the Banks, if the Agent so requests. 19.4 Notification of Default Each Borrower shall notify the Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence. 19.5 Compliance certificates/accounting matters (a) The Company shall supply to the Agent:- (i) together with the accounts specified in Clause 19.2(a)(i) and (b)(i) (Financial Information); and (ii) promptly at any other time, if the Agent so requests, a certificate signed by two of its senior officers on its behalf certifying that no Default is outstanding or, if a Default is outstanding, specifying the Default and the steps, if any, being taken to remedy it. (b) If, at any time after the date of this Agreement, any material change is made to the Applicable Accounting Principles, the Company shall notify the Agent of the change and, in the absence of any agreement between the Company and the Agent (acting on the instructions of the Majority Banks) to the contrary, the Company shall ensure that the Auditors provide a description of the change and the adjustments which would be required to be made to the latest accounts or financial statements so that those accounts or financial statements reflect the Applicable Accounting Principles, and any reference to any financial statements or accounts delivered under this Agreement shall be construed as a reference to those accounts or financial statements as adjusted to reflect the Applicable Accounting Principles. (c) The Company shall ensure that each set of accounts to be delivered by it under this Agreement are prepared and audited (in the case of its annual accounts) by the Auditors in accordance with the Applicable Accounting Principles, subject to any variations which are not material or, if material, have been agreed in writing by the Majority Banks. 19.6 Authorisations Each Borrower shall promptly:- (a) obtain, maintain and comply with the terms of; and (b) supply certified copies to the Agent of, any authorisation required under any law or regulation to enable it to perform its obligations under, or for the validity or enforceability of, any Finance Document. 19.7 Environmental matters The Company shall, and shall (after the Clean-Up Date) procure that each member of the Group will: (a) obtain all requisite Environmental Licences and comply in all material respects with: (i) the terms and conditions of all Environmental Licences applicable to it; and (ii) all other applicable Environmental Laws, in each case where failure to do so has a Material Adverse Effect; and (b) promptly upon receipt of the same, notify the Agent of any claim, notice or other communication served on it in respect of any alleged breach of or corrective or remedial obligation or liability under any Environmental Law which would, if substantiated, have a Material Adverse Effect. 19.8 Pari passu ranking Each Borrower shall procure that its payment obligations under the Finance Documents do and will rank at least pari passu with all its other present and future unsecured payment obligations, except for obligations which are mandatorily preferred by law applying to companies generally. 19.9 Negative pledge (a) No Borrower shall, and the Company shall procure that no other member of the Group will, create or permit to subsist any Security Interest on any of its assets. (b) Paragraph (a) does not apply to: (i) any lien or right of set-off arising by operation of law (or by an agreement having similar effect) in the ordinary course of business; or (ii) pledges of goods, the related documents of title and/or other related documents arising or created in the ordinary course of its business as security only for Financial Indebtedness to a bank or financial institution directly relating to the goods or documents on or over which that pledge exists; or (iii) any Security Interest arising out of title retention or conditional sale provisions in a supplier's standard conditions of supply of goods acquired by any member of the Group in the ordinary course of its business; (iv) any Security Interest created under the Pooling and Settlement Agreement; (v) any Security Interest existing on an asset at the time of the acquisition of the asset by any member of the Group after the date of this Agreement, but only if: (A) the Security Interest was not created in contemplation of the acquisition; (B) the principal amount secured by the Security Interest is not increased after the acquisition; and (C) the Security Interest is discharged within 180 days of the acquisition; or (vi) any Security Interest existing on the assets of a company at the time it becomes a member of the Group after the date of this Agreement, but only if: (A) the Security Interest was not created in contemplation of the relevant company becoming a member of the Group; (B) the principal amount secured by the Security Interest is not increased after the relevant company becomes a member of the Group; and (C) the Security Interest is discharged within 180 days of the relevant company becoming a member of the Group; or (vii) any Security Interest which:- (A) constitutes a contractual right of any bank or financial institution to apply any credit balance maintained by any member of the Group with that bank or financial institution against any amount due and payable to such bank or financial institution by that or any other member of the Group; and (B) arises in connection with the relevant Group member's ordinary banking arrangements (including a cash management scheme); or (viii) any Security Interest created with the approval of the Majority Banks; or (ix) any Security Interest created by a Project Finance Subsidiary, or over the shares of a Project Finance Subsidiary, securing Project Finance Indebtedness; or (x) any other Security Interest not falling within any of paragraphs (i) to (ix) above so long as the aggregate principal amount of outstanding indebtedness secured by all the Security Interests permitted under this sub-paragraph (x) at any time, together with the aggregate principal amount of all outstanding indebtedness permitted under Clause 19.10(b) (Transactions similar to security) at that time, does not exceed (prior to the date on which the Facility B Loans are repaid or prepaid in full) 25,000,000 pounds or (subsequently) 50,000,000 pounds (or, in each case, its equivalent in other currencies). 19.10 Transactions similar to security (a) Subject to paragraph (b) below, no Borrower shall, and the Company shall procure that no other member of the Group will:- (i) sell, transfer or otherwise dispose of any of its assets on terms whereby it is or may be leased to or re-acquired or acquired by a member of the Group or any of its related entities; or (ii) sell, transfer or otherwise dispose of any of its receivables on recourse terms, except for the discounting of bills or notes in the ordinary course of trading, in circumstances where the transaction is entered into primarily as a method of raising finance or of financing the acquisition of an asset. (b) Any member of the Group may enter into transactions otherwise prohibited by sub-paragraph (a)(i) above so long as the aggregate principal amount of outstanding indebtedness of the Group in respect of all such transactions at any time, together with the aggregate principal amount of all outstanding secured indebtedness permitted under Clause 19.9(b)(x) (Negative pledge) at that time, does not exceed (prior to the date on which the Facility B Loans are repaid or prepaid in full) 25,000,000 pounds or (subsequently) 50,000,000 pounds (or, in each case, its equivalent in other currencies). 19.11 Disposals (a) The Company shall not sell, transfer or otherwise dispose of or cease to exercise control over any of the Shares in the Target acquired by it. (b) No Borrower shall, and the Company shall procure that no other member of the Group will, either in a single transaction or in a series of transactions, whether related or not and whether voluntarily or involuntarily, sell, transfer, grant or lease or otherwise dispose of all or any part of its assets (all such transactions being "disposals" for the purpose of this Clause). (c) Paragraph (b) does not apply to the following disposals (if made on arm's length terms):- (i) disposals made in the ordinary course of business of the disposing entity; or (ii) disposals of assets in exchange for other assets comparable or superior as to type, value and quality; or (iii) disposals of obsolete or surplus assets no longer required for the purpose of the relevant person's business; or (iv) the payment of cash as consideration for the acquisition of any asset or services; or (v) disposals by one member of the Group to another member of the Group (other than a Project Finance Subsidiary), but only if, in the case of a Subsidiary of the Company to whom the assets are transferred, the Company owns directly or indirectly at least a corresponding percentage of the ownership interest in the transferee Subsidiary as in the transferor Subsidiary; or (vi) other disposals of assets which are integral to the distribution and supply of electricity activities of the Group to the extent that the value of those assets disposed of during any financial year of the Company is less than 20,000,000 pounds (as determined by reference to the audited consolidated balance sheet of the Company as at the end of the relevant financial year or, in the case of any such asset which was not taken into account for the purposes of that balance sheet, its book value at the date of disposal); or (vii) other disposals of assets not referred to in paragraph (vi) above to the extent that the value of those assets disposed of during any financial year of the Company is less than 50,000,000 pounds (as determined by reference to the audited consolidated balance sheet of the Company as at the end of the relevant financial year or, in the case of any such asset which was not taken into account for the purposes of that balance sheet, its book value at the date of disposal); or (viii) disposals of receivables on arm's length terms up to a maximum value: (1) of 20,000,000 pounds, at any time when the Capitalisation Ratio is in excess of 65 per cent.; or (2) of 50,000,000 pounds at any time when the Capitalisation Ratio is less than or equal to 65 per cent.; or (3) in excess of the relevant limit of 20,000,000 pounds or 50,000,000 pound, as appropriate, but only if the net proceeds of any such excess disposals are applied in accordance with this Agreement in or towards prepayment of the Facility B Loans, with any excess being applied first in or towards prepayment of the Facility A Loans pro rata and secondly in or towards prepayment of the Facility C Loans pro rata. The Total Facility A Commitments, the Total Facility B Commitments or the Total Facility C Commitments, as the case may be, shall be reduced by an amount equal to the relevant prepayment; or (ix) any other disposal approved by the Majority Banks. 19.12 Change of business The Company shall procure that no substantial change is made to the general nature or scope of the business of the Company or the Group from that carried on at the date of this Agreement or those which are usual for electricity companies in the United Kingdom as at the date of this Agreement, including, without limitation, electricity distribution, supply and generation, electrical contracting and business activities relating to the gas, telecommunication and water industries. 19.13 Holding Company The Company shall not carry on any business (other than the holding of shares in, the making of loans to and the provision of administrative services to members of the Group) or acquire any assets other than cash, cash equivalents or shares in (or loans to) members of the Group. 19.14 Mergers and acquisitions (a) No Borrower shall, and the Company shall procure that no other member of the Group will, enter into any amalgamation, demerger, merger or reconstruction, except for any amalgamation, merger or reconstruction between a member of the Group (other than a Borrower or the Licenceholder) and any other member of the Group (other than a Borrower or the Licenceholder). (b) No Borrower shall, and the Company shall procure that no other member of the Group will, acquire any assets or business or make any investment if the assets, business or investment is substantial in relation to the Group (other than the Acquisition), except for: (i) acquisitions or investments made in the ordinary course of business; (ii) acquisitions or investments which the Target or any of its Subsidiaries is legally obliged to make at the date the Target becomes a member of the Group; (iii) capital expenditure and any other expenditure, in either case required to be carried out under the Licence, any Licence Undertaking or any other applicable law or regulation; and (iv) other acquisitions or investments, the consideration for which does not exceed (on a cumulative basis) from the Unconditional Acceptances Date: (A) until the Facility B Loans are repaid or prepaid in full, 10,000,000 pounds (or its equivalent in other currencies); or (B) at any other time, 20 per cent. of the Adjusted Capital and Reserves at such time (or its equivalent in other currencies), but only if, in either case, no Default is then outstanding or will result from the acquisition or investment. 19.15 Distributions (a) The Company shall not declare, recommend, make or pay any dividend, distribution or payment (including by way of redemption, repurchase, defeasance, retirement, return or repayment) to any of its shareholders (other than any payment due to its shareholders for goods and/or services received or provided in the ordinary course of business) or make any payment (including by way of redemption, repurchase, defeasance, retirement, return or repayment and including the payment of interest) in respect of any Subordinated Debt, if: (i) after the relevant dividend, payment or distribution is made, the Company is not able to perform its obligations under Clause 9.6 (Mandatory prepayment/cancellation); or (ii) a Default is outstanding or will result from the relevant dividend, payment or distribution; or (iii) the Capitalisation Ratio exceeds, or will as a result of the relevant dividend, payment or distribution exceed, 70 per cent. (b) The Company shall procure that, with effect from the date on which the Target becomes a Subsidiary of the Company and on a quarterly basis, the Target either: (i) pays dividends to its shareholders; or (ii) provides funds by way of the making of a loan or the payment of interest on a loan or the repayment of a loan to the Company, in each case in the maximum amount available to the Target out of Surplus Cashflow. The Company's obligation under paragraph (b) above does not extend to procuring that the Target makes a payment or provides funds if it would be contrary to any law or regulation or would breach the Licence or any Licence Undertaking. Without limiting the above, if the Target could make a payment or provide funds by complying with Section 155 of the Companies Act 1985 and the Target is able to do so, then the Company shall procure that the Target takes the necessary steps under Section 155-158 of the Companies Act 1985 to enable the payment to be made or the relevant funds to be provided. 19.16 Lending and borrowing (a) The Company will procure that the aggregate Borrowings of the Target and its Subsidiaries taken together on a consolidated basis plus (to the extent not otherwise included in Borrowings of the Target and/or its Subsidiaries) the amount of any actual or contingent liabilities of the Target and/or its Subsidiaries: (i) for Borrowings at that time of any person in which the Target or any of its Subsidiaries has an ownership interest; or (ii) to provide funds by loan, subscription for share capital or otherwise to any person in which the Target or any of its Subsidiaries has an ownership interest, will not exceed the aggregate of: (A) the outstanding principal amount from time to time of the Facility C Loans; (B) the principal amount of all Borrowings of those companies outstanding at the Unconditional Acceptances Date save to the extent refinanced by a Utilisation of Facility C; (C) the outstanding principal amount from time to time of all Borrowings of those companies for which the only creditor is the Company; (D) any Borrowing of the Target and/or its Subsidiaries where there is recourse falling within paragraph (b)(iii) of the definition of "Project Finance Indebtedness" in Clause 1.1 (Definitions) outstanding from time to time; and (E) the amount which, when aggregated with the amounts referred to in sub-paragraphs (A), (B) and (D) above, equals 400,000,000 pounds. (b) No Borrower will, and each Borrower will procure that no member of the Group will, be the creditor in respect of any Borrowings, other than: (i) any Borrowing entered into with the prior consent of the Majority Banks; (ii) any Borrowing under paragraph (b) of the definition of "Borrowings" where trade credit is extended by any member of the Group on normal commercial terms and in the ordinary course of its business on substantially the same terms (or terms more favourable to it) and in similar circumstances as for trade credit extended prior to the date of this Agreement by the Target or its Subsidiaries; (iii) loans made by one member of the Group to another member of the Group; or (iv) Borrowings not otherwise permitted under to paragraphs (i) to (iii) above in an aggregate amount for the Group as a whole at any time outstanding not exceeding 10,000,000 pounds. (c) Without prejudice to paragraph (a) above and unless the Majority Banks otherwise consent (such consent not to be unreasonably withheld), the Company shall procure that the Target does not repay or redeem the Bonds otherwise than as may be required by the relevant bondholders in accordance with the terms of the Bonds. 19.17 Hedging (a) Subject to paragraph (b) below, no Borrower shall, and the Company shall ensure that none of its Subsidiaries will, enter into any interest rate swap, cap, ceiling, collar or floor or any currency swap, futures, foreign exchange or commodity contract or option (whether over the counter or exchange traded) or any similar treasury transaction, other than spot foreign exchange contracts entered into in the ordinary course of business, and transactions for the hedging of actual or projected interest rate, currency and/or commodity and/or energy price exposures arising in the ordinary course of the business activities of that member of the Group. (b) (i) It is the policy of the Company to ensure that the interest rate on at least 50 per cent. of the aggregate of the outstanding Facility A Loans and the Facility C Loans is either fixed or subject to a cap (the level of which must be acceptable to the Arrangers (acting reasonably)), based on current market rates at the time the relevant hedging arrangement is put in place and for an average period of not less than three years from the Unconditional Acceptances Date. (ii) The Company shall enter into such Swap Documents as are necessary to implement the above policy within three months of the Unconditional Acceptances Date. 19.18 Insurance The Company shall, and (after the Clean-Up Date) shall procure that each member of the Group will: (a) maintain with underwriters or insurance companies of repute the policies of insurance in relation to its business and assets which a prudent person carrying on a similar business might be expected to maintain (including policies to cover public and third party liability and insurance against business interruption) and any such other insurance as may be required pursuant to the terms of any Finance Document; and (b) from time to time upon request by the Agent, supply the Agent with copies of all such insurance policies or certificates of insurance or such other evidence of the existence of such policies as may be reasonably acceptable to the Agent. 19.19 Constitutional Documents No Borrower will, and the Company will procure that no other member of the Group will, without the prior consent of the Majority Banks or as required by law, amend or seek or agree to amend or replace the memorandum or articles of association or other constitutional documents or by-laws of any member of the Group in any way which would be likely materially and adversely to affect the interests of the Banks under the Finance Documents. 19.20 Arm's length terms No Borrower will, and the Company will procure that no other member of the Group will, enter into any material transaction with any other person otherwise than on arm's length terms, other than: (a) transactions previously approved by the Majority Banks; (b) loans from or to, or disposals by, one member of the Group to another which are permitted under the Finance Documents; (c) transactions entered into on terms more favourable to a member of the Group than arm's length terms; and (d) other transactions (including the issue of Subordinated Debt) expressly permitted under the Finance Documents. 19.21 Share capital and security The Company shall ensure that no member of the Group whose shares are charged under the Debenture shall issue any further shares or alter any rights attaching to its issued shares in existence at the date of this Agreement unless those further shares are contemporaneously charged, by way of fixed charge, to the Agent on the terms of the Debenture. 19.22 Security perfection The Company shall take all action required to perfect the Security Interests created by the Debenture over the Security Assets (as defined in the Debenture) as soon as reasonably practicable after the date of the Debenture, including (without limitation) sending to the Agent in form and substance satisfactory to it (acting reasonably): (a) unless already delivered to the Agent, all share certificates and all other documents of title in relation to shares, stocks or other securities charged under the Debenture together with share transfer forms executed in blank or other documents required to enable the Agent or its nominees to become registered as the owner of the same; and (b) duly executed notices of charge and acknowledgements in the form of the relevant schedules to the Debenture respectively in relation to the relevant agreements or accounts charged under the Debenture, but the Company will only be obliged to use reasonable endeavours to obtain the acknowledgements referred to above. 19.23 Compliance with laws Without prejudice to Clause 19.24 (Licences and regulatory matters), each Borrower will, and the Company will procure that each other member of the Group will, comply in all material respects with all applicable laws and regulations, whether domestic or foreign, having jurisdiction over it or any of its assets, failure to comply with which has a Material Adverse Effect. 19.24 Licences and regulatory matters The Company shall: (a) with effect from the Clean-Up Date, ensure that the Target and any Licenceholder (or any other relevant member of the Group) complies in all material respects with the terms of its Licence where failure to comply has a Material Adverse Effect; and (b) notify the Agent promptly upon receipt by it or any member of the Group of any notice from the government, any court or any regulatory authority or agency which is reasonably likely to give rise to the revocation, termination, material adverse amendment, suspension or withdrawal of any Licence granted in its favour (unless, contemporaneously, that Licence is to be replaced, substituted or reissued on the same, substantially the same or improved terms); and (c) with effect from the Clean-Up Date, procure that each other member of the Group will, comply with the requirements of all rules, regulations, orders and other requirements of the Secretary of State and the Director General under the Act or any other law applicable to the conduct of the business of the supply or distribution of electricity, where failure to comply has a Material Adverse Effect. 19.25 Licence Undertakings The Company will consult with the Banks with regard to the terms of any Licence Undertaking which it or any Holding Company of it or the Target may be required to give to the Director General or the Secretary of State in connection with the Offer and will not give and will procure that such Holding Company and (once it has become a Subsidiary of the Company and under its control and in any event no later than 30 days after the Target becomes a Subsidiary of the Company) the Target will not give any such Licence Undertaking without prior consultation with the Banks. 19.26 Business Consents Each Borrower will, and the Company will procure that each other member of the Group will, obtain, promptly renew from time to time, and maintain in full force and effect, and if so requested promptly furnish certified copies to the Agent of, all such material authorisations as may be required under any applicable law or regulation or under the Licence or any Licence Undertaking to carry on its business as it is being conducted from time to time, where failure to obtain, renew or maintain any such authorisation or non-compliance with the terms of the same has a Material Adverse Effect. 19.27 The Offer The Company shall: (a) issue the Press Release within 7 days of the date of this Agreement; (b) until the earlier of the date the Offer lapses or is finally closed, comply in all material respects with the Financial Services Act 1986 and the Companies Act 1985 and all other applicable laws and regulations relevant in the context of the Offer, including (subject to any waivers by the Panel) the Code; (c) provide each of the Arrangers with such information regarding the progress of the Offer as it may reasonably request; (d) unless required to do so by law or under the Code (and if so required, having notified the Agent as soon as possible after becoming aware of the requirement) not issue any press release or make any statement during the course of the Offer which contains any information or statement concerning the Finance Documents or the Finance Parties without first obtaining the prior approval of the information or statement from the Arrangers, in each case such approval not to be unreasonably withheld or delayed; (e) not purchase any Shares if to do so would mean that it must make a mandatory offer under Rule 9 of the Code; (f) promptly give notices under Section 429 of the Companies Act 1985 in respect of the Shares upon the conditions contained in the Companies Act 1985 for the giving of those notices being satisfied; and (g) ensure that no amendment is made or waiver given in respect of any condition of the Offer which, if not waived, would entitle the Company to lapse the Offer, unless the Majority Banks have given their prior consent (such consent not to be unreasonably withheld or delayed); however, any such amendment or waiver must relate to:- (i) any increase in the purchase price for the Shares above the level agreed between the Company and the Banks from time to time; or (ii) the provisions relating to a material adverse change affecting the Target. 19.28 Financial covenants (a) In this Clause 19.28:- "Adjusted Capital and Reserves" means the amount (including any share premium) for the time being paid up or credited as paid up on the issued share capital of the Company, adjusted as follows: (i) plus the outstanding amount of any Subordinated Debt; (ii) plus the amount standing to the credit (or, as the case may be, minus the amount standing to the debit) of the capital and revenue reserves of the Group; (iii) plus any amount standing to the credit or minus any amount standing to the debit of the consolidated profit and loss account of the Group; (iv) minus any distribution declared or made by the Company or any of its Subsidiaries (other than to another member of the Group) out of profits included within reserves to the extent that those reserves have not already been reduced on account of it; (v) minus amounts attributable to the interests (if any) of outside holders of issued share capital in any member of the Group other than the Company itself; and, for the purposes of the foregoing; (A) no item shall be effectively deducted or added more than once, all items shall be calculated on a consolidated basis and (subject only as may be required in order to reflect the express inclusion or exclusion of items as specified in this definition) in accordance with the Applicable Accounting Principles; and (B) where the calculation is being made as at the end of any Accounting Period it shall be determined from the balance sheet forming part of the relevant quarterly or annual accounts for that Accounting Period and, where the calculation is being made on the Business Day following a Subsequent Capital Injection for the purposes of paragraph (a) of the definition of "Margin Adjustment Date", it shall be determined from a certificate of two senior authorised officers of the Company delivered to the Agent following that Subsequent Capital Injection. "Capitalisation Ratio" means, at any time, the ratio of Consolidated Net Total Borrowings to the aggregate of Consolidated Net Total Borrowings and Adjusted Capital and Reserves, expressed as a percentage. "Consolidated EBITDA" for any period comprising an annual Accounting Period of the Company or consecutive quarterly Accounting Periods of the Company (taken together as one period) means the profit of the Group for such period: (i) before deducting all depreciation and other amortisation (including, without limitation, amortisation of goodwill arising from and upon the acquisition of the Shares and amortisation of Offer Costs in accordance with Financial Reporting Standard 4 issued by the Accounting Standards Board); (ii) before taking into account all Extraordinary Items (whether positive or negative) but after taking into account all Exceptional Items (whether positive or negative); (iii) before deducting tax; (iv) before taking into account Consolidated Net Interest Payable for such period; (v) before deducting any Offer Costs; and (vi) after deducting any gain, or adding any loss, to book value arising in favour of the Group on the sale, lease or other disposal of any asset (other than on the sale of trading stock) during such period and deducting any gain, or adding any loss, arising on revaluation of any asset during such period, in each case to the extent that it would otherwise be taken into account, whether as an Exceptional Item or otherwise, and, for the purposes of the foregoing, no item shall be effectively deducted or credited more than once in this calculation, all items shall be determined on a consolidated basis and (subject only as may be required in order to reflect the express inclusion or exclusion of items as specified in this definition) in accordance with the Applicable Accounting Principles and as determined from the consolidated accounts of the Group for that annual Accounting Period or for the relevant Accounting Periods falling within that period. "Consolidated Net Interest Payable" means Consolidated Total Interest Payable less any interest or amounts in the nature of interest receivable during the relevant annual Accounting Period of the Company or consecutive quarterly Accounting Periods of the Company (taken together as one period), determined on the same basis and manner as for Consolidated Total Interest Payable. "Consolidated Net Total Borrowings" at any time means the aggregate at that time of the Borrowings of the members of the Group from sources external to the Group, (i) plus (to the extent not otherwise included) the amount of any actual or contingent liability of any member of the Group: (A) for Borrowings at that time of any person in which any member of the Group has an ownership interest; or (B) to provide funds by loan, subscription for share capital or otherwise to any person in which any member of the Group has an ownership interest; (ii) less the cash in hand and cash equivalents of the members of the Group at that time, calculated on a consolidated basis and (subject only as may be required in order to reflect the express inclusion or exclusion of items as specified herein and/or in the definition of Borrowings in this Clause) in accordance with the Applicable Accounting Principles and, (1) where the calculation is being made as at the end of any Accounting Period for which a consolidated balance sheet of the Group has been delivered to the Agent, as shown in that balance sheet; and (2) where the calculation is being made on any other day following a Subsequent Capital Injection for the purposes of paragraph (a) of the definition of "Margin Adjustment Date", it shall be determined from a certificate of two senior authorised officers of the Company delivered to the Agent following that Subsequent Capital Injection. "Consolidated Total Interest Payable" for any period comprising an annual Accounting Period of the Company or consecutive quarterly Accounting Periods of the Company (taken together as one period) means the interest (and all amounts required by the Applicable Accounting Principles to be accounted for as interest) accrued on Borrowings of the Group during such period as an obligation of any member or members of the Group (whether or not paid or capitalised during or deferred for payment after such period) adjusted to take account of any amount constituting interest receivable by any members of the Group under interest rate and/or currency hedging agreements or instruments under which all parties are in compliance with their payment and other material obligations, all determined on a consolidated basis and (subject only as may be required in order to reflect the express inclusion or exclusion of items as specified in this definition) in accordance with the Applicable Accounting Principles and as shown in the consolidated accounts of the Group for such annual Accounting Period or for the Accounting Periods falling within such period. "Exceptional Items" has the meaning given to it in Financial Reporting Standard 3 issued by the Accounting Standards Board (as in force at the date of this Agreement), but shall exclude any items falling within the definition of Extraordinary Items. "Extraordinary Items" has the meaning given to it in Financial Reporting Standard 3 issued by the Accounting Standards Board (as in force at the date of this Agreement) but in addition shall include those items listed in paragraph 20 thereof. (b) (i) All the terms used in paragraph (a) above are to be calculated in accordance with the Applicable Accounting Principles. (ii) If there is a dispute as to any interpretation of or computation for paragraph (a) above, the interpretation or computation of the Auditors prevails. (c) The Company shall procure that:- (i) as of each date on which it is tested under paragraph (d) below, the ratio of Consolidated EBITDA to Consolidated Net Interest Payable is no less than: (A) for the period from the date on which the Target becomes a Subsidiary of the Company until the date on which the Facility B Loans are repaid or prepaid in full, 1.75:1; and (B) thereafter, 2.0:1; and (ii) the Capitalisation Ratio shall not, as of each date on which it is tested under paragraph (e) below, exceed: (A) for the period from the date on which the Target becomes a Subsidiary of the Company until the date on which the Facility B Loans are repaid or prepaid in full, 90 per cent.; (B) for the period from the date on which the Facility B Loans are repaid or prepaid in full until the date falling three years after the date of this Agreement, 75 per cent.; and (C) thereafter, 65 per cent. (d) (i) The first test of the covenant set out in paragraph (c)(i) above shall be made in respect of the period beginning on the date the Target becomes a member of the Group and ending on its First Test Date; (ii) the next three tests of the covenant set out in paragraph (c)(i) above shall be made on a cumulative basis as of the expiry of each subsequent quarterly Accounting Period; and (iii)each test of the covenant set out in paragraph (c)(i) above thereafter shall be made on a quarterly basis and in respect of the annual Accounting Period ending on the expiry of the relevant quarterly Accounting Period. (e) The tests of the covenant set out in paragraph (c)(ii) above shall be made as of: (i) its First Test Date; (ii) the date of any Subsequent Capital Injection; and (iii) the last day of each quarterly Accounting Period after its First Test Date. 20. DEFAULT 20.1 Events of Default Each of the events set out in Clauses 20.2 (Non-payment) to 20.20 (Material adverse change) (inclusive) is an Event of Default (whether or not caused by any reason whatsoever outside the control of any Borrower or any other person). 20.2 Non-payment A Borrower does not pay on the due date any amount payable by it under the Finance Documents at the place at and in the currency in which it is expressed to be payable and (if caused by technical or administrative error) the non-payment continues unremedied for 3 Business Days from the receipt by it of notice of non- payment from the Agent. 20.3 Breach of other obligations (a) The Company fails to comply with any provision of Clauses 19.8 (Pari passu ranking) to 19.15 (Distributions) inclusive, Clause 19.20 (Arm's length terms) and Clause 19.28(c)(i) (Financial covenants); (b) the Company fails to comply with Clause 19.28(c)(ii) (Financial covenants) and, if that default is capable of remedy, it is not remedied within 3 Business Days of the default; or (c) a Borrower does not comply with any provision of the Finance Documents (other than those referred to in Clause 20.2 (Non-payment) or paragraph (a) or (b) above) and, if that default is capable of remedy, it is not remedied within 28 days of the earlier of the relevant Borrower becoming aware of the default and receipt by it of a notice of default from the Agent. 20.4 Misrepresentation A representation, warranty or statement made or repeated in or in connection with any Finance Document or in any document delivered by or on behalf of any Borrower under or in connection with any Finance Document is incorrect in any material respect when made or deemed to be made or repeated by reference to the facts and circumstances then subsisting and, if the circumstances causing the misrepresentation are capable of remedy within that period, that misrepresentation is not remedied within 28 days of the earlier of the relevant Borrower becoming aware of the misrepresentation and receipt by it of notice from the Agent requiring remedy. 20.5 Cross-default (a) Any Financial Indebtedness of a member of the Group is not paid when due or within any applicable grace period; or (b) an event of default howsoever described occurs under any document relating to Financial Indebtedness of a member of the Group; or (c) any Financial Indebtedness of a member of the Group becomes prematurely due and payable or is placed on demand as a result of an event of default (howsoever described) under the document relating to that Financial Indebtedness; or (d) any commitment for, or underwriting of, any Financial Indebtedness of a member of the Group is cancelled or suspended as a result of an event of default (howsoever described) under the document relating to that Financial Indebtedness; or (e) any Security Interest securing Financial Indebtedness over any asset of a member of the Group becomes enforceable, unless, in any such case or cases:- (i) the aggregate amount of Financial Indebtedness is less than 20,000,000 pounds (or its equivalent in other currencies) and for this purpose, the amount of any Financial Indebtedness specified in paragraph (b) above will be determined after making the adjustments specified in paragraphs (b) and (c) of the definition of "Borrowings" contained in Clause 1.1 (Definitions); or (ii) the Financial Indebtedness is that of the Target or a Subsidiary of the Target, the relevant event occurs prior to the Clean-Up Date and the Financial Indebtedness is to be refinanced by a Loan prior to the Clean-Up Date. 20.6 Insolvency (a) A Borrower or a Material Subsidiary is, or is deemed for the purposes of any law to be, unable to pay its debts as they fall due or to be insolvent, or admits inability to pay its debts as they fall due; or (b) a Borrower or a Material Subsidiary suspends making payments on all or any class of its debts or announces an intention to do so, or a moratorium is declared in respect of all or any class of its indebtedness; or (c) a Borrower or a Material Subsidiary by reason of financial difficulties, begins negotiations with one or more of its creditors with a view to the readjustment or rescheduling of all or any class of its indebtedness. 20.7 Insolvency proceedings (a) Any step (including petition, proposal or convening a meeting) is taken with a view to a composition, assignment or arrangement with any creditors of a Borrower or a Material Subsidiary; or (b) a meeting of a Borrower or a Material Subsidiary is convened for the purpose of considering any resolution for (or to petition for) its winding-up or its administration or any such resolution is passed; or (c) any person presents a petition for the winding-up or for the administration of a Borrower or a Material Subsidiary, and, in the case of a petition for winding-up presented by a creditor, it is not withdrawn, discharged or stayed within 21 days; or (d) any order is made for the winding-up or administration of a Borrower or a Material Subsidiary; or (e) any other step (including petition, proposal or convening a meeting) is taken with a view to the rehabilitation, administration, custodianship, liquidation, winding-up or dissolution of any Borrower or a Material Subsidiary or any other insolvency proceedings involving Borrower or a Material Subsidiary, and, in the case of any such step taken by a creditor, it is not withdrawn, discharged or stayed within 21 days, except for any which arises from a Permitted Transaction. 20.8 Appointment of receivers and managers (a) Any liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or the like is appointed in respect of a Borrower or a Material Subsidiary or any part of its assets, otherwise than in connection with a Permitted Transaction; or (b) the directors of a Borrower or a Material Subsidiary requests the appointment of a liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or the like, otherwise than in connection with a Permitted Transaction; or (c) any other step is taken to enforce any Security Interest over any part of the assets of a Borrower or a Material Subsidiary and is not withdrawn, discharged or stayed within 21 days. 20.9 Creditors' process Any attachment, sequestration, distress or execution affects any assets of a Borrower or a Material Subsidiary having an aggregate value of 20,000,000 pounds (or its equivalent in other currencies) and is not discharged within 14 days, unless: (a) it is being contested in good faith with due diligence; and (b) in the reasonable opinion of the Majority Banks, it does not have a Material Adverse Effect. 20.10 Analogous proceedings There occurs, in relation to a Borrower or Material Subsidiary, any event anywhere which, in the opinion of the Majority Banks, appears to correspond with any of those mentioned in Clauses 20.6 (Insolvency) to 20.9 (Creditors' process) (inclusive). 20.11 Cessation of business A Borrower or a Material Subsidiary ceases, or threatens to cease, to carry on all or a substantial part of its business, other than in connection with a Permitted Transaction. 20.12 Unlawfulness It is or becomes unlawful for any Borrower to perform any of its material obligations under the Finance Documents. 20.13 Ownership of the Target At any time after the Clean-Up Date, less than 75 per cent. of the issued share capital of the Target is beneficially owned by the Company. 20.14 Ownership of the Company (a) The Parent transfers any of the shares legally and beneficially owned by it to an entity other than: (i) to Entergy Corporation or any of its Subsidiaries; or (ii) to an entity, which has (or has an Affiliate which has) a credit rating of at least BBB- with Standard & Poor's rating group or a comparable rating with any other rating agency. (b) The issued share capital of the Company ceases to be legally and beneficially owned as to at least 50 per cent. by Entergy Corporation and/or any of its Subsidiaries. (c) The issued share capital of the Company at any time is owned by more than three persons and, for this purpose, "person" includes any group of persons which are Affiliates. 20.15 Licence (a) The Licence is revoked or surrendered or ceases to be held by the Target or a wholly-owned Subsidiary of the Target or the Company, other than in circumstances which permit the Target or one of its wholly-owned Subsidiaries to carry on the distribution business of the Target substantially as envisaged at the date of this Agreement either without the Licence as a result of any change in the Act or with a new public electricity supply licence issued to such person under the Act whose terms are not materially less favourable than those of the Licence; or (b) the Licence or any substitute licence contemplated by paragraph (b) above is materially modified in any manner which, in the reasonable opinion of the Majority Banks, has (whether immediately or in the course of time) a Material Adverse Effect. 20.16 Compliance with the Act The Licenceholder fails to comply with: (a) a final order (within the meaning of Section 25 of the Act); or (b) a provisional order (within the meaning of that section) which has been confirmed under that section, and, in either case, the order has not been revoked under that section or the validity of the order has not been questioned under Section 27 of the Act. 20.17 Pooling and Settlement Agreement (a) Any notice requiring the Target to cease to be a party to the Pooling and Settlement Agreement is given to the Target under the Pooling and Settlement Agreement. (b) The Target ceases to be a party to the Pooling and Settlement Agreement. 20.18 Expropriation The authority or ability of the Company or the Target or the Licenceholder to conduct its business is wholly or substantially curtailed by any expropriation or renationalisation by or on behalf of any governmental authority. 20.19 Security The Debenture or the guarantee of the Company or any Subordination Agreement is ineffective or is alleged by a Borrower or (in the case of a Subordination Agreement) the relevant junior creditor to be ineffective for any reason. 20.20 Material adverse change Any event or series of events occurs which, in the reasonable opinion of the Majority Banks, has or is reasonably likely to have a material adverse effect on the ability of a Borrower to comply with: (a) its payment obligations under any Finance Document; or (b) its obligations under Clause 19.28 (Financial covenants). 20.21 Acceleration On and at any time after the occurrence of an Event of Default the Agent may, and shall if so directed by the Majority Banks, by notice to the Company:- (a) cancel the Total Commitments; and/or (b) demand that all or part of the Loans, together with accrued interest, and all other amounts accrued under this Agreement be immediately due and payable, whereupon they shall become immediately due and payable; and/or (c) demand that all or part of the Loans be payable on demand, whereupon they shall immediately become payable on demand by the Agent (acting on the instructions of the Majority Banks); and/or (d) demand immediate full cash cover in respect of the Guarantee whereupon the Company shall immediately provide to the Agent by way of payment into a Security Account cash cover in an amount equal to the Banks' maximum aggregate actual and contingent liability under the Guarantee. 20.22 Limited rights of rescission Prior to the end of the Certain Funds Period, no Bank has or may seek to exercise any right of rescission or other remedy (including under Clauses 4.2 (Further conditions precedent) and 20.21 (Acceleration)) in consequence of: (a) any of the representations or warranties of any Borrower in the Finance Documents (other than those made by the Company in respect of itself and contained in Clauses 18.2(a) (Status), 18.3 (Powers and authority), 18.4 (Legal validity) and 18.5 (Non- conflict)) being or being proved to have been incorrect in any respect; or (b) the occurrence of a Default other than a Major Default. 21. THE AGENT AND THE ARRANGERS 21.1 Appointment and duties of the Agent (a) Each Finance Party (other than the Agent) irrevocably appoints the Agent to act as its agent under and in connection with the Finance Documents, and irrevocably authorises the Agent on its behalf to perform the duties and to exercise the rights, powers and discretions that are specifically delegated to it under or in connection with the Finance Documents, together with any other incidental rights, powers and discretions. The Agent shall have only those duties which are expressly specified in this Agreement. Those duties are solely of a mechanical and administrative nature. (b) The Agent agrees to execute a Subordination Agreement, duly executed by the Company and the relevant junior creditor, promptly on request by the Company. 21.2 Role of the Arrangers Except as otherwise provided in this Agreement, no Arranger has any obligations of any kind to any other Party under or in connection with any Finance Document. 21.3 Relationship The relationship between the Agent and the other Finance Parties is that of agent and principal only. Nothing in this Agreement constitutes the Agent as trustee or fiduciary for any other Party or any other person and the Agent need not hold in trust any moneys paid to it for a Party or be liable to account for interest on those moneys. 21.4 Majority Banks' directions The Agent will be fully protected if it acts in accordance with the instructions of the Majority Banks in connection with the exercise of any right, power or discretion or any matter not expressly provided for in the Finance Documents. Any such instructions given by the Majority Banks will be binding on all the Banks. In the absence of such instructions the Agent may act as it considers to be in the best interests of all the Banks. 21.5 Delegation The Agent may act under the Finance Documents through its personnel and agents. 21.6 Responsibility for documentation None of the Agent and the Arrangers is responsible to any other Party for:- (a) the execution, genuineness, validity, enforceability or sufficiency of any Finance Document or any other document; (b) the collectability of amounts payable under any Finance Document; or (c) the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document (including the Information Memorandum). 21.7 Default (a) The Agent is not obliged to monitor or enquire as to whether or not a Default has occurred. The Agent will not be deemed to have knowledge of the occurrence of a Default. However, if the Agent receives notice from a Party referring to this Agreement, describing the Default and stating that the event is a Default, it shall promptly notify the Banks. (b) The Agent may require from the Banks the receipt of security satisfactory to it whether by way of payment in advance or otherwise, against any liability or loss which it will or may incur in taking any proceedings or action arising out of or in connection with any Finance Document before it commences those proceedings or takes that action. 21.8 Exoneration (a) Without limiting paragraph (b) below, the Agent will not be liable to any other Party for any action taken or not taken by it under or in connection with any Finance Document, unless directly caused by its gross negligence or wilful misconduct. (b) No Party may take any proceedings against any officer, employee or agent of the Agent in respect of any claim it might have against the Agent or in respect of any act or omission of any kind (including negligence or wilful misconduct) by that officer, employee or agent in relation to any Finance Document. 21.9 Reliance The Agent may:- (a) rely on any notice or document believed by it to be genuine and correct and to have been signed by, or with the authority of, the proper person; (b) rely on any statement made by a director or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify; and (c) engage, pay for and rely on legal or other professional advisers selected by it (including those in the Agent's employment and those representing a Party other than the Agent). 21.10 Credit approval and appraisal Without affecting the responsibility of any Borrower for information supplied by it or on its behalf in connection with any Finance Document, each Bank confirms that it:- (a) has made its own independent investigation and assessment of the financial condition and affairs of each Borrower and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Agent or an Arranger in connection with any Finance Document; and (b) will continue to make its own independent appraisal of the creditworthiness of each Borrower and its related entities while any amount is or may be outstanding under the Finance Documents or any Commitment is in force. 21.11 Information (a) The Agent shall promptly forward to the person concerned the original or a copy of any document which is delivered to the Agent by a Party for that person. (b) The Agent shall promptly supply a Bank with a copy of each document received by the Agent under Clause 4 (Conditions precedent) or 28.4 (Target as Borrower) upon the request and at the expense of that Bank. (c) Except where this Agreement specifically provides otherwise, the Agent is not obliged to review or check the accuracy or completeness of any document it forwards to another Party. (d) Except as provided above, the Agent has no duty:- (i) either initially or on a continuing basis to provide any Bank with any credit or other information concerning the financial condition or affairs of any Borrower or any related entity of any Borrower whether coming into its possession or that of any of its related entities before, on or after the date of this Agreement; or (ii) unless specifically requested to do so by a Bank in accordance with this Agreement, to request any certificates or other documents from any Borrower. 21.12 The Agent and the Arrangers individually (a) If it is also a Bank, each of the Agent and the Arrangers has the same rights and powers under the Finance Documents as any other Bank and may exercise those rights and powers as though it were not the Agent or an Arranger. (b) Each of the Agent and the Arrangers may:- (i) carry on any business with a Borrower or its related entities; (ii) act as agent or trustee for, or in relation to any financing involving, a Borrower or its related entities; and (iii) retain any profits or remuneration in connection with its activities under this Agreement or in relation to any of the foregoing. (c) In acting as Agent for the Banks, the Agent's agency division shall be treated as a separate entity from any other of its divisions or departments and, notwithstanding the foregoing provisions of this Clause 21, if the Agent should act for any member of the Group in any capacity in relation to any other matter, any information given by that member of the Group to the Agent in such other capacity may be treated as confidential by the Agent. 21.13 Indemnities (a) Without limiting the liability of any Borrower under the Finance Documents, each Bank shall forthwith on demand indemnify the Agent for its proportion of any liability or loss incurred by the Agent in any way relating to or arising out of its acting as the Agent, except to the extent that the liability or loss arises directly from the Agent's gross negligence or wilful misconduct. (b) A Bank's proportion of the liability or loss set out in paragraph (a) above is the proportion which its participation in the Utilisations (if any) bear to all the Utilisations on the date of the demand. If, however, there are no Utilisations outstanding on the date of demand, then the proportion will be the proportion which its Commitments bears to the Total Commitments at the date of demand or, if the Total Commitments have been cancelled, bore to the Total Commitments immediately before being cancelled. 21.14 Compliance (a) The Agent may refrain from doing anything which might, in its opinion, constitute a breach of any law or regulation or be otherwise actionable at the suit of any person, and may do anything which, in its opinion, is necessary or desirable to comply with any law or regulation of any jurisdiction. (b) Without limiting paragraph (a) above, the Agent need not disclose any information relating to any Borrower or any of its related entities if the disclosure might, in the opinion of the Agent, constitute a breach of any law or regulation or any duty of secrecy or confidentiality or be otherwise actionable at the suit of any person. 21.15 Resignation of Agent (a) Notwithstanding its irrevocable appointment, the Agent may resign by giving notice to the Banks and the Company, in which case the Agent may forthwith appoint one of its Affiliates as successor Agent or, failing that, the Majority Banks may (after consultation with the Company) appoint a successor Agent. (b) If the appointment of a successor Agent is to be made by the Majority Banks but they have not, within 30 days after notice of resignation, appointed a successor Agent which accepts the appointment, the retiring Agent may appoint a successor Agent. (c) The resignation of the retiring Agent and the appointment of any successor Agent will both become effective only upon the successor Agent notifying all the Parties that it accepts the appointment. On giving the notification, the successor Agent will succeed to the position of the retiring Agent and the term "Agent" will mean the successor Agent. (d) The retiring Agent shall, at its own cost, make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as the Agent under this Agreement. (e) Upon its resignation becoming effective, this Clause 21 (The Agent and the Arrangers) shall continue to benefit the retiring Agent in respect of any action taken or not taken by it under or in connection with the Finance Documents while it was the Agent, and, subject to paragraph (d) above, it shall have no further obligation under any Finance Document. (f) If so instructed by the Majority Banks, the Agent shall resign in accordance with paragraph (a) above. However, in this event the Agent may not appoint a successor Agent. 21.16 Banks The Agent may treat each Bank as a Bank, entitled to payments under this Agreement and as acting through its Facility Office(s) until it has received notice from the Bank to the contrary not less than 5 Business Days prior to the relevant payment. 21.17 Agent as Trustee (a) The Agent in its capacity as trustee or otherwise under the Debenture:- (i) is not liable for any failure, omission or defect in perfecting or registering the security constituted or created by any Finance Document; (ii) may accept without enquiry such title as the Company may have to any asset secured by the Debenture; and (iii) is not under any obligation to hold any Finance Document or any other document in connection with the Finance Documents or the assets secured by any Finance Document (including title deeds) in its own possession or to take any steps to protect or preserve the same. The Agent may permit any member of the Group to retain any Finance Document or other document in its possession. (b) Save as otherwise provided in the Finance Documents, all moneys which under the trusts contained in the Finance Documents are received by the Agent in its capacity as trustee or otherwise may be invested in the name of or under the control of the Agent in any investment authorised by English law for the investment by trustees of trust money or in any other investments which may be selected by the Agent. Additionally, the same may be placed on deposit in the name of or under the control of the Agent at such bank or institution (including the Agent) and upon such terms as the Agent may think fit. 22. FEES 22.1 Front-end fee The Company shall pay (or procure the payment) to the Agent for the Arrangers a front-end fee in the amounts and on the dates agreed in the Fee Letter between the Company and the Arrangers. 22.2 Commitment fee (a) The Company shall pay to the Agent for each Bank a commitment fee computed at the rate of: (i) (A) during the period from the date of this Agreement up to (but excluding) the Unconditional Acceptances Date, 0.15 per cent. per annum; and (B) subsequently up to (and including) the Facility A Final Repayment Date, 50 per cent. of the applicable Margin, on the undrawn, uncancelled amount of that Bank's Facility A Commitment; any change to the commitment fee under this sub-paragraph takes effect from the Business Day following receipt of the relevant compliance certificate providing for a change to the applicable Margin, even though the applicable Margin may only apply to Facility A Loans made after that date, or, in any other case, the relevant Margin Adjustment Date; (ii) during the period from the date of this Agreement up to (and including) the Facility B Term Date, 50 per cent. of the applicable Margin on the undrawn, uncancelled amount of that Bank's Facility B Commitment; and (iii) (A) during the period from the date of this Agreement up to (but excluding) the Unconditional Acceptances Date, 0.15 per cent. per annum; and (B) subsequently up to (and including) the Facility C Final Repayment Date, 50 per cent. of the applicable Margin, on the undrawn, uncancelled amount of that Bank's Facility C Commitment. (b) Accrued commitment fee is payable quarterly in arrear. Accrued commitment fee is also payable to the Agent for the relevant Bank(s) on the cancelled amount of its Commitment at the time the cancellation takes effect. 22.3 Guarantee fee (a) The Company shall pay to the Agent for the Banks a guarantee fee computed at the rate equivalent to the Margin applicable to Facility A Loans on the Guarantee Outstandings from the Issue Date of the Guarantee up to and including the Expiry Date. Any change to the guarantee fee takes effect from the next date an instalment of guarantee fee is payable which falls after the Business Day following receipt of the relevant compliance certificate providing for a change to the applicable Margin. (b) Guarantee fee is payable quarterly in advance from the Issue Date of the Guarantee, and on the Expiry Date of the Guarantee. 22.4 Agent's fee The Company shall pay (or procure the payment) to the Agent for its own account an agency fee in the amount agreed in the Fee Letter between the Company and the Agent. The agency fee is payable annually in advance. The first payment of this fee is payable on the date of this Agreement and each subsequent payment is payable on each anniversary of the date of this Agreement for so long as any amount is or may be outstanding under this Agreement or any Commitment is in force. 22.5 Issuing Bank's fee The Company shall pay to the Issuing Bank for its own account a fronting fee in the amount and on the dates agreed in the Fee Letter between the Company and the Agent. 22.6 VAT Any fee referred to in this Clause 22 (Fees) is exclusive of any value added tax or any other tax which might be chargeable in connection with that fee. If any value added tax or other tax is so chargeable, it shall be paid by the Company at the same time as it pays the relevant fee. 23. EXPENSES 23.1 Initial and special costs The Company shall forthwith on demand pay (or procure the payment) to the Agent and the Arrangers the amount of all reasonable costs and expenses (including legal fees) reasonably incurred by them in connection with:- (a) Syndication and the negotiation, preparation, printing and execution of this Agreement and any other documents referred to in this Agreement but, subject to the maximum limit agreed in respect of legal fees in the Fee Letter referred to in Clause 22.1 (Front-end fee); (b) the negotiation, preparation, printing and execution of any other Finance Document (other than a Novation Certificate or the Syndication Agreement) executed after the date of this Agreement; and (c) any amendment, waiver, consent or suspension of rights (or any proposal for any of the foregoing) requested by or on behalf of a Borrower or, in the case of Clause 2.3 (Change of currency), the Agent and relating to a Finance Document or a document referred to in any Finance Document. 23.2 Enforcement costs The Company shall forthwith on demand pay to each Finance Party the amount of all reasonable costs and expenses (including, without limitation, legal fees) incurred by it in connection with the enforcement of, or the preservation of any rights under, any Finance Document. 24. STAMP DUTIES The Company shall pay and forthwith on demand indemnify each Finance Party against any liability it incurs in respect of any stamp, registration and similar tax which is or becomes payable in connection with the entry into, performance or enforcement of any Finance Document. 25. INDEMNITIES 25.1 Currency indemnity (a) If a Finance Party receives an amount in respect of a Borrower's liability under the Finance Documents or if that liability is converted into a claim, proof, judgement or order in a currency other than the currency (the "contractual currency") in which the amount is expressed to be payable under the relevant Finance Document:- (i) that Borrower shall indemnify that Finance Party as an independent obligation against any loss or liability arising out of or as a result of the conversion; (ii) if the amount received by that Finance Party, when converted into the contractual currency at a market rate in the usual course of its business, is less than the amount owed in the contractual currency, the Borrower concerned shall forthwith on demand pay to that Finance Party an amount in the contractual currency equal to the deficit; and (iii) the Borrower shall pay to the Finance Party concerned on demand any exchange costs and taxes payable in connection with any such conversion. (b) Each Borrower waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency other than that in which it is expressed to be payable. 25.2 Other indemnities The Company shall forthwith on demand indemnify each Finance Party against any loss or liability which that Finance Party incurs as a consequence of:- (a) the occurrence of any Default; (b) a change in currency of a country or the operation of Clause 2.3 (Change of currency), the operation of Clause 20.21 (Acceleration) or Clause 31 (Pro rata sharing); (c) any payment of principal or an overdue amount being received from any source otherwise than on its due date and, for the purposes of this paragraph (c), the Repayment Date of an overdue amount is the last day of each Designated Term (as defined in Clause 11.3 (Default interest)); (d) (other than by reason of negligence or default by that Finance Party) a Loan not being made after the Borrower has delivered a Request for that Loan; or (e) any failure by a member of the Group to comply with the Environmental Laws applicable to it or any Environmental Licence held by it. The Company's liability in each case includes any loss of margin or other loss or expense on account of funds borrowed, contracted for or utilised to fund any amount payable under any Finance Document, any amount repaid or prepaid or any Loan. 25.3 Acquisition financing indemnity (a) The Company shall within 5 Business Days of demand indemnify each Finance Party against any loss or liability which that Finance Party suffers or incurs as a consequence of any litigation proceeding arising, pending or threatened against that Finance Party as a result of the Offer (whether or not made) or of it agreeing to finance or refinance any acquisition by the Company or any person acting in concert with the Company of any Shares or arising out of the use of proceeds of any Utilisation ("relevant litigation") except to the extent caused by its gross negligence or wilful misconduct. (b) A Finance Party shall notify the Company promptly upon becoming aware, and in reasonable detail, of any relevant litigation and shall keep the Company informed of its progress. (c) A Finance Party shall conduct any relevant litigation in good faith and will give careful consideration to the views of the Company in relation to the appointment of professional advisers and the conduct of the litigation taking into account (to the extent practicable) both its interests and the interests of the Company. (d) A Finance Party may only concede or compromise any claim in respect of any relevant litigation if it is acting reasonably and has consulted the Company before so doing. (e) Notwithstanding paragraphs (a) to (d) above, a Finance Party is not required to disclose to the Company any matter in respect of which it is under a duty of non- disclosure or which is subject to any attorney/client privilege, or which relates to a Finance Party's policy or other extrinsic matters. Any information disclosed by a Finance Party to the Company under this Clause 25.3 shall be subject to the same conditions of confidentiality as those set out in Clause 29 (Disclosure of information) in relation to disclosure to potential transferees. 26. EVIDENCE AND CALCULATIONS 26.1 Accounts Accounts maintained by a Finance Party in connection with this Agreement are prima facie evidence of the matters to which they relate. 26.2 Certificates and determinations Any certification or determination by a Finance Party of a rate or amount under the Finance Documents is prima facie evidence of the matters to which it relates. Any determination by a Finance Party of an amount under a Finance Document shall contain a calculation of the amount in reasonable detail. 26.3 Calculations Interest (including any applicable MLA Cost) and the fee payable under Clause 22.2 (Commitment fee) accrue from day to day and are calculated on the basis of the actual number of days elapsed and a year of 365 days or (in the case of Commitment fee or where market practice so dictates) 360 days. Guarantee fee is calculated on the basis of the actual number of days in the relevant period and a year of 365 days. 27. AMENDMENTS AND WAIVERS 27.1 Procedure (a) Subject to Clause 27.2 (Exceptions), any term of the Finance Documents may be amended or waived with the agreement of the Company, the Majority Banks and the Agent. The Agent may effect, on behalf of the Banks, an amendment to which they or the Majority Banks have agreed. (b) The Agent shall promptly notify the other Parties of any amendment or waiver effected under paragraph (a) above, and any such amendment or waiver shall be binding on all the Parties. 27.2 Exceptions An amendment or waiver which relates to:- (a) the definition of "Majority Banks" in Clause 1.1 (Definitions); (b) an extension of the date for, or a decrease in an amount or a change in the currency of, any payment (including the Margin or any other amount of interest or any fee) under the Finance Documents; (c) an increase in a Bank's Commitment; (d) the release of any security the subject of the Debenture; (e) a term of a Finance Document which expressly requires the consent of each Bank; or (f) Clause 31 (Pro rata sharing) or this Clause 27 (Amendments and waivers), may not be effected without the consent of each Bank. 27.3 Waivers and remedies cumulative The rights of each Finance Party under the Finance Documents:- (a) may be exercised as often as necessary; (b) are cumulative and not exclusive of its rights under the general law; and (c) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right is not a waiver of that right. 28. CHANGES TO THE PARTIES 28.1 Transfers by Borrowers No Borrower may assign, transfer, novate or dispose of any of, or any interest in, its rights and/or obligations under this Agreement. 28.2 Transfers by Banks (a) Subject to paragraph (b) below, a Bank (the "Existing Bank") may at any time assign, transfer or novate any of its Commitments and/or rights and/or obligations in whole or in part under this Agreement to a Qualifying Bank (the "New Bank"). A partial assignment, transfer or novation is only permitted in minimum amounts of 10,000,000 pounds and if the Bank concerned assigns, transfers or novates a pro rata portion of all its rights and obligations under Facilities A, B and C. (b) (i) The prior consent of the Company is required for any such assignment, transfer or novation referred to in paragraph (a) above, unless:- (A) the New Bank is another Bank or an Affiliate of a Bank; or (B) a Default is outstanding. However, the prior consent of the Company must not be unreasonably withheld or delayed and will be deemed to have been given if, within 14 days of receipt by the Company of an application for consent, it has not been expressly refused. (ii) If the Guarantee has been, or is scheduled to be, issued, the prior consent (not to be unreasonably withheld or delayed) of the Issuing Bank is also required. (b) A transfer of obligations will be effective only if either:- (i) the obligations are novated in accordance with Clause 28.3 (Procedure for novations); or (ii) the New Bank confirms to the Agent and the Company that it undertakes to be bound by the terms of this Agreement as a Bank in form and substance satisfactory to the Agent. On the transfer becoming effective in this manner the Existing Bank shall be relieved of its obligations under this Agreement to the extent that they are transferred to the New Bank. (c) Nothing in this Agreement restricts the ability of a Bank to sub-contract an obligation if that Bank remains liable under this Agreement for that obligation. (d) On each occasion (other than pursuant to the Syndication Agreement) an Existing Bank assigns, transfers or novates any of its rights and/or obligations under this Agreement, the New Bank shall, on the date the assignment, transfer and/or novation takes effect, pay to the Agent for its own account a fee of 750 pounds. (e) An Existing Bank is not responsible to a New Bank for:- (i) the execution, genuineness, validity, enforceability or sufficiency of any Finance Document or any other document; (ii) the collectability of amounts payable under any Finance Document; or (iii)the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document. (f) Each New Bank confirms to the Existing Bank and the other Finance Parties that it:- (i) has made its own independent investigation and assessment of the financial condition and affairs of each Borrower and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Bank in connection with any Finance Document; and (ii) will continue to make its own independent appraisal of the creditworthiness of each Borrower and its related entities while any amount is or may be outstanding under this Agreement or any Commitment is in force. (g) Nothing in any Finance Document obliges an Existing Bank to:- (i) accept a re-transfer from a New Bank of any of the rights and/or obligations assigned, transferred or novated under this Clause; or (ii) support any losses incurred by the New Bank by reason of the non-performance by any Borrower of its obligations under this Agreement or otherwise. (h) Any reference in this Agreement to a Bank includes a New Bank, but excludes a Bank if no amount is or may be owed to or by that Bank under this Agreement and its Commitment has been cancelled or reduced to nil. 28.3 Procedure for novations (a) A novation is effected if:- (i) the Existing Bank and the New Bank deliver to the Agent a duly completed certificate, substantially in the form of Part I of Schedule 5 (a "Novation Certificate"); and (ii) the Agent executes it. (b) Each Party (other than the Existing Bank and the New Bank) irrevocably authorises the Agent to execute any duly completed Novation Certificate on its behalf. (c) To the extent that they are expressed to be the subject of the novation in the Novation Certificate:- (i) the Existing Bank and the other Parties (the "existing Parties") will be released from their obligations to each other (the "discharged obligations"); (ii) the New Bank and the existing Parties will assume obligations towards each other which differ from the discharged obligations only insofar as they are owed to or assumed by the New Bank instead of the Existing Bank; (iii)the rights of the Existing Bank against the existing Parties and vice versa (the "discharged rights") will be cancelled; and (iv) the New Bank and the existing Parties will acquire rights against each other which differ from the discharged rights only insofar as they are execrable by or against the New Bank instead of the Existing Bank, all on the date of execution of the Novation Certificate by the Agent or, if later, the date specified in the Novation Certificate. 28.4 Target as Borrower (a) If the Company wishes the Target to become a Borrower, then it may deliver to the Agent the documents listed in Part II of Schedule 2. (b) On delivery of a Borrower Accession Agreement executed by the Target and the Company, the Target will become a Borrower. However, it may not utilise Facility C until the Agent confirms to the other Finance Parties and the Company that it has received all the documents referred to in paragraph (a) above in form and substance satisfactory to it. The Agent shall notify the Company promptly upon receipt. (c) Delivery of a Borrower Accession Agreement, executed by the Target, constitutes confirmation by the Target that the representations and warranties set out in Clause 18 (Representations and warranties) and to be made by the Target on the date of the Borrower Accession Agreement are correct, in respect of itself and its Subsidiaries, as if made with reference to the facts and circumstances then existing. 28.5 Reference Banks If a Reference Bank (or, if a Reference Bank is not a Bank, the Bank of which it is an Affiliate) ceases to be one of the Banks, the Agent shall (in consultation with the Company) appoint another Bank or an Affiliate of a Bank to replace that Reference Bank. 28.6 Increased costs etc. If:- (a) a Bank assigns, transfers or novates any of its Commitments and/or rights and/or obligations under the Finance Documents or changes its Facility Office without the prior consent of the Company; and (b) as a result of circumstances existing at the date the assignment, transfer, novation or change occurs, a Borrower would be obliged to make a payment to the New Bank or Bank acting through its new Facility Office under Clause 13 (Taxes) or Clause 15 (Increased costs), then, notwithstanding the provisions of Clause 13 (Taxes) or Clause 15 (Increased costs), the relevant New Bank or Bank acting through its new Facility Office is only entitled to receive payment under those Clauses from a Borrower to the same extent as the relevant Existing Bank or Bank acting through its previous Facility Office would have been if the assignment, transfer, novation or change had not occurred 28.7 Register The Agent shall keep a register of all the Parties and shall supply any other Party (at that Party's expense) with a copy of the register on request. 29. DISCLOSURE OF INFORMATION (a) A Finance Party may disclose to one of its Affiliates or any person (a "participant") with whom it is proposing to enter, or has entered into, any kind of transfer, participation or other agreement in relation to this Agreement:- (i) a copy of any Finance Document; and (ii) any information which that Finance Party has acquired under or in connection with any Finance Document, so long as disclosure of confidential information under sub-paragraph (ii) above may only be disclosed to a participant if the participant has agreed in writing with the relevant Finance Party to keep the information confidential on the same terms (with consequential changes) as are set out in paragraph (b) below. (b) Each Finance Party shall keep confidential and not, without the prior consent of the Company, use any information (other than information which is publicly available other than as a result of a breach of this paragraph (b)) supplied by or on behalf of any Borrower under the Finance Documents otherwise than in connection with the Finance Documents. However, each Finance Party is entitled to disclose information: (i) in connection with any legal or arbitration proceedings arising out of or in connection with a Finance Document; or (ii) if required to do so by an order of a court of competent jurisdiction whether under any procedure for discovering documents or otherwise; or (iii)pursuant to any law or regulation in accordance with which that Bank is required or accustomed to act; or (iv) to a governmental, banking, taxation or other regulatory authority of any competent jurisdiction; or (v) to its accountants or legal advisers or any other professional advisers. 30. SET-OFF A Finance Party may set off any matured obligation owed by a Borrower under this Agreement (to the extent beneficially owned by that Finance Party) against any obligation (whether or not matured) owed by that Finance Party to that Borrower, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. If either obligation is unliquidated or unascertained, the Finance Party may set off in an amount estimated by it in good faith to be the amount of that obligation. Nothing in this Clause 30 will be effective to create a charge. 31. PRO RATA SHARING 31.1 Redistribution If any amount owing by a Borrower under this Agreement to a Finance Party (the "recovering Finance Party") is discharged by payment, set-off or any other manner other than through the Agent in accordance with Clause 12 (Payments) (a "recovery"), then:- (a) the recovering Finance Party shall, within 3 Business Days, notify details of the recovery to the Agent; (b) the Agent shall determine whether the recovery is in excess of the amount which the recovering Finance Party would have received had the recovery been received by the Agent and distributed in accordance with Clause 12 (Payments); (c) subject to Clause 31.3 (Exceptions), the recovering Finance Party shall, within 3 Business Days of demand by the Agent, pay to the Agent an amount (the "redistribution") equal to the excess; (d) the Agent shall treat the redistribution as if it were a payment by the Borrower concerned under Clause 12 (Payments) and shall pay the redistribution to the Finance Parties (other than the recovering Finance Party) in accordance with Clause 12.6 (Partial payments); and (e) after payment of the full redistribution, the recovering Finance Party will be subrogated to the portion of the claims paid under paragraph (d) above, and that Borrower will owe the recovering Finance Party a debt which is equal to the redistribution, immediately payable and of the type originally discharged. 31.2 Reversal of redistribution If under Clause 31.1 (Redistribution):- (a) a recovering Finance Party must subsequently return a recovery, or an amount measured by reference to a recovery, to a Borrower; and (b) the recovering Finance Party has paid a redistribution in relation to that recovery, each Finance Party shall, within 3 Business Days of demand by the recovering Finance Party through the Agent, reimburse the recovering Finance Party all or the appropriate portion of the redistribution paid to that Finance Party. Thereupon, the subrogation in Clause 31.1(e) (Redistribution) will operate in reverse to the extent of the reimbursement. 31.3 Exceptions (a) A recovering Finance Party need not pay a redistribution to the extent that it would not, after the payment, have a valid claim against the Borrower concerned in the amount of the redistribution pursuant to Clause 31.1(e) (Redistribution). (b) A recovering Finance Party is not obliged to share with any other Finance Party any amount which the recovering Finance Party has received or recovered as a result of taking legal proceedings, if that other Finance Party had an opportunity to participate in those legal proceedings, but did not do so and did not take separate legal proceedings. 32. SEVERABILITY If a provision of any Finance Document is or becomes illegal, invalid or unenforceable in any jurisdiction, that shall not affect:- (a) the legality, validity or enforceability in that jurisdiction of any other provision of the Finance Documents; or (b) the legality, validity or enforceability in other jurisdictions of that or any other provision of the Finance Documents. 33. COUNTERPARTS A Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document. 34. NOTICES 34.1 Giving of notices All notices or other communications under or in connection with the Finance Documents shall be given in writing or by telex or facsimile. Any such notice will be deemed to be given as follows:- (a) if in writing, when delivered; (b) if by telex, when despatched, but only if, at the time of transmission, the correct answerback appears at the start and at the end of the sender's copy of the notice; and (c) if by facsimile, when received. However, a notice given in accordance with the above but received on a non-working day or after business hours in the place of receipt will only be deemed to be given on the next working day in that place. 34.2 Addresses for notices (a) The address, telex number and facsimile number of each Party (other than the Agent) for all notices under or in connection with the Finance Documents are:- (i) that notified by that Party for this purpose to the Agent on or before it becomes a Party; or (ii) any other notified by that Party for this purpose to the Agent by not less than five Business Days' notice. (b) The address, telex number and facsimile number of the Agent is:- 101 Moorgate London EC2M 6SB Telex No: 887139 ABN ALG Facsimile No: 0171 588 2975 Attention: Credit Administration or such other as the Agent may notify to the other Parties by not less than 5 Business Days' notice. (c) The Agent shall, promptly upon request from any Party, give to that Party the address, telex number or facsimile number of any other Party applicable at the time for the purposes of this Clause. 34.3 Facsimile notices Each Borrower shall indemnify the Agent against any loss or liability which the Agent incurs as a result of the Agent accepting and/or acting upon any instructions under the Finance Documents received by the Agent from that Borrower by facsimile and which may not have been incurred if, at the time of receipt, the Agent had been given the instructions other than by facsimile. 35. GOVERNING LAW This Agreement is governed by English law. This Agreement has been entered into on the date stated at the beginning of this Agreement. SCHEDULE 1 BANKS AND COMMITMENTS Banks Commitments ABN AMRO BANK N.V. ) BANK OF AMERICA NATIONAL TRUST AND ) AS PER SAVINGS ASSOCIATION ) SYNDICATION UNION BANK OF SWITZERLAND ) LETTER SCHEDULE 2 CONDITIONS PRECEDENT DOCUMENTS PART I TO BE DELIVERED BEFORE THE FIRST LOAN 1. A copy of the memorandum and articles of association and certificate of incorporation of the Company. 2. A copy of a resolution of the board of directors of the Company:- (a) approving the terms of, and the transactions (including the Acquisition) contemplated by, this Agreement and resolving that it execute this Agreement, the Debenture and the Fee Letters; (b) authorising a specified person or persons to execute this Agreement and the Fee Letters on its behalf and its seal be affixed to the Debenture; and (c) authorising a specified person or persons, on its behalf, to sign and/or despatch all other documents and notices to be signed and/or despatched by it under or in connection with this Agreement. 3. A specimen of the signature of each person authorised by the resolution referred to in paragraph 2 above. 4. A copy of the Press Release and a copy of the Offer Document. 5. The Debenture, duly executed by the Company. 6. A certificate of an authorised signatory of the Company certifying that each copy document specified in paragraphs 1 and 2 of Part I of this Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement. 7. Written confirmation from the Company that, as at the date on which the Press Release is issued, the board of directors of the Target has recommended to the shareholders of the Target acceptance of the Offer. 8. Written confirmation from the Parent and the Company that equity and/or capital contributions of a minimum amount agreed in the Syndication Letter has been subscribed for in, or on lent to, the Company and confirmation from the Company that that amount has been or, together with the proceeds of the drawdown of the first Loan will be, applied in full on or prior to the first Drawdown Date in accordance with the terms of this Agreement. 9. A report from Coopers & Lybrand on the financial model (and its assumptions) in relation to the Acquisition, prepared by the Company or its advisers and addressed to the Finance Parties. 10. A legal opinion of Allen & Overy, legal advisers to the Arrangers, addressed to the Finance Parties, substantially in the form of Part I of Schedule 8. PART II TO BE DELIVERED BY THE TARGET 1. A Borrower Accession Agreement, duly executed by the Target and the Company. 2. A copy of the memorandum and articles of association and certificate of incorporation of the Target. 3. A copy of a resolution of the board of directors of the Target:- (a) approving the terms of, and the transactions contemplated by, the Borrower Accession Agreement and resolving that it execute the Borrower Accession Agreement; (b) authorising a specified person or persons to execute the Borrower Accession Agreement on its behalf; and (c) authorising a specified person or persons, on its behalf, to sign and/or despatch all other documents and notices to be signed and/or despatched by it under or in connection with this Agreement. 4. A certificate of a director of the Target confirming that utilisation of Facility C in full would not cause any borrowing limit binding on it to be exceeded. 5. A specimen of the signature of each person authorised by the resolution referred to in paragraph (3) above. 6. The latest audited consolidated accounts of the Target. 7. If not already received by the Agent, copies of: (a) the Licence; and (b) the Pooling and Settlement Agreement. 8. A certificate of an authorised signatory of the Target certifying that each copy document specified in Part II of this Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of the Borrower Accession Agreement. 9. A legal opinion of Allen & Overy, legal advisers to the Agent, addressed to the Finance Parties, substantially in the form of Part II of Schedule 8. SCHEDULE 3 CALCULATION OF THE MLA COST (a) The MLA Cost for a Loan for its Interest Period(s) is calculated in accordance with the following formula:- BY + L(Y-X) + S(Y-Z) -------------------- % per annum = MLA Cost 100-(B+S) where on the day of application of the formula:- B is the percentage of the Agent's eligible liabilities which the Bank of England requires the Agent to hold on a non-interest-bearing deposit account in accordance with its cash ratio requirements; Y is the rate at which Sterling deposits are offered by the Agent to leading banks in the London interbank market at or about 11.00 a.m. on that day for the relevant period; L is the percentage of eligible liabilities which the Bank of England requires the Agent to maintain as secured money with members of the London Discount Market Association and/or as secured call money with certain money brokers and gilt-edged primary market makers; X is the rate at which secured Sterling deposits in the relevant amount may be placed by the Agent with members of the London Discount Market Association and/or as secured call money with certain money brokers and gilt-edged primary market makers at or about 11.00 a.m. on that day for the relevant period; S is the percentage of the Agent's eligible liabilities which the Bank of England requires the Agent to place as a special deposit; and Z is the interest rate per annum allowed by the Bank of England on special deposits. (b) For the purposes of this Schedule 3:- (i) "eligible liabilities" and "special deposits" have the meanings given to them at the time of application of the formula by the Bank of England; (ii) "relevant period" in relation to a Loan, means:- (A) if the relevant Interest Period is 3 months or less, that Interest Period; or (B) if the relevant Interest Period is more than 3 months, 3 months. (c) In the application of the formula, B, Y, L, X, S and Z are included in the formula as figures and not as percentages, e.g. if B = 0.5% and Y = 15%, BY is calculated as 0.5 x 15. (d) (i) The formula is applied on the first day of the relevant Interest Period. (ii) Each rate calculated in accordance with the formula is, if necessary, rounded upward to the nearest four decimal places. (e) If the Agent determines that a change in circumstances has rendered, or will render, the formula inappropriate, the Agent (after consultation with the Banks) shall notify the Company of the manner in which the MLA Cost will subsequently be calculated. The manner of calculation so notified by the Agent shall, in the absence of manifest error, be binding on all the Parties. SCHEDULE 4 FORM OF REQUEST To: ABN AMRO BANK N.V. as Agent From: [ENTERGY POWER UK PLC/LONDON ELECTRICITY plc] Date: [ ] ENTERGY POWER UK PLC - 1,250,000,000 Pounds Revolving Credit Agreement dated 17th December, 1996 1. [We wish to borrow a Facility A/Facility B/Facility C* Loan as follows:- (a) Drawdown Date: [ ] (b) Purpose: [ ] (c) Amount: [ ] (d) [First]** Interest Period: [ ] (e) Payment instructions: [ ].]* [We wish the Issuing Bank to issue the Guarantee as follows:- (a) Amount: [ ] (b) Issue Date: [ ] (c) Expiry Date: [ ] (d) Delivery instructions: [ ]]* 2. We confirm that each condition specified in [Clause 4.2 (Further conditions precedent)/Clause 4.3 (Conditions precedent during the Certain Funds Period]* is satisfied on the date of this Request. By: [ENTERGY POWER UK PLC/LONDON ELECTRICITY plc] Authorised Signatory SCHEDULE 5 FORMS OF ACCESSION DOCUMENTS PART I NOVATION CERTIFICATE To: ABN AMRO BANK N.V. as Agent From: [THE EXISTING BANK] and [THE NEW BANK] Date: [ ] ENTERGY POWER UK PLC - 1,250,000,000 pounds Revolving Credit Agreement dated 17th December, 1996 We refer to Clause 28.3 (Procedure for novations). 1. We [ ] (the "Existing Bank") and [ ] (the "New Bank") agree to the Existing Bank and the New Bank novating all the Existing Bank's Commitment(s) and/or rights and obligations referred to in the Schedule in accordance with Clause 28.3 (Procedure for novations). 2. The specified date for the purposes of Clause 28.3(c) is [date of novation]. 3. The Facility Office and address for notices of the New Bank for the purposes of Clause 34.2 (Addresses for notices) are set out in the Schedule. 4. This Novation Certificate is governed by English law. THE SCHEDULE Commitments/Rights and obligations to be novated [Details of the Commitments/rights and obligations of the Existing Bank to be novated]. [New Bank] [Facility Office Address for notices] [Existing Bank] [New Bank] ABN AMRO BANK N.V. By: By: By: Date: Date: Date: PART II BORROWER ACCESSION AGREEMENT To: ABN AMRO BANK N.V. as Agent From: LONDON ELECTRICITY plc and ENTERGY POWER UK PLC [ ], 199[ ] ENTERGY POWER UK PLC - 1,250,000,000 pounds Revolving Credit Agreement dated 17th December, 1996 (the "Credit Agreement") We refer to Clause 28.4 (Target as Borrower). London Electricity plc of Templar House, 81-87 High Holborn, London WC1V 6NU (Registered no. 2366852) (the "Proposed Borrower") agrees to become a Borrower and to be bound by the terms of the Credit Agreement as a Borrower in accordance with Clause 28.4 (Target as Borrower). The address for notices of the Proposed Borrower for the purposes of Clause 34.2 (Addresses for notices) is:- [ ] This Agreement is governed by English law. By: LONDON ELECTRICITY plc Authorised Signatory By: ENTERGY POWER UK PLC Authorised Signatory PART III FORM OF SYNDICATION AGREEMENT SUPPLEMENTAL AGREEMENT DATED [ ] relating to a 1,250,000,000 pounds Credit Agreement dated 17th December, 1996 for ENTERGY POWER UK PLC arranged by ABN AMRO BANK N.V. BANK OF AMERICA INTERNATIONAL LIMITED UNION BANK OF SWITZERLAND with ABN AMRO BANK N.V. as Agent ALLEN & OVERY London THIS AGREEMENT is dated [ ] between: (1) ENTERGY POWER UK PLC (Registered No. 3261188) (the "Company"); (2) LONDON ELECTRICITY plc (Registered No. 2366852) (the "Target")* ; (3) ABN AMRO BANK N.V., BANK OF AMERICA INTERNATIONAL LIMITED and UNION BANK OF SWITZERLAND as arrangers (in this capacity the "Arrangers"); (4) ABN AMRO BANK N.V., BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and UNION BANK OF SWITZERLAND as the banks party to the Credit Agreement (as defined below) as at today's date (the "Existing Banks"); (5) THE FINANCIAL INSTITUTIONS listed in Schedule 1 as the banks who wish to accede to the Credit Agreement as Banks (the "New Banks"); and (6) ABN AMRO BANK N.V. as agent (in this capacity the "Agent"). IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions In this Agreement, unless the contrary intention appears or the context otherwise requires: "Credit Agreement" means the Original Credit Agreement as amended pursuant to Clause 4 (Nature of this Agreement) of this Agreement. "Effective Date" means [ ]. "Original Credit Agreement" means the Credit Agreement dated 17th December, 1996 between the Company, the Arrangers, the Existing Banks and the Agent. 1.2 Incorporation of Original Credit Agreement interpretations (a) Terms defined in the Original Credit Agreement shall, unless the contrary intention appears or the context otherwise requires, have the same meaning in this Agreement. (b) Clauses 1.2 (Construction), 32 (Severability) and 33 (Counterparts) of the Original Credit Agreement shall apply to this Agreement, as though they were set out in full in this Agreement but as if references to the Original Credit Agreement are to be construed as references to this Agreement. 2. CONSENT AND CONFIRMATION [(a)]1 The Company, [the Target]2 the Arrangers, the Existing Banks and the Agent each consent to the New Banks becoming Banks and confirm that, except as expressly provided by the terms of this Agreement, each of the Finance Documents shall continue in full force and effect. [(b) It is acknowledged that the Guarantee will not be issued.]1. 3. NOVATION 3.1 Novation of Commitments and related rights and obligations On the Effective Date (regardless of whether a Default is then continuing): (a) each New Bank will become a Bank under the Credit Agreement with a Facility A Commitment, Facility B Commitment and Facility C Commitment as set out opposite its name in Schedule 2; (b) each Existing Bank's Facility A Commitment, Facility B Commitment and Facility C Commitment shall be and be deemed to be reduced down to, the respective amounts set out opposite its name in Schedule 2; and (c) each New Bank will automatically obtain and assume, and undertakes to perform, all of the rights and obligations of a Bank under and in respect of each of the Finance Documents in respect of the rights and obligations transferred to it under paragraphs (a) and (b) above[, including, without limitation, its corresponding proportion of the rights and obligations of the Existing Banks in respect of:] [List outstanding term loans and Guarantee, if issued.] 3.2 Amounts due on or before the Effective Date (a) All amounts (if any) payable to an Existing Bank by the Borrowers on or before the Effective Date (including, without limitation, all interest and fees payable on the Effective Date) in respect of any period ending prior to the Effective Date shall be for the account of the Existing Banks, and none of the New Banks shall have any interest in, or any rights in respect of, any such amounts. (b) If any Facility A Loan or Facility C Loan falls to be made on the Effective Date: (i) the Agent will promptly notify each of the New Banks of that fact (and the amount of its participation in that Facility A Loan or Facility C Loan in accordance with sub-paragraph (ii) below); and (ii) each Existing Bank and each New Bank shall participate in that Facility A Loan or Facility C Loan (subject to the terms of the Credit Agreement) as if the novation of the Facility A Commitments and the Facility C Commitments under Clauses 3.1(a) and (b) (Novation of Commitments and related rights and obligations) of this Agreement had taken effect prior to opening of business on the Business Day before the Effective Date, and the Company acknowledges that no Existing Bank will be obliged to participate in any such Loan to any greater extent. 3.3 Administrative details Each New Bank has delivered to the Agent its initial details for the purposes of Clause 34 (Notices) of the Credit Agreement. 4. NATURE OF THIS AGREEMENT The novation of Commitments and rights and obligations contemplated by this Agreement shall take effect (in accordance with its terms) as a novation so that: (a) Schedule 1 to this Agreement is substituted for Schedule 1 to the Credit Agreement on the Effective Date; and (b) Clause 28.3 (Procedure for novations) of the Credit Agreement shall apply to the Commitments, rights and obligations transferred, assumed and released under Clause 3.1 (Novation of Commitments and related rights and obligations) of this Agreement and to the associated rights and obligations under the Finance Documents, as if this Agreement were a Novation Certificate. 5. GOVERNING LAW This Agreement is governed by English law. This Agreement has been entered into on the date stated at the beginning of this Agreement. SCHEDULE 1 BANKS AND COMMITMENTS Banks Facility A Facility B Facility C Commitment Commitment Commitment Pounds Pounds Pounds [ SIGNATORIES (to the Syndication Agreement) Company ENTERGY POWER UK PLC By: Target LONDON ELECTRICITY plc By: Arrangers and Existing Banks ABN AMRO BANK N.V. By: BANK OF AMERICA INTERNATIONAL LIMITED By: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: UNION BANK OF SWITZERLAND By: New Banks [ ] Agent ABN AMRO BANK N.V. By: SCHEDULE 6 FORM OF GUARANTEE THIS DEED is dated [ ] 199[ ] and made by ABN AMRO BANK N.V. (the "Guarantor" which expression includes its successors and assigns). BACKGROUND (A) ENTERGY POWER UK PLC (Registered No: 3261188) (the "Company") has issued loan notes of an aggregate principal amount of pounds[ ] (the "Loan Notes") in connection with the offer for the shares in London Electricity plc. (B) The Guarantor has agreed to guarantee payments due from the Company to holders of the Loan Notes (the "Noteholders") subject to the terms of this Deed. IT IS AGREED as follows: 1. (a) Subject to the other terms of this Deed, the Guarantor irrevocably and unconditionally guarantees to each Noteholder for the time being and within five business days of a written demand by that Noteholder, the payment of the principal amount of each Loan Note held by it and the payment of any interest in respect of that principal amount; (b) the aggregate liability of the Guarantor under this Deed in respect of the principal amount of the Loan Notes is limited to pounds[ ]; and (c) the aggregate liability of the Guarantor under this Deed in respect of interest on the Loan Notes is limited to pounds[ ]. In this Guarantee a "business day" is a day on which banks are open for business (other than a Saturday or a Sunday) in London. 2. To be valid, any demand by a Noteholder under Clause 1 above must: (a) be in writing signed by the Noteholder with such signature being confirmed by the Noteholder's bankers or solicitors; (b) state that the Company has defaulted in payment of sums due in respect of the Loan Notes specifying the date of the default, the applicable period of grace (if any), the amount claimed from the Guarantor and the amount of principal and interest in respect of which the default by the Company has been made; and (c) be delivered to the Guarantor at its address at [ ] within 30 days of the due date of the relevant payment. 3. This guarantee is to be a continuing guarantee and (subject to Clause 5 below) shall remain in force until the date on which all moneys expressed to be payable by the Company under the terms of the Loan Notes shall have been paid. 4. (a) The obligations of the Guarantor under this guarantee shall not be affected by any concession or arrangement granted or made to or with the Company or by the liquidation of the Company; (b) the liability of the Guarantor is not to be increased or extended in any way by any compromise or arrangement but if the effect of any such compromise or arrangement is to extend the time of payment by the Company of any principal or interest secured by the Loan Notes and which the Guarantor is for the time being or may become liable to pay in respect thereof, and, without prejudice to Clause 5 below, the Guarantor shall have the benefit of that extension of time; and (c) the Guarantor will not be bound by any variation of the rights of the Noteholders unless that variation shall have been made with the prior written consent of the Guarantor. 5. Unless otherwise agreed by the Guarantor, the liability of the Guarantor under this guarantee shall terminate on the date falling [ ] or (if earlier) on the date on which all moneys expressed to be payable by the Company under the terms of the Loan Notes shall have been paid, except that the Guarantor shall remain liable in respect of any claims or demands validly made prior to that date to the extent not satisfied or withdrawn by that date. 6. This Deed is governed by English Law. The Guarantor has executed this Deed on the day and year first above written. [Executed as a Deed by ABN AMRO BANK N.V. ) acting by: ) [ ] ) and [ ]] ) SCHEDULE 7 FORM OF DEBENTURE DEBENTURE DATED 17th December, 1996 BETWEEN ENTERGY POWER UK PLC - and - ABN AMRO BANK N.V. London TABLE OF CONTENTS Clause Page 1. Interpretation 111 2. Fixed Security 113 3. Floating charge 113 4. Representations and warranties 114 5. Undertakings 114 7. When security becomes enforceable 116 8. Enforcement of security 116 9. Receiver 117 10. Powers of Receiver 118 12. Application of proceeds 120 13. Expenses and indemnity 120 14. Delegation 121 15. Further assurances 121 16. Power of attorney 121 17. Miscellaneous 121 18. Release 122 19. Governing law 122 Schedules 1. Form of notice of the Account Bank 123 2. Form of acknowledgement of the bank operating the Security Accounts 124 Signatories 125 THIS DEED is dated 17th December, 1996 between: (1) ENTERGY POWER UK PLC (Registered number 3261188) (the "Chargor"); and (2) ABN AMRO BANK N.V. (the "Agent") as agent and trustee for the Finance Parties (as defined in the Credit Agreement defined below). BACKGROUND: (A) The Chargor enters into this Deed in connection with the Credit Agreement (as defined below). (B) It is intended that this document takes effect as a deed notwithstanding the fact that a party may only execute this document under hand. IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions In this Deed: "Account Bank" means a person with whom a Security Account is maintained under Clause 6 (Security Accounts). "Credit Agreement" means the 1,250,000,000 pounds credit agreement dated 17th December, 1996 between (among others) the parties to this Deed. "Group Shares" means any shares in any member of the Group from time to time held by the Chargor or a nominee on its behalf, including the shares of the Chargor in the Target. "Receiver" means a receiver and manager or (if the Agent so specifies in the relevant appointment) a receiver, in either case, appointed under this Deed. "Related Rights" means: (a) any dividend or interest paid or payable in relation to any Shares; (b) any stocks, shares, securities, rights, moneys or property accruing or offered at any time in relation to any Shares by way of redemption, substitution, exchange, bonus or preference, under option rights or otherwise; and (c) all dividends, interest or other income in respect of any such asset as is referred to in paragraph (b) above. "Secured Liabilities" means all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally or in any other capacity whatsoever) of the Borrowers to any Finance Party under the Finance Documents except for any obligation which, if it were so included, would result in this Deed contravening Section 151 of the Companies Act 1985. The term "Finance Document" includes all amendments and supplements. "Security Account" means an account of the Chargor established under Clause 6 (Security accounts). "Security Assets" means all assets of the Chargor the subject of any security created by this Deed. "Security Period" means the period beginning on the date of this Deed and ending on the date on which the Agent is satisfied that all the Secured Liabilities have been unconditionally and irrevocably paid and discharged in full. "Shares" means the Group Shares, and any other stocks, shares, debentures, bonds or other securities and investments held by the Chargor. 1.2 Construction (a) Capitalised terms defined in the Credit Agreement have, unless expressly defined in this Deed, the same meaning in this Deed. (b) The provisions of Clause 1.2 of the Credit Agreement apply to this Deed as though they were set out in full in this Deed except that references to the Credit Agreement are to be construed as references to this Deed. (c) If the Agent (acting reasonably) considers that an amount paid by any Borrower to a Finance Party under a Finance Document is capable of being avoided or otherwise set aside on the liquidation or administration of that Borrower or otherwise, then that amount shall not be considered to have been irrevocably paid for the purposes of this Deed. (d) A reference in this Deed to any assets includes, unless the context otherwise requires, present and future assets. 2. FIXED SECURITY The Chargor, as beneficial owner and as security for the payment of all the Secured Liabilities, charges in favour of the Agent:- (a) by way of a first equitable mortgage all Shares held by it and/or any nominee on its behalf and all Related Rights accruing to the Shares; and (b) by way of first fixed charge:- (i) (to the extent not effectively mortgaged under paragraph (a) above) its interest in all the Shares and their Related Rights; (ii) to the fullest extent permitted by law, all moneys standing to the credit of any account (including the Security Accounts) with any person and the debts represented by them; (iii) all of the Chargor's book and other debts, the proceeds of the same and all other moneys due and owing to the Chargor and the benefit of all rights, securities and guarantees of any nature enjoyed or held by it in relation to any of the foregoing; and (iv) to the extent that they are able to be the subject of any Security Interest, the benefit of all licences, consents and authorisations (statutory or otherwise) held in connection with its business or the use of any Security Asset specified in any other sub-paragraph in this Clause and the right to recover and receive all compensation which may be payable to it in respect of them. The Agent may convert the equitable mortgage created in paragraph (a) above into a legal mortgage if a Default is outstanding. The mortgages and charges created by this Clause 2 are made with full title guarantee. 3. FLOATING CHARGE 3.1 Creation of floating charge The Chargor, as beneficial owner and as security for the payment of all of the Secured Liabilities, charges in favour of the Agent by way of a first floating charge all its assets not otherwise effectively mortgaged or charged by way of fixed mortgage or charge by Clause 2 (Fixed Security). 3.2 Conversion The Agent may by notice to the Chargor convert the floating charge created by this Deed into a fixed charge as regards all or any of the Chargor's assets specified in the notice if: (a) an Event of Default is outstanding; or (b) the Agent considers those assets to be in danger of being seized or sold under any form of distress, attachment, execution or other legal process or to be otherwise in jeopardy. 4. REPRESENTATIONS AND WARRANTIES 4.1 Representations and warranties The Chargor makes the representations and warranties set out in this Clause 4 to each Finance Party. 4.2 Security This Deed creates those Security Interests it purports to create and is not liable to be avoided or otherwise set aside on the liquidation or administration of the Chargor or otherwise. 4.3 Shares The Shares are fully paid and the Chargor is the sole beneficial owner of them, free from any Security Interest or option. 4.4 Times for making representations and warranties The representations and warranties set out in this Clause 4 are made on the date of this Deed and are deemed to be repeated by the Chargor on each date during the Security Period with reference to the facts and circumstances then existing. 5. UNDERTAKINGS 5.1 Duration The undertakings in this Clause 5 remain in force throughout the Security Period. 5.2 Restrictions on dealing The Chargor shall not (except as permitted under the Credit Agreement):- (a) create or permit to subsist any Security Interest on any Security Asset other than any Security Interest created by this Deed; or (b) sell, transfer, grant, or lease or otherwise dispose of any Security Asset, except for the disposal in the ordinary course of trade of any Security Asset subject to the floating charge created under Clause 3.1 (Creation of floating charge). 5.3 Book debts and receipts The Chargor shall:- (a) get in and realise the Chargor's: (i) securities to the extent held by way of temporary investment; and (ii) book and other debts and other moneys, in the ordinary course of its business and hold the proceeds of the getting in and realisation (until payment into a Security Account if required in accordance with paragraph (b) below) upon trust for the Agent; and (b) save to the extent that the Agent otherwise agrees, pay the proceeds of the getting in and realisation into a Security Account. 5.4 Notice to bank operating an account The Chargor will give notice to any bank (other than the Agent) operating an account of the Chargor on the date of this Deed or (if later) the date the account is opened, substantially in the form of Schedule 1, and shall use its reasonable endeavours to procure that the relevant bank acknowledges the notice substantially in the form of Schedule 2. 5.5 Deposit of Shares The Chargor shall:- (a) deposit with the Agent, or as the Agent may direct, all certificates, bearer instruments, and other documents of title or evidence of ownership in relation to the Shares and their Related Rights; and (b) execute and deliver to the Agent all share transfers and other documents which may be requested by the Agent in order to enable the Agent or its nominees to be registered as the owner or otherwise obtain a legal title to the Shares and their Related Rights. 6. SECURITY ACCOUNTS 6.1 Accounts All Security Accounts must be maintained at a branch of the Account Bank approved by the Agent. The initial Account Bank is the Agent. 6.2 Change of Account Bank (a) The Account Bank may be changed to another bank or financial institution if the Agent so requires. (b) A change only becomes effective upon the proposed new Account Bank agreeing with the Agent and the Chargor, in a manner satisfactory to the Agent, to fulfil the role of the Account Bank under this Deed. (c) In the event of a change of Account Bank, the amount (if any) standing to the credit of the Security Accounts maintained with the old Account Bank shall be transferred to the corresponding Security Accounts maintained with the new Account Bank forthwith upon the appointment taking effect. The Chargor shall take any action which the Agent may require to facilitate a change of Account Bank and any transfer of credit balances (including the execution of bank mandate forms). 6.3 Interest Amounts standing to the credit of each Security Account shall bear interest at a rate considered by the Account Bank to be a fair market rate. 6.4 Withdrawals (a) Except with the prior consent of the Agent, the Chargor shall not withdraw any moneys standing to the credit of a Security Account except for a purpose not prohibited by the Credit Agreement at a time when the security constituted by this Deed is not enforceable or has not been enforced. (b) The Agent (or a Receiver) may (subject to the payment of any claims having priority to this security) withdraw amounts standing to the credit of a Security Account to meet an amount due and payable under the Finance Documents when it is due and payable. 7. WHEN SECURITY BECOMES ENFORCEABLE The security constituted by this Deed shall become immediately enforceable upon the occurrence of an Event of Default and the power of sale, shall be immediately exerciseable upon and at any time after the occurrence of any Event of Default. After the security constituted by this Deed has become enforceable, the Agent may in its absolute discretion enforce all or any part of the security in any manner it sees fit or as the Majority Banks direct. 8. ENFORCEMENT OF SECURITY 8.1 General For the purposes of all powers implied by statute, the Secured Liabilities are deemed to have become due and payable on the date of this Deed and section 103 and section 93 of the Law of Property Act 1925 shall not apply to the security constituted by this Deed. 8.2 Shares After the security constituted by this Deed has become enforceable, the Agent may exercise (in the name of the Chargor and without any further consent or authority on the part of the Chargor) any voting rights and any powers or rights which may be exercised by the person or persons in whose name any Share and its Related Rights are registered or who is the holder of any of them or otherwise (including all the powers given to trustees by Section 10(3) and (4) of the Trustee Act, 1925 as amended by Section 9 of the Trustee Investment Act, 1961 in respect of securities or property subject to a trust). Until that time, the voting rights, powers and other rights in respect of the Shares shall (if exercisable by the Agent) be exercised in any manner which the Chargor may direct in writing. 8.3 Contingencies If the Agent enforces the security constituted by this Deed at a time when no amounts are due under the Finance Documents but at a time when amounts may or will become so due, the Agent (or the Receiver) may pay the proceeds of any recoveries effected by it into a Security Account. 8.4 No liability as mortgagee in possession Neither the Agent nor any Receiver will be liable, by reason of entering into possession of a Security Asset, to account as mortgagee in possession or for any loss on realisation or for any default or omission for which a mortgagee in possession might be liable. 8.5 Agent of the Chargor Each Receiver is deemed to be the agent of the Chargor for all purposes and accordingly is deemed to be in the same position as a Receiver duly appointed by a mortgagee under the Law of Property Act 1925. The Chargor alone shall be responsible for his contracts, engagements, acts, omissions, defaults and losses and for liabilities incurred by him and no Finance Party shall incur any liability (either to the Chargor or to any other person) by reason of the Agent making his appointment as a Receiver or for any other reason. 8.6 Protection of third parties No person (including a purchaser) dealing with the Agent or a Receiver or its or his agents will be concerned to enquire:- (a) whether the Secured Liabilities have become payable; or (b) whether any power which the Agent or the Receiver is purporting to exercise has become execrable; or (c) whether any money remains due under the Finance Documents; or (d) how any money paid to the Agent or to the Receiver is to be applied. 8.7 Redemption of prior mortgages At any time after the security constituted by this Deed has become enforceable, the Agent may:- (a) redeem any prior Security Interest against any Security Asset; and/or (b) procure the transfer of that Security Interest to itself; and/or (c) settle and pass the accounts of the prior mortgagee, chargee or encumbrancer; any accounts so settled and passed shall be conclusive and binding on the Chargor. All principal moneys, interest, costs, charges and expenses of and incidental to any such redemption and/or transfer shall be paid by the Chargor to the Agent on demand. 9. RECEIVER 9.1 Appointment of Receiver At any time after the security constituted by this Deed becomes enforceable or, if the Chargor so requests the Agent in writing, at any time, the Agent may without further notice appoint under seal or in writing under its hand any one or more persons to be a Receiver of all or any part of the Security Assets in like manner in every respect as if the Agent had become entitled under the Law of Property Act 1925 to exercise the power of sale conferred under the Law of Property Act 1925. 9.2 Removal The Agent may by writing under its hand (subject to any requirement for an order of the court in the case of an administrative receiver) remove any Receiver appointed by it and may, whenever it deems it expedient, appoint a new Receiver in the place of any Receiver whose appointment may for any reason have terminated. 9.3 Remuneration The Agent may fix the remuneration of any Receiver appointed by it. 9.4 Relationship with Agent To the fullest extent permitted by law, any right, power or discretion conferred by this Deed (either expressly or impliedly) upon a Receiver of the Security Assets may after the security created by this Deed becomes enforceable be exercised by the Agent in relation to any Security Asset without first appointing a Receiver or notwithstanding the appointment of a Receiver. 10. POWERS OF RECEIVER 10.1 General (a) Each Receiver has, and is entitled to exercise, all of the rights, powers and discretions set out below in this Clause 10 in addition to those conferred by the Law of Property Act 1925 on any receiver appointed under the Law of Property Act 1925. (b) If there is more than one Receiver holding office at the same time, each Receiver may (unless the document appointing him states otherwise) exercise all of the powers conferred on a Receiver under this Deed individually and to the exclusion of any other Receivers. (c) A Receiver who is an administrative receiver of the Chargor has all the rights, powers and discretions of an administrative receiver under the Insolvency Act 1986. 10.2 Possession A Receiver may take immediate possession of, get in and collect any Security Assets. 10.3 Carry on business A Receiver may carry on the business of the Chargor as he thinks fit. 10.4 Protection of assets A Receiver may do all acts as he may think fit which the Chargor might do in the ordinary conduct of its business as well for the protection as for the improvement of the Security Assets. 10.5 Employees A Receiver may appoint and discharge managers, officers, agents, accountants, servants, workmen and others for the purposes of this Deed upon such terms as to remuneration or otherwise as he may think proper and discharge any such persons appointed by the Chargor. 10.6 Borrow money A Receiver may raise and borrow money either unsecured or on the security of any Security Asset either in priority to the security constituted by this Deed or otherwise and generally on any terms and for whatever purpose which he thinks fit. No person lending that money is concerned to enquire as to the propriety or purpose of the exercise of that power or to check the application of any money so raised or borrowed. 10.7 Sale of assets A Receiver may sell, exchange, convert into money and realise any Security Asset by public auction or private contract and generally in any manner and on any terms which he thinks proper. The consideration for any such transaction may consist of cash, debentures or other obligations, shares, stock or other valuable consideration and any such consideration may be payable in a lump sum or by instalments spread over such period as he thinks fit. 10.8 Compromise A Receiver may settle, adjust, refer to arbitration, compromise and arrange any claims, accounts, disputes, questions and demands with or by any person who is or claims to be a creditor of the Chargor or relating in any way to any Security Asset. 10.9 Legal Actions A Receiver may bring, prosecute, enforce, defend and abandon all actions, suits and proceedings in relation to any Security Asset which may seem to him to be expedient. 10.10 Receipts A Receiver may give valid receipts for all moneys and execute all assurances and things which may be proper or desirable for realising any Security Asset. 10.11 Subsidiaries A Receiver may form a Subsidiary of the Chargor and transfer to that Subsidiary any Security Asset. 10.12 Delegation A Receiver may delegate his powers in accordance with Clause 14 (Delegation). 10.13 Other powers A Receiver may:- (a) do all other acts and things which he may consider desirable or necessary for realising any Security Asset or incidental or conducive to any of the rights, powers or discretions conferred on a Receiver under or by virtue of this Deed; and (b) exercise in relation to any Security Asset all the powers, authorities and things which he would be capable of exercising if he were the absolute beneficial owner of the same, and may use the name of the Chargor for any of the above purposes. 11. SET OFF The Agent may, at any time after this Deed has become enforceable, without notice to or making demand on the Chargor and whether or not all or any of the Secured Liabilities have matured: (a) set off any of the Secured Liabilities against any liability (whether or not matured) owed by the Agent to the Chargor in respect of any moneys in the Security Accounts regardless of the place or payment, booking branch or currency of either obligation; and/or (b) debit any account of the Chargor (whether sole or joint) with the Agent at any of its offices anywhere (including an account opened specially for that purpose) with all or any part of the Secured Liabilities; and/or (c) apply any moneys in a Security Account in or towards the payment or discharge of the Secured Liabilities. 12. APPLICATION OF PROCEEDS Any moneys received by the Agent or any Receiver after this Deed has become enforceable shall be applied in the following order of priority (but without prejudice to the right of any Finance Party to recover any shortfall from the Chargor): (a) in satisfaction of or provision for all costs and expenses incurred by the Agent or any Receiver and of all remuneration due to the Receiver under this Deed; (b) in or towards payment of the Secured Liabilities or such part of them as is then due and payable; and (c) in payment of the surplus (if any) to the Chargor or other person entitled to it. 13. EXPENSES AND INDEMNITY The Chargor shall forthwith on demand pay all costs and expenses (including legal fees) incurred in connection with this Deed by any Finance Party, Receiver, attorney, manager, agent or other person appointed by the Agent under this Deed, and keep each of them indemnified against any failure or delay in paying the same. 14. DELEGATION The Agent and any Receiver may delegate by power of attorney or in any other manner to any person any right, power or discretion exercisable by them under this Deed. Any such delegation may be made upon the terms (including power to sub-delegate) and subject to any regulations which the Agent or that Receiver (as the case may be) may think fit. Neither the Agent nor any Receiver will be in any way liable or responsible to the Chargor for any loss or liability arising from any act, default, omission or misconduct on the part of any such delegate or sub- delegate. 15. FURTHER ASSURANCES The Chargor shall, at its own expense, take whatever action the Agent or a Receiver may reasonably require for:- (a) perfecting or protecting the security intended to be created by this Deed over any Security Asset; (b) facilitating the realisation of any Security Asset, or the exercise of any right, power or discretion exercisable, by the Agent or any Receiver or any of its or their delegates or sub-delegates in respect of any Security Asset, including the execution of any transfer, conveyance, assignment or assurance of any property whether to the Agent or to its nominees, and the giving of any notice, order or direction and the making of any registration, which, in any such case, the Agent may think expedient. 16. POWER OF ATTORNEY The Chargor, by way of security, irrevocably and severally appoints the Agent, each Receiver and any of their delegates or sub-delegates to be its attorney to take any action which the Chargor is obliged to take under this Deed, including under Clause 15 (Further Assurances). The Chargor ratifies and confirms whatever any attorney does or purports to do pursuant to its appointment under this Clause. 17. MISCELLANEOUS 17.1 Covenant to pay The Chargor shall pay or discharge the Secured Liabilities in the manner provided for in the Finance Documents. 17.2 Continuing security The security constituted by this Deed is continuing and will extend to the ultimate balance of all the Secured Liabilities, regardless of any intermediate payment or discharge in whole or in part. 17.3 Additional security The security constituted by this Deed is in addition to and is not in any way prejudiced by any other security now or subsequently held by any Finance Party for any Secured Liability. 17.4 Tacking Each Bank shall perform its obligations under the Credit Agreement (including any obligation to make available further advances). 17.5 New Accounts If a Finance Party receives, or is deemed to be affected by, notice, whether actual or constructive, of any subsequent charge or other interest affecting any Security Asset and/or the proceeds of sale of any Security Asset, the Finance Party may open a new account with the Chargor. If the Finance Party does not open a new account, it shall nevertheless be treated as if it had done so at the time when it received or was deemed to have received notice. As from that time all payments made to the Finance Party will be credited or be treated as having been credited to the new account and will not operate to reduce any amount for which this Deed is security. 17.6 Time deposits Without prejudice to any right of set-off any Finance Party may have under any other Finance Document or otherwise, if any time deposit matures on any account the Chargor has with any Finance Party at a time within the Security Period when: (a) this security has become enforceable; and (b) no amount of the Secured Liabilities is due and payable, that time deposit shall automatically be renewed for any further maturity which that Finance Party considers appropriate. 18. RELEASE Upon the expiry of the Security Period (but not otherwise), the Finance Parties shall, at the request and cost of the Chargor, take whatever action is necessary to release the Security Assets from the security constituted by this Deed. 19. GOVERNING LAW This Deed is governed by English law. This Deed has been entered into as a deed on the date stated at the beginning of this Deed. SCHEDULE 1 Form of notice of the Account Bank To: [ ] [ ], 199[ ] Dear Sirs, We give you notice that, by a Debenture dated 17th December, 1996, Entergy Power UK PLC charged (by way of a first fixed and floating charge) to ABN AMRO Bank N.V. (as agent and trustee) (the "Agent") all moneys (including interest) from time to time standing to the credit of certain bank accounts (the "Accounts") and the debt or debts represented thereby. We irrevocably instruct and authorise you to disclose to the Agent without any reference to or further authority from us and without any inquiry by you as to the justification for the disclosure, any information relating to any of the Accounts maintained with you from time to time as the Agent may, at any time and from time to time, request you to disclose to it. This letter is governed by English law. Would you please confirm your agreement to the above by sending the enclosed acknowledgement to the Agent with a copy to ourselves. Yours faithfully, ................................ (Authorised signatory) Entergy Power UK PLC SCHEDULE 2 Form of acknowledgement of the Account Bank To: ABN AMRO Bank N.V. For the attention of: [ ] [relevant address applying under Clause 34 (Notices) of the Credit Agreement] [ ], 199[ ] Dear Sirs, We confirm receipt from Entergy Power UK PLC (the "Company") of a notice dated [ ] of a charge upon the terms of a Debenture dated 17th December, 1996 of all moneys (including interest) from time to time standing to the credit of certain bank accounts of the Company (the "Accounts") and the debt or debts represented thereby. We confirm that we have not received notice of the interest of any third party in any of the Accounts maintained with us. We confirm that until you give us notice in writing that the assets assigned to you under the Debenture have been released and reassigned to the Company, we do not have and will not make or exercise, any claims or demands, any rights of counterclaim, rights of set-off or any other equities against the Company in respect of the Accounts maintained with us. This letter is governed by English law. Yours faithfully, ................................. [ ] SIGNATORIES TO THE DEBENTURE THE COMMON SEAL of ) ENTERGY POWER UK PLC was ) affixed to this deed in the ) presence of ) Director Director/Secretary The Agent ABN AMRO BANK N.V. By: SCHEDULE 8 FORM OF LEGAL OPINIONS OF ALLEN & OVERY PART I TO BE DELIVERED BEFORE THE FIRST LOAN To: The Finance Parties (as defined in the Credit Agreement defined below) Dear Sirs, Entergy Power UK PLC(the "Company") - 1,250,000,000 pounds Credit Agreement dated 17th December, 1996 (the "Credit Agreement") We have received instructions from and participated in discussions with the Arrangers in connection with the Credit Agreement. Terms defined in the Credit Agreement have the same meaning in this opinion. The Credit Agreement and the Debenture is each called an "Agreement". "Security Assets" has, in relation to the Debenture, the meaning given to it in the Debenture For the purposes of this opinion we have examined the following documents:- (a) a signed copy of the Credit Agreement; (b) an executed copy of the Debenture dated [ ] between the Company and the Agent; (c) a certified copy of the memorandum and articles of association and certificate of incorporation of the Company; and (d) a certified copy of the minutes of a meeting of the board of directors of the Company dated [ ]. On [ ] December, 1996, we carried out a search of the Company at the Companies Registry. On [ ] December, 1996 we made a telephone search of the Company at the winding- up petitions at the Companies court. The above are the only documents or records we have examined, and the only searches and enquiries we have carried out, for the purposes of this opinion. We assume that:- (i) the Company is not unable to pay its debts within the meaning of section 123 of the Insolvency Act, 1986 at the time it enters into an Agreement and will not as a consequence of either Agreement be unable to pay its debts within the meaning of that section; (ii) no step has been taken to wind up the Company or appoint a receiver in respect of it or any of its assets, although the searches referred to above give no indication that any winding-up order or appointment of a receiver has been made; (iii)all signatures and documents are genuine; (iv) all documents are and remain up-to-date; (v) the correct procedure was carried out at the board meeting referred to in paragraph (d) above; for example, there was a valid quorum, all relevant interests of directors were declared and the resolutions were duly passed at the meeting; and (vi) each Agreement is a legally binding, valid and enforceable obligation of each party to it other than the Company. Subject to the qualifications set out below and to any matters not disclosed to us, it is our opinion that, so far as the present laws of England are concerned:- (1) Status: The Company is a company incorporated with limited liability under the laws of England and is not in liquidation. (2) Powers and authority: The Company has the corporate power to enter into and perform the Agreements and has taken all necessary corporate action to authorise the execution, delivery and performance of the Agreements. (3) Legal validity: Each Agreement constitutes the Company's legally binding, valid and enforceable obligation. (4) Non-conflict: The execution, delivery and performance by the Company of each Agreement will not violate any provision of (i) any existing English law applicable to companies generally, or (ii) the memorandum or articles of association of the Company. (5) Consents: No authorizations of governmental, judicial or public bodies or authorities in England are required by the Company in connection with the performance, validity or enforceability of either Agreement. (6) Taxes: All payments due from the Company under the Credit Agreement may be made without deduction of any United Kingdom taxes, if, in the case of any interest, the person which made the part of the Loan to which the interest relates was, at the time of the making of the Loan, a "bank" as defined in section 840A of the Income and Corporation Taxes Act 1988 and the recipient of the interest is within the charge to United Kingdom corporation tax as regards that interest. (7) Registration requirements: Except for registration of the Debenture at Companies House under section 395 of the Companies Act 1985, it is not necessary or advisable to file, register or record either Agreement in any public place or elsewhere in England. (8) Stamp duties: No stamp, registration or similar tax or charge is payable in England in respect of either Agreement. (9) Security: Subject to due registration where required, the Debenture creates security interests in the Security Assets concerned. This opinion is subject to the following qualifications:- (i) This opinion is subject to all insolvency and other laws affecting the rights of creditors or secured creditors generally. (ii) No opinion is expressed on matters of fact. (iii)We assume that no foreign law affects the conclusions stated above. (iv) No opinion is expressed as to: (a) the title of the Company to any Security Asset; or (b) the priority of any security created or to be created by the Debenture; or (c) the nature of the security created by the Debenture (whether fixed or floating); or (d) the marketability of, or rights of enforcement over, the Security Assets. These matters are too lengthy to cover in this letter. (v) It may not be possible to create a valid security interest over a bank account in favour of the bank with which the account is maintained. (vi) The term "enforceable" means that a document is of a type and form enforced by the English courts. It does not mean that each obligation will be enforced in accordance with its terms. Certain rights and obligations may be qualified by the non-conclusivity of certificates, doctrines of good faith and fair conduct, the availability of equitable remedies and other matters, but in our view these qualifications would not defeat your legitimate expectations in any material respect. This opinion is given for the sole benefit of the Finance Parties as at the date of this opinion (and their professional advisers) and may not be relied upon by or disclosed to any other person. Yours faithfully PART II TO BE DELIVERED IN RESPECT OF THE TARGET To: The Finance Parties (as defined in the Credit Agreement defined below) Dear Sirs, Entergy Power UK PLC (the "Company")/London Electricity plc (the "Target") - 1,250,000,000 pounds Credit Agreement dated 17th December, 1996 (the "Credit Agreement") We have received instructions from and participated in discussions with the Agent in connection with the Credit Agreement. Terms defined in the Credit Agreement have the same meaning in this opinion. For the purposes of this opinion we have examined the following documents:- (a) a signed copy of the Credit Agreement; (b) a copy of the Borrower Accession Agreement dated [ ] and executed by the Target; (c) a certified copy of the memorandum and articles of association and certificate of incorporation of the Target; and (d) a certified copy of the minutes of a meeting of the board of directors of the Target dated [ ]. On [ ], 199[ ], we carried out a search of the Target at the Companies Registry. On [ ], 199[ ] we made a telephone search of the Target at the winding-up petitions at the Companies court. The above are the only documents or records we have examined, and the only searches and enquiries we have carried out, for the purposes of this opinion. We assume that:- (i) no step has been taken to wind up the Target or appoint a receiver in respect of it or any of its assets, although the searches referred to above give no indication that any winding-up order or appointment of a receiver has been made; (ii) all signatures and documents are genuine; (iii)all documents are and remain up-to-date; (iv) the correct procedure was carried out at the board meeting referred to in paragraph (d) above: for example, there was a valid quorum, all relevant interests of directors were declared and the resolutions were duly passed at the meeting; and (v) the Credit Agreement is a legally binding, valid and enforceable obligation of each party to it. Subject to the qualifications set out below and to any matters not disclosed to us, it is our opinion that, so far as the present laws of England are concerned:- (1) Status: The Target is a company incorporated with limited liability under the laws of England and is not in liquidation. (2) Powers and authority: The Target has the corporate power to enter into and perform the Agreements and has taken all necessary corporate action to authorise the execution, delivery and performance of the Credit Agreement. (3) Legal validity: The Credit Agreement constitutes the Target's legally binding, valid and enforceable obligation. (4) Non-conflict: The execution, delivery and performance by the Target of the Borrower Accession Agreement and the Credit Agreement will not violate any provision of (i) any existing English law applicable to companies generally, or (ii) the memorandum or articles of association of the Target. (5) Consents: No authorizations of governmental, judicial or public bodies or authorities in England are required by the Target in connection with the performance, validity or enforceability of the Borrower Accession Agreement or the Credit Agreement. (6) Taxes: All payments due from the Target under the Credit Agreement may be made without deduction of any United Kingdom taxes, if, in the case of any interest, the person which made the part of the Loan to which the interest relates was, at the time of the making of the Loan, a "bank" as defined in section 840A of the Income and Corporation Taxes Act 1988 and the recipient of the interest is within the charge to United Kingdom corporation tax as regards that interest. (7) Registration requirements: It is not necessary or advisable to file, register or record the Borrower Accession Agreement in any public place or elsewhere in England. (8) Stamp duties: No stamp, registration or similar tax or charge is payable in England in respect of the Borrower Accession Agreement. This opinion is subject to the following qualifications:- (i) This opinion is subject to all insolvency and other laws affecting the rights of creditors generally. (ii) No opinion is expressed on matters of fact. (iii)We assume that no foreign law affects the conclusions stated above. (iv) The term "enforceable" means that a document is of a type and form enforced by the English courts. It does not mean that each obligation will be enforced in accordance with its terms. Certain rights and obligations may be qualified by the non-conclusivity of certificates, doctrines of good faith and fair conduct, the availability of equitable remedies and other matters, but in our view these qualifications would not defeat your legitimate expectations in any material respect. This opinion is given for the sole benefit of the Finance Parties as at the date of this opinion (and their professional advisers) and may not be relied upon by or disclosed to any other person. Yours faithfully SCHEDULE 9 FORM OF SUBORDINATION AGREEMENT DATED [ ] , 199[ ] BETWEEN ENTERGY POWER UK PLC -and- THE JUNIOR CREDITOR (as defined in this Deed) -and- ABN AMRO BANK N.V. as Security Agent _________________________________ SUBORDINATION AGREEMENT relating to a 1,250,000,000 pounds credit agreement dated 17th December, 1996 between ENTERGY POWER UK PLC and others __________________________________ London TABLE OF CONTENTS Clause Page 1. Interpretation 134 2. The Company's undertakings 136 3. Junior Creditor's undertakings 136 4. Turnover of non-permitted recoveries 137 5. Subordination on insolvency 137 6. Consents 138 7. Representations and warranties 138 8. Subrogation by the Junior Creditor 138 9. Protection of subordination 139 10. Preservation of Junior Debt 140 11. Changes to the parties 140 12. Miscellaneous 140 13. Indemnity 141 14. Waivers; remedies cumulative 141 15. Severability 141 16. Governing law 136 Signatories 142 THIS SUBORDINATION AGREEMENT is dated [ ], 1996 between: (1) [ ] (the "Junior Creditor"); (2) ENTERGY POWER UK PLC (Registered No. 3261188)(the "Company"); and (3) ABN AMRO BANK N.V. (the "Agent") as agent and trustee for the Finance Parties. BACKGROUND: (A) By the Credit Agreement the Banks have agreed to make available a credit facility of up to 1,250,000,000 pounds to the Borrowers. (B) The Junior Creditor has agreed to subordinate all amounts payable under the Junior Finance Documents on the terms of this Deed. (C) It is intended that this document takes effect as a deed notwithstanding the fact that a party may only execute this document under hand. 1. INTERPRETATION 1.1 Definitions In this Deed: "Credit Agreement" means the agreement dated 17th December, 1996 between (among others) the Borrowers and the Agent for a credit facility of up to 1,250,000,000 pounds. "Junior Debt" means all present and future liabilities (actual or contingent) payable or owing to the Junior Creditor by the Company under or in connection with the Junior Finance Documents relating thereto together with: (a) any permitted novation, deferral or extension of any of those liabilities; (b) any further advances which may be made by the Junior Creditor to the Company under any agreement expressed to be supplemental to any Junior Finance Document plus all interest, fees and costs in connection therewith; (c) any claim for damages or restitution in the event of rescission of any of those liabilities or otherwise in connection with the Junior Finance Documents; (d) any claim against the Company flowing from any recovery by the Company of a payment or discharge in respect of those liabilities on grounds of preference or otherwise; and (e) any amounts (such as post-insolvency interest) which would be included in any of the above for any discharge, non-provability, unenforceability or non- allowability of the same in any insolvency or other proceedings. "Junior Finance Documents" means [specify debt document] and all variations, replacements, novations of and supplements thereto. "Majority Banks" has the meaning given to it in the Credit Agreement. "Senior Debt" means all present and future liabilities (actual or contingent) payable or owing by any Borrower to the Finance Parties under or in connection with the Finance Documents together with: (a) any refinancing, novation, refunding, deferral or extension of any of those liabilities; (b) any further advances which may be made by the Finance Parties to any Borrower under any agreement expressed to be supplemental to any Finance Document plus all interest, fees and costs in connection therewith; (c) any claim for damages or restitution in the event of rescission of any of those liabilities or otherwise in connection with the Finance Documents; (d) any claim against any Borrower flowing from any recovery by such Borrower of a payment or discharge in respect of those liabilities on grounds of preference or otherwise; and (e) any amounts (such as post-insolvency interest) which would be included in any of the above for any discharge, non-provability, unenforceability or non-allowability of the same in any insolvency or other proceedings. "Senior Liabilities" means all present and future obligations and liabilities (whether actual or contingent and whether owned jointly or severally or in any capacity whatsoever) of each Borrower to any Finance Party under each Finance Document to which such Borrower is a party. 1.2 Construction (a) Capitalised terms defined in the Credit Agreement have, unless expressly defined in this Deed, the same meaning in this Deed. (b) The provisions of Clause 1.2 of the Credit Agreement apply to this Deed as though they were set out in full in this Deed except that references to the Credit Agreement are to be construed as references to this Deed. (c) Any document, instrument or agreement shall be construed as to include such document, instrument or agreement as varied, amended, supplemented or novated from time to time. 2. THE COMPANY'S UNDERTAKINGS So long as any Senior Debt is outstanding and until the Senior Liabilities have been irrevocably paid in full, the Company will not except as permitted under the Finance Documents (including, without limitation, Clause 19.15 (Distributions)) or except as the Agent, acting on the instructions of the Majority Banks, has previously consented: (a) subject to Clause 5 (Subordination on Insolvency), pay or repay or purchase or acquire, any of the Junior Debt; or (b) discharge any of the Junior Debt by set-off; or (c) create or permit to subsist security over any of its assets for any of the Junior Debt; or (d) amend, vary, waive or release any term of the Junior Finance Documents (other than any procedural or administrative change or any other change which can reasonably be expected not to prejudice any Senior Debt or any Finance Party); or (e) take or omit to take any action whereby the subordination achieved by this Deed will be impaired. 3. JUNIOR CREDITOR'S UNDERTAKINGS So long as any Senior Debt is outstanding and until the Senior Liabilities have been irrevocably paid in full, except, as permitted under the Finance Documents or except as the Agent (acting on the instructions of the Majority Banks) has previously consented, the Junior Creditor will: (a) subject to Clause 5 (Subordination on insolvency), not demand or receive payment of any of the Junior Debt from the Company or any other source or apply any money or assets in discharge of any Junior Debt; (b) not discharge any of the Junior Debt by set-off; (c) not permit to subsist or receive any security for any of the Junior Debt; (d) not permit to subsist or receive any guarantee or other assurance against loss in respect of any of the Junior Debt; (e) not amend, vary, waive or release any term of the Junior Finance Documents (other than any procedural or administrative change or any other change which can reasonably be expected not to prejudice any Senior Debt or any Finance Party); (f) promptly notify the Agent of any default or event of default in respect of the Junior Debt; (g) unless Clause 5 (Subordination on insolvency) applies, not: (i) declare any of the Junior Debt prematurely due and payable; (ii) enforce the Junior Debt by execution or otherwise; or (iii)initiate or take any steps with a view to any insolvency, reorganisation or dissolution proceedings in respect of the Company; and (h) not take or omit to take any action whereby the subordination achieved by this Deed may be impaired. 4. TURNOVER OF NON-PERMITTED RECOVERIES 4.1 Non-permitted payment If, other than as permitted under the Finance Documents: (a) the Junior Creditor receives a payment or distribution in respect of any of the Junior Debt from the Company or any other source; or (b) the Junior Creditor receives the proceeds of any enforcement of any security or any guarantee for any Junior Debt; or (c) the Company makes any payment or distribution to the Junior Creditor on account of the purchase or other acquisition of any of the Junior Debt, the Junior Creditor will hold the same in trust for the Finance Parties and pay and distribute it to the Agent for application towards the Senior Debt until the Senior Debt is irrevocably paid in full. 4.2 Non-permitted set-offs If, other than as permitted under the Finance Documents, for any reason, any of the Junior Debt is discharged by set-off, the Junior Creditor will promptly pay an amount equal to the discharge to the Agent for application towards the Senior Debt until the Senior Debt is irrevocably paid in full. 4.3 Failure of trust If, for any reason, a trust in favour of, or a holding of property for, the Finance Parties under this Deed is invalid or unenforceable, the Junior Creditor will pay and deliver to the Agent an amount equal to the payment, receipt or recovery which the Junior Creditor would otherwise have been bound to hold on trust for or as property of the Finance Parties. 5. SUBORDINATION ON INSOLVENCY If any of the events set out in Clauses 20.6 (Insolvency) to 20.10 (Analogous proceedings) (inclusive) of the Credit Agreement occurs THEN (a) the Junior Debt will be subordinate in right of payment to the Senior Debt; (b) the Agent may, and is irrevocably authorised on behalf of the Junior Creditor to, (i) claim, enforce and prove for the Junior Debt, (ii) file claims and proofs, give receipts and take all such proceedings and do all such things as the Agent reasonably sees fit to recover the Junior Debt and (iii) receive all distributions on the Junior Debt for application towards the Senior Debt; (c) if and to the extent that the Agent is not entitled to do any of the foregoing, the Junior Creditor will do so in good time as reasonably directed by the Agent; (d) the Junior Creditor will hold all distributions in cash or in kind received or receivable by it in respect of the Junior Debt from the Company or from any other source in trust for the Finance Parties and will (at the Junior Creditor's expense) pay and transfer the same to the Agent for application towards the Senior Debt until the Senior Debt is irrevocably paid in full; and (e) the trustee in bankruptcy, liquidator, assignee or other person distributing the assets of the Company or their proceeds is directed to pay distributions on the Junior Debt direct to the Agent for application towards the Senior Debt until the Senior Debt is irrevocably paid in full. The Junior Creditor will give all such notices and do all such things as the Agent may reasonably direct to give effect to this provision. 6. CONSENTS The Junior Creditor will not have any remedy against the Company or other Borrower, the Agent or the Finance Parties by reason of any transaction entered into between the Agent and/or the Finance Parties and the Company which violates any Junior Finance Document and the Junior Creditor may not object to any such transaction by reason of any provisions of the Junior Finance Documents. 7. REPRESENTATIONS AND WARRANTIES The Junior Creditor represents and warrants to the Agent and each Finance Party that this Deed: (a) is within its powers and has been duly authorised by it; (b) constitutes its legal, valid and binding obligations; and (c) does not conflict in any material respect with any law or regulation or its constitutional documents or any document binding on it and that it has obtained all necessary consents for its performance of this Deed. 8. SUBROGATION BY THE JUNIOR CREDITOR If any of the Senior Debt is wholly or partially paid out of any proceeds received in respect of or on account of the Junior Debt, the Junior Creditor will to that extent be subrogated to the Senior Debt so paid but not before all the Senior Debt is paid in full. 9. PROTECTION OF SUBORDINATION 9.1 Continuing subordination The subordination provisions in this Deed constitute a continuing subordination and benefit the ultimate balance of the Senior Debt regardless of any intermediate payment or discharge of the Senior Debt in whole or in part. 9.2 Waiver of defences The subordination in this Deed and the obligations of the Junior Creditor under this Deed will not be affected by any act, omission, matter or thing which, but for this provision, would reduce, release or prejudice the subordination or any of those obligations in whole or in part, including without limitation: (a) any waiver granted to, or composition with, any Borrower or other person; (b) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Borrower or other person in respect of the Senior Debt or otherwise or any failure to realise the full value of any security; (c) any unenforceability, illegality or invalidity of any obligation of any Borrower or security in respect of the Senior Debt or any other document or security. 9.3 Immediate recourse The Junior Creditor waives any right it may have of first requiring any Finance Party (or the Agent or any trustee or other agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming the benefit of this Deed. The Agent may refrain from applying or enforcing any money, rights or security unless and until instructed by the Majority Banks. The Majority Banks may give or refrain from giving instructions to the Agent to enforce or refrain from enforcing any security as long as they see fit. 9.4 Appropriations Until the Senior Liabilities have been irrevocably paid in full, the Agent may: (a) apply any moneys or property received under this Deed or from any Borrower or from any other person against the Senior Debt in accordance with the terms of the Credit Agreement; (b) hold in an interest-bearing suspense account any moneys or distributions received from the Junior Creditors under Clause 4 (Turnover of non-permitted recoveries) or Clause 5 (Subordination on insolvency) or on account of the liability of the Junior Creditor under this Deed. 9.5 Non-competition Until the Senior Liabilities have been irrevocably paid in full, the Junior Creditor will not by virtue of any payment or performance by them under this Deed or by virtue of the operation of Clauses 4 (Turnover of non- permitted recoveries) or 5 (Subordination on insolvency):- (a) be subrogated to any rights, security or moneys held, received or receivable by any Finance Party (or the Agent or any trustee or other agent on its behalf) or be entitled to any right of contribution or indemnity in respect of any payment made or moneys received on account of the Junior Creditor's liability under this Deed; or (b) claim, rank, prove or vote as a creditor of any Borrower or other person or their respective estates in competition with any Finance Party (or the Agent or any trustee or other agent on its behalf); or (c) receive, claim or have the benefit of any payment, distribution or security from or on account of any Borrower or other person. 10. PRESERVATION OF JUNIOR DEBT Notwithstanding any term of this Deed postponing, subordinating or preventing the payment of any of the Junior Debt, the Junior Debt concerned shall, solely as between the Company and the Junior Creditor, remain owing or due and payable in accordance with the terms of the Junior Finance Documents, and interest and default interest will accrue on missed payments accordingly. 11. CHANGES TO THE PARTIES 11.1 Successors and assigns This Deed is binding on the successors and assigns of the parties hereto. 11.2 The Company and the Junior Creditor Neither the Company nor the Junior Creditor may assign or transfer any of their rights or obligations under this Deed without the consent of the Majority Banks. 11.3 The Agent and the Finance Parties The Agent and the Finance Parties may assign or otherwise dispose of all or any of their rights under this Deed in accordance with the Senior Finance Documents to which they are respectively a party. 12. MISCELLANEOUS 12.1 Perpetuity The perpetuity period for the trusts in this Deed is 80 years. 12.2 Power of attorney By way of security for the obligations of the Junior Creditor under this Deed, the Junior Creditor irrevocably appoints the Agent as its attorney to do anything which the Junior Creditor is required to do by this Deed but has failed to do, having been given 10 Business Day's notice to rectify such non-compliance. The Agent may delegate this power subject to the approval of the Majority Banks. 13. INDEMNITY (a) The Company will indemnify the Agent and every attorney appointed by it in respect of all liabilities and expenses reasonably incurred by it or him in good faith in connection with the enforcement or preservation of any rights in accordance with this Deed. (b) The Agent shall not be liable for any losses arising in connection with the exercise or purported exercise of any of its rights, powers and discretions in good faith under this Deed, unless that liability arises as a result of the Agent's negligence or wilful default and in particular (but without limitation) the Agent in possession shall not be liable to account as mortgagee in possession or for anything except actual receipts. 14. WAIVERS; REMEDIES CUMULATIVE The rights of the Agent and the Finance Parties under this Deed: (a) may be exercised as often as necessary; (b) are cumulative and are not exclusive of their rights under the general law; and (c) may be waived only in writing and specifically and may be on such terms as the Agent or the Finance Parties see fit. 15. SEVERABILITY (a) If a provision of this Deed is or becomes illegal, invalid or unenforceable in any jurisdiction, that shall not affect: (i) the validity or enforceability in that jurisdiction of any other provision of this Deed; or (ii) the validity or enforceability in other jurisdictions of that or any other provision of this Deed. (b) This Deed may be executed in any number of counterparts, all of which, taken together, shall constitute one and the same instrument and any party may enter into this Deed by executing a counterpart. 16. GOVERNING LAW This Deed is governed by and shall be construed in accordance with English law. This Deed has been entered into on the date stated at the beginning of this Deed. SIGNATORIES TO THE SUBORDINATION AGREEMENT Senior Creditor [ ] By: Company ENTERGY POWER UK PLC By: Agent ABN AMRO BANK N.V. By: SIGNATORIES Company ENTERGY POWER UK PLC By: LAWRENCE S. FOLKS Arrangers and Banks ABN AMRO BANK N.V. By: C.M. MACDONALD J.P. CLIFFE BANK OF AMERICA INTERNATIONAL LIMITED By: WILLIAM M.F. BISHOP BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: SANJAY GUPTA UNION BANK OF SWITZERLAND By: FIONA H. KAPLAN SEAN MALONE Agent ABN AMRO BANK N.V. By: C.M. MACDONALD J.P. CLIFFE CONFORMED COPY SUPPLEMENTAL AGREEMENT DATED 6th February, 1997 relating to a 1,250,000,000 pounds Credit Agreement dated 17th December, 1996 for ENTERGY POWER UK PLC arranged by ABN AMRO BANK N.V. BANK OF AMERICA INTERNATIONAL LIMITED UNION BANK OF SWITZERLAND with ABN AMRO BANK N.V. as Agent ALLEN & OVERY London THIS AGREEMENT is dated 6th February, 1997 between: (1) ENTERGY POWER UK PLC (Registered No. 3261188) (the "Company"); (2) ABN AMRO BANK N.V., BANK OF AMERICA INTERNATIONAL LIMITED and UNION BANK OF SWITZERLAND as arrangers (in this capacity the "Arrangers"); (3) ABN AMRO BANK N.V., BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and UNION BANK OF SWITZERLAND as the banks party to the Credit Agreement (as defined below) as at today's date (the "Existing Banks"); (4) THE FINANCIAL INSTITUTIONS listed in Schedule 1 as the banks who wish to accede to the Credit Agreement as Banks (the "New Banks"); and (5) ABN AMRO BANK N.V. as agent (in this capacity the "Agent"). IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions In this Agreement, unless the contrary intention appears or the context otherwise requires: "Credit Agreement" means the Original Credit Agreement as amended pursuant to Clause 4 (Nature of this Agreement) of this Agreement. "Effective Date" means 6th February, 1997. "Original Credit Agreement" means the Credit Agreement dated 17th December, 1996 between the Company, the Arrangers, the Existing Banks and the Agent. 1.2 Incorporation of Original Credit Agreement interpretations (a) Terms defined in the Original Credit Agreement shall, unless the contrary intention appears or the context otherwise requires, have the same meaning in this Agreement. (b) Clauses 1.2 (Construction), 32 (Severability) and 33 (Counterparts) of the Original Credit Agreement shall apply to this Agreement, as though they were set out in full in this Agreement but as if references to the Original Credit Agreement are to be construed as references to this Agreement. 2. CONSENT AND CONFIRMATION (a) The Company, the Arrangers, the Existing Banks and the Agent each consent to the New Banks becoming Banks and confirm that, except as expressly provided by the terms of this Agreement, each of the Finance Documents shall continue in full force and effect. (b) It is acknowledged that the Guarantee will not be issued. 3. NOVATION 3.1 Novation of Commitments and related rights and obligations On the Effective Date (regardless of whether a Default is then continuing): (a) each New Bank will become a Bank under the Credit Agreement with a Facility A Commitment, Facility B Commitment and Facility C Commitment as set out opposite its name in Schedule 2; (b) each Existing Bank's Facility A Commitment, Facility B Commitment and Facility C Commitment shall be and be deemed to be reduced down to, the respective amounts set out opposite its name in Schedule 2; and (c) each New Bank will automatically obtain and assume, and undertakes to perform, all of the rights and obligations of a Bank under and in respect of each of the Finance Documents in respect of the rights and obligations transferred to it under paragraphs (a) and (b) above. 3.2 Amounts due on or before the Effective Date (a) All amounts (if any) payable to an Existing Bank by the Borrowers on or before the Effective Date (including, without limitation, all interest and fees payable on the Effective Date) in respect of any period ending prior to the Effective Date shall be for the account of the Existing Banks, and none of the New Banks shall have any interest in, or any rights in respect of, any such amounts. (b) If any Facility A Loan or Facility C Loan falls to be made on the Effective Date: (i) the Agent will promptly notify each of the New Banks of that fact (and the amount of its participation in that Facility A Loan or Facility C Loan in accordance with sub-paragraph (ii) below); and (ii) each Existing Bank and each New Bank shall participate in that Facility A Loan or Facility C Loan (subject to the terms of the Credit Agreement) as if the novation of the Facility A Commitments and the Facility C Commitments under Clauses 3.1(a) and (b) (Novation of Commitments and related rights and obligations) of this Agreement had taken effect prior to opening of business on the Business Day before the Effective Date, and the Company acknowledges that no Existing Bank will be obliged to participate in any such Loan to any greater extent. 3.3 Administrative details Each New Bank has delivered to the Agent its initial details for the purposes of Clause 34 (Notices) of the Credit Agreement. 4. NATURE OF THIS AGREEMENT The novation of Commitments and rights and obligations contemplated by this Agreement shall take effect (in accordance with its terms) as a novation so that: (a) Schedule 2 to this Agreement is substituted for Schedule 1 to the Credit Agreement on the Effective Date; and (b) Clause 28.3 (Procedure for novations) of the Credit Agreement shall apply to the Commitments, rights and obligations transferred, assumed and released under Clause 3.1 (Novation of Commitments and related rights and obligations) of this Agreement and to the associated rights and obligations under the Finance Documents, as if this Agreement were a Novation Certificate. 5. GOVERNING LAW This Agreement is governed by English law. This Agreement has been entered into on the date stated at the beginning of this Agreement. SCHEDULE 1 NEW BANKS The Bank of New York The Bank of Nova Scotia The Bank of Tokyo-Mitsubishi, Ltd Bayerische Landesbank Girozentrale, London Branch CIBC Wood Gundy plc Credit Lyonnais The Dai-Ichi Kangyo Bank, Limited Den Danske Bank Aktieselskab The Fuji Bank, Limited The Industrial Bank of Japan, Limited Midland Bank PLC Rabobank, London Branch The Royal Bank of Scotland plc The Sanwa Bank, Limited Societe Generale The Toronto-Dominion Bank Union Bank of California, N.A. Westdeutche Landesbank Girozentrale London Branch SCHEDULE 2 BANKS AND COMMITMENTS Banks Facility A Facility B Facility C Commitment Commitment Commitment POUNDS POUNDS POUNDS ABN AMRO Bank N.V. 40,500,000 12,000,000 10,000,000 Bank of America National Trust and 40,500,000 12,000,000 10,000,000 Savings Association The Bank of New York 40,500,000 12,000,000 10,000,000 The Bank of Nova Scotia 40,500,000 12,000,000 10,000,000 The Bank of Tokyo-Mitsubishi, Ltd 40,500,000 12,000,000 10,000,000 and Union Bank of California, N.A. Bayerische Landesbank Girozentrale, 40,500,000 12,000,000 10,000,000 London Branch CIBC Wood Gundy plc 40,500,000 12,000,000 10,000,000 Credit Lyonnais 40,500,000 12,000,000 10,000,000 The Dai-Ichi Kangyo Bank, Limited 40,500,000 12,000,000 10,000,000 Den Danske Bank Aktieselskab 40,500,000 12,000,000 10,000,000 The Fuji Bank, Limited 40,500,000 12,000,000 10,000,000 The Industrial Bank of Japan, Limited 40,500,000 12,000,000 10,000,000 Midland Bank PLC 40,500,000 12,000,000 10,000,000 Rabobank, London Branch 40,500,000 12,000,000 10,000,000 The Royal Bank of Scotland plc 40,500,000 12,000,000 10,000,000 The Sanwa Bank, Limited 40,500,000 12,000,000 10,000,000 Societe Generale 40,500,000 12,000,000 10,000,000 The Toronto-Dominion Bank 40,500,000 12,000,000 10,000,000 Union Bank of Switzerland 40,500,000 12,000,000 10,000,000 Westdeutche Landesbank Girozentrale 40,500,000 12,000,000 10,000,000 London Branch __________ __________ __________ 810,000,000 240,000,000 200,000,000 __________ __________ __________ SIGNATORIES Company ENTERGY POWER UK PLC By: ROBERT J. CUSHMAN Arrangers and Existing Banks ABN AMRO BANK N.V. By: JUSTIN P. CLIFFE BANK OF AMERICA INTERNATIONAL LIMITED By: WILLIAM M.F. BISHOP BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: SANJAY GUPTA UNION BANK OF SWITZERLAND By: FIONA KAPLAN SEAN MALONE New Banks THE BANK OF NEW YORK By: MICHAEL MCMORROW THE BANK OF NOVA SCOTIA By: RUSSEL C. HAMER THE BANK OF TOKYO-MITSUBISHI, LTD By: DAVID J. DALLISON BAYERISCHE LANDESBANK GIROZENTRALE, LONDON BRANCH By: SONKE PETERSEN CIBC WOOD GUNDY plc By: SHANNON L. ERNST CREDIT LYONNAIS By: MARGARET STEWART THE DAI-ICHI KANGYO BANK, LIMITED By: COLIN VITTERY DEN DANSKE BANK AKTIESELSKAB By: D. RIMMER Power of Attorney THE FUJI BANK, LIMITED By: RICHARD W. ALLEN THE INDUSTRIAL BANK OF JAPAN, LIMITED By: DENIS RAYEL MIDLAND BANK PLC By: ANDREW P. SMITH RABOBANK, LONDON BRANCH (COOPERATIEVE CENTRALE RAIFFEISEN BOERENLEENBANK BA) By: PAMELA R. GREEN THE ROYAL BANK OF SCOTLAND plc By: C.L. SALTER THE SANWA BANK, LIMITED By: P.B. LUCAS SOCIETE GENERALE By: MARC BERNARD THE TORONTO-DOMINION BANK By: GRAEME FRANCIS UNION BANK OF CALIFORNIA, N.A. By: DAVID J. DALLISON Power of Attorney WESTDEUTCHE LANDESBANK GIROZENTRALE LONDON BRANCH By: POLLY ADAMS Agent ABN AMRO BANK N.V. By: D. RIMMER CONFORMED COPY SECOND SUPPLEMENTAL AGREEMENT DATED 18th March, 1997 relating to a 1,250,000,000 Pounds Credit Agreement dated 17th December, 1996 (as amended by a Supplemental Agreement dated 6th February, 1997) for ENTERGY POWER UK PLC arranged by ABN AMRO BANK N.V. BANK OF AMERICA INTERNATIONAL LIMITED UNION BANK OF SWITZERLAND with ABN AMRO BANK N.V. as Agent ALLEN & OVERY London THIS AGREEMENT is dated 18th March, 1997 between: (1) ENTERGY POWER UK PLC (Registered No. 3261188) (the "Company"); (2) ABN AMRO BANK N.V., BANK OF AMERICA INTERNATIONAL LIMITED and UNION BANK OF SWITZERLAND as arrangers (in this capacity the "Arrangers"); (3) THE BANKS listed in Schedule 1 as the banks party to the Credit Agreement (as defined below) as at today's date (the "Existing Banks"); (4) THE FINANCIAL INSTITUTIONS listed in Schedule 2 as the banks who wish to accede to the Credit Agreement as Banks (the "New Banks"); and (5) ABN AMRO BANK N.V. as agent (in this capacity the "Agent"). IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions In this Agreement, unless the contrary intention appears or the context otherwise requires: "Credit Agreement" means the Original Credit Agreement as amended pursuant to Clause 4 (Nature of this Agreement) of this Agreement. "Effective Date" means 21st March, 1997. "Original Credit Agreement" means the Credit Agreement dated 17th December, 1996 between the Company, the Arrangers, the Existing Banks and the Agent, as amended by the Supplemental Agreement dated 6th February, 1997. 1.2 Incorporation of Original Credit Agreement interpretations (a) Terms defined in the Original Credit Agreement shall, unless the contrary intention appears or the context otherwise requires, have the same meaning in this Agreement. (b) Clauses 1.2 (Construction), 32 (Severability) and 33 (Counterparts) of the Original Credit Agreement shall apply to this Agreement, as though they were set out in full in this Agreement but as if references to the Original Credit Agreement are to be construed as references to this Agreement. 2. CONSENT AND CONFIRMATION (a) The Company, the Arrangers, the Existing Banks and the Agent each consent to the New Banks becoming Banks and confirm that, except as expressly provided by the terms of this Agreement, each of the Finance Documents shall continue in full force and effect. (b) This Agreement is the Syndication Agreement. 3. NOVATION 3.1 Novation of Commitments and related rights and obligations On the Effective Date (regardless of whether a Default is then continuing): (a) each New Bank will become a Bank under the Credit Agreement with a Facility A Commitment, Facility B Commitment and Facility C Commitment as set out opposite its name in Schedule 3; (b) each Existing Bank's Facility A Commitment, Facility B Commitment and Facility C Commitment shall be and be deemed to be reduced down to, the respective amounts set out opposite its name in Schedule 3; and (c) each New Bank will automatically obtain and assume, and undertakes to perform, all of the rights and obligations of a Bank under and in respect of each of the Finance Documents in respect of the rights and obligations transferred to it under paragraphs (a) and (b) above, including, without limitation, its corresponding proportion of the rights and obligations of the Existing Banks in respect of the current Facility B Loan. 3.2 Amounts due on or before the Effective Date (a) All amounts (if any) payable to an Existing Bank by the Borrowers on or before the Effective Date (including, without limitation, all interest and fees payable on the Effective Date) in respect of any period ending prior to the Effective Date shall be for the account of the Existing Banks, and none of the New Banks shall have any interest in, or any rights in respect of, any such amounts. (b) If any Facility A Loan or Facility C Loan falls to be made on the Effective Date: (i) the Agent will promptly notify each of the New Banks of that fact (and the amount of its participation in that Facility A Loan or Facility C Loan in accordance with sub-paragraph (ii) below); and (ii) each Existing Bank and each New Bank shall participate in that Facility A Loan or Facility C Loan (subject to the terms of the Credit Agreement) as if the novation of the Facility A Commitments and the Facility C Commitments under Clauses 3.1(a) and (b) (Novation of Commitments and related rights and obligations) of this Agreement had taken effect prior to opening of business on the Business Day before the Effective Date, and the Company acknowledges that no Existing Bank will be obliged to participate in any such Loan to any greater extent. (c) On the Effective Date each New Bank shall pay to the Agent for the Existing Banks pro rata an amount equal to the principal amount of the Facility B Loan assumed by it under Clause 3.1(c) (Novation of Commitments and related rights and obligations) of this Agreement. 3.3 Administrative details Each New Bank has delivered to the Agent its initial details for the purposes of Clause 34 (Notices) of the Credit Agreement. 4. NATURE OF THIS AGREEMENT The novation of Commitments and rights and obligations contemplated by this Agreement shall take effect (in accordance with its terms) as a novation so that: (a) Schedule 3 to this Agreement is substituted for Schedule 1 to the Credit Agreement on the Effective Date; and (b) Clause 28.3 (Procedure for novations) of the Credit Agreement shall apply to the Commitments, rights and obligations transferred, assumed and released under Clause 3.1 (Novation of Commitments and related rights and obligations) of this Agreement and to the associated rights and obligations under the Finance Documents, as if this Agreement were a Novation Certificate. 5. GOVERNING LAW This Agreement is governed by English law. This Agreement has been entered into on the date stated at the beginning of this Agreement. SCHEDULE 1 EXISTING BANKS ABN AMRO Bank N.V. Bank of America National Trust and Savings Association The Bank of New York The Bank of Nova Scotia The Bank of Tokyo-Mitsubishi, Ltd Bayerische Landesbank Girozentrale, London Branch CIBC Wood Gundy plc Credit Lyonnais The Dai-Ichi Kangyo Bank, Limited Den Danske Bank Aktieselskab The Fuji Bank, Limited The Industrial Bank of Japan, Limited Midland Bank PLC Rabobank, London Branch The Royal Bank of Scotland plc The Sanwa Bank, Limited Societe Generale The Toronto-Dominion Bank Union Bank of California, N.A. Union Bank of Switzerland Westdeutsche Landesbank Girozentrale London Branch SCHEDULE 2 NEW BANKS Bayerische Hypotheken- und Wechsel-Bank AG, London Branch Barclays Bank PLC Commonwealth Bank of Australia Deutsche Bank AG London Dresdner Bank AG London Branch Kredietbank NV (London Branch) National Westminster Bank Plc The Nikko Bank (UK) plc The Sakura Bank, Limited The Sumitomo Bank, Limited SCHEDULE 3 BANKS AND COMMITMENTS Banks Facility A Facility B Facility C Commitment Commitment Commitment POUNDS POUNDS POUNDS ABN AMRO Bank N.V. 32,400,000 9,600,000 8,000,000 Bank of America National Trust and Savings Association 32,400,000 9,600,000 8,000,000 The Bank of New York 32,400,000 9,600,000 8,000,000 The Bank of Tokyo-Mitsubishi, Ltd and Union Bank of California, N.A. 32,400,000 9,600,000 8,000,000 Bayerische Landesbank Girozentrale, London Branch 32,400,000 9,600,000 8,000,000 CIBC Wood Gundy plc 32,400,000 9,600,000 8,000,000 The Dai-Ichi Kangyo Bank, Limited 32,400,000 9,600,000 8,000,000 Den Danske Bank Aktieselskab 32,400,000 9,600,000 8,000,000 The Industrial Bank of Japan, Limited 32,400,000 9,600,000 8,000,000 Midland Bank PLC 32,400,000 9,600,000 8,000,000 Rabobank, London Branch 32,400,000 9,600,000 8,000,000 The Royal Bank of Scotland plc 32,400,000 9,600,000 8,000,000 The Sanwa Bank, Limited 32,400,000 9,600,000 8,000,000 Union Bank of Switzerland 32,400,000 9,600,000 8,000,000 Westdeutsche Landesbank Girozentrale London Branch 32,400,000 9,600,000 8,000,000 The Toronto-Dominion Bank 29,160,000 8,640,000 7,200,000 The Bank of Nova Scotia 25,920,000 7,680,000 6,400,000 Credit Lyonnais 25,920,000 7,680,000 6,400,000 Societe Generale 25,920,000 7,680,000 6,400,000 The Fuji Bank, Limited 22,680,000 6,720,000 5,600,000 Bayerische Hypotheken- und Wechsel- Bank AG, London Branch 19,440,000 5,760,000 4,800,000 Barclays Bank PLC 19,440,000 5,760,000 4,800,000 Commonwealth Bank of Australia 19,440,000 5,760,000 4,800,000 Deutsche Bank AG London 19,440,000 5,760,000 4,800,000 Dresdner Bank AG London Branch 19,440,000 5,760,000 4,800,000 Kredietbank NV (London Branch) 19,440,000 5,760,000 4,800,000 National Westminster Bank Plc 19,440,000 5,760,000 4,800,000 The Nikko Bank (UK) plc 19,440,000 5,760,000 4,800,000 The Sakura Bank, Limited 19,440,000 5,760,000 4,800,000 The Sumitomo Bank, Limited 19,440,000 5,760,000 4,800,000 __________ __________ __________ 810,000,000 240,000,000 200,000,000 __________ __________ __________ SIGNATORIES Company ENTERGY POWER UK PLC By: WILLIAM J. REGAN, JR. Arrangers and Existing Banks ABN AMRO BANK N.V. By: J.P. CLIFFE BANK OF AMERICA INTERNATIONAL LIMITED By: WILLIAM M.F. BISHOP BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: WILLIAM M.F. BISHOP UNION BANK OF SWITZERLAND By: N. BURNHAM Existing Banks THE BANK OF NEW YORK By: MICHAEL McMORROW THE BANK OF NOVA SCOTIA By: RUSSEL C. HAMER THE BANK OF TOKYO-MITSUBISHI, LTD By: DAVID J. DALLISON Existing Banks (Cont.) BAYERISCHE LANDESBANK GIROZENTRALE, LONDON BRANCH By: MIRIAM SCUKA CIBC WOOD GUNDY plc By: D. RIMMER (Power of Attorney) CREDIT LYONNAIS By: M. STEWART THE DAI-ICHI KANGYO BANK, LIMITED By: D. RIMMER (Power of Attorney) DEN DANSKE BANK AKTIESELSKAB By: D. RIMMER (Power of Attorney) THE FUJI BANK, LIMITED By: P. RICHEY THE INDUSTRIAL BANK OF JAPAN, LIMITED By: ROGER CONCIN MIDLAND BANK PLC By: A.P. SMITH RABOBANK, LONDON BRANCH (COOPERATIEVE CENTRALE RAIFFEISEN BOERENLEENBANK BA) By: D. RAWSON PAMELA R. GREEN Existing Banks (Cont.) THE ROYAL BANK OF SCOTLAND plc By: D. RIMMER (Power of Attorney) THE SANWA BANK, LIMITED By: M.J. CURRAN SOCIETE GENERALE By: P. FOWLER THE TORONTO-DOMINION BANK By: D. RIMMER (Power of Attorney) UNION BANK OF CALIFORNIA, N.A. By: DAVID J. DALLISON WESTDEUTSCHE LANDESBANK GIROZENTRALE LONDON BRANCH By: RHODERICK HENDERSON New Banks BAYERISCHE HYPOTHEKEN- UND WECHSEL-BANK AG, LONDON BRANCH By: JONATHAN BULLOCK TREVOR PRITCHARD BARCLAYS BANK PLC By: DAVID ALLEN COMMONWEALTH BANK OF AUSTRALIA By: B. PARKER DEUTSCHE BANK AG LONDON By: G. RUTTER D. BUGGE DRESDNER BANK AG LONDON BRANCH By: H. WOOLDRIDGE D. BARNES KREDIETBANK NV (LONDON BRANCH) By: N. VAN DOREN NATIONAL WESTMINSTER BANK Plc By: J.P. KASPEREK THE NIKKO BANK (UK) plc By: J.B. SMITH M. MOSELING THE SAKURA BANK, LIMITED By: K. ONOE M. GILLARD THE SUMITOMO BANK, LIMITED By: D. RIMMER (Power of Attorney) Agent ABN AMRO BANK N.V. By: D. RIMMER CONFORMED COPY THIRD SUPPLEMENTAL AGREEMENT DATED 30th June, 1997 relating to a 1,250,000,000 Pounds Credit Agreement dated 17th December, 1996 (as amended by a Supplemental Agreement dated 6th February, 1997 and a Second Supplemental Agreement dated 18th March, 1997) for ENTERGY POWER UK PLC arranged by ABN AMRO BANK N.V. BANK OF AMERICA INTERNATIONAL LIMITED UNION BANK OF SWITZERLAND with ABN AMRO BANK N.V. as Agent ALLEN & OVERY London THIS AGREEMENT is dated 30th June, 1997 between: (1) ENTERGY POWER UK PLC (Registered No. 3261188) (the "Company"); (2) ABN AMRO BANK N.V., BANK OF AMERICA INTERNATIONAL LIMITED and UNION BANK OF SWITZERLAND as arrangers (in this capacity the "Arrangers"); and (3) ABN AMRO BANK N.V. as agent for the Banks party to the Original Credit Agreement (in this capacity the "Agent"). IT IS AGREED as follows: 1. INTERPRETATION 1.1 Definitions In this Agreement, unless the contrary intention appears or the context otherwise requires: "Credit Agreement" means the Original Credit Agreement as amended pursuant to Clause 2 (Amendments to the Original Credit Agreement) of this Agreement. "Original Credit Agreement" means the Credit Agreement dated 17th December, 1996 between the Company, the Arrangers, the Existing Banks and the Agent, as amended by the Supplemental Agreement dated 6th February, 1997 and a Second Supplemental Agreement dated 18th March, 1997. 1.2 Incorporation of Original Credit Agreement interpretations (a) Terms defined in the Original Credit Agreement shall, unless the contrary intention appears or the context otherwise requires, have the same meaning in this Agreement. (b) Clauses 1.2 (Construction), 27 (Amendments and waivers), 32 (Severability) and 33 (Counterparts) of the Original Credit Agreement shall apply to this Agreement, as though they were set out in full in this Agreement but as if references to the Original Credit Agreement are to be construed as references to this Agreement. 2. AMENDMENTS TO THE ORIGINAL CREDIT AGREEMENT The Company has requested that the Finance Parties agree to the following amendments which differ from the arrangments contemplated by the Original Credit Agreement as follows:- (a) Clause 18.16 (Times for making representations and warranties): the words "(with the exception of Clause 18.11 (Information memorandum)" shall be added after the words "in the case of the Target," in sub-paragraph (ii) of paragraph (a) of Clause 18.16 (Times for making representations and warranties); (b) Clause 19.16 (Lending and borrowing): (i) sub-paragraph (iv) of paragraph (b) of Clause 19.16 (Lending and borrowing) shall be renumbered sub-paragraph "(v)" and a new paragraph (iv) shall be added into as follows:- "(iv) cash deposits made by a member of the Group at a bank or other financial institution; or"; and (ii) the reference to "(iii)" in the new sub-paragraph (v) shall be deleted and replaced by "(iv)"; and (c) Clause 19.28 (Financial covenants): a new paragraph (vi) and a new paragraph (vii) shall be added into the definition of "Adjusted Capital and Reserves" in Clause 19.28 (Financial covenants) as follows:- "(vi) plus any amount deducted from reserves or the profit and loss account in respect of goodwill arising upon and in respect of the acquisition of the Shares; (vii) plus any amount deducted from reserves or the profit and loss account as a provision for the future payment of any exceptional, special or windfall tax or levy applicable to, inter alia, privatised regional electricity companies as a whole;;". 3. REPRESENTATIONS AND WARRANTIES The Company represents and warrants to each Finance Party that the representations and warranties to be repeated by the Company in accordance with Clause 18.16 (b) (Times for making representations and warranties) of the Original Credit Agreement are true as if made on the date of this Agreement and as if references to the Original Credit Agreement were references to this Agreement. 4. AGREEMENT TO AMENDMENTS TO THE ORIGINAL CREDIT AGREEMENT Subject to Clauses 3 (Representations and warranties) above, each of the parties and the Agent on behalf of the Banks, by its execution of this Agreement, consents to the arrangements set out in Clause 2 (Amendments to the Original Credit Agreement) above and agrees that the Original Credit Agreement shall be amended, with effect from the date of this Agreement, in order to enable such arrangements to be effected, to the intent that any carrying out of any such arrangements shall not constitute a breach of or Default under the Original Credit Agreement or any other Finance Document. 5. INCORPORATION (a) This Agreement is a Finance Document. (b) This Agreement shall be deemed to be incorporated as part of the Original Credit Agreement. (c) Except as otherwise provided in this Agreement, the Finance Documents remain in full force and effect. 6. GOVERNING LAW This Agreement is governed by English law. This Agreement has been entered into on the date stated at the beginning of this Agreement. SIGNATORIES Company ENTERGY POWER UK PLC By: MICHAEL BEMIS Arrangers ABN AMRO BANK N.V. By: DUNCAN BAILEY KARL PAGE BANK OF AMERICA INTERNATIONAL LIMITED By: JOHN LAVERY UNION BANK OF SWITZERLAND By: SEAN MALONE NICK BURNHAM Agent ABN AMRO BANK N.V. By: DUNCAN BAILEY KARL PAGE EX-23 3 Exhibit 23(a) CONSENT We consent to the reference to our firm under the heading "Experts" in the Quarterly Report on Form 10-Q being filed on or about the date hereof by Entergy Corporation, Entergy Arkansas, Inc., Entergy Gulf States, Inc. ("Entergy Gulf States"), Entergy Louisiana, Inc., Entergy Mississippi, Inc., Entergy New Orleans, Inc., and System Energy Resources, Inc. We further consent to the incorporation by reference of such reference to our firm into Entergy Gulf States' Registration Statements on Form S-3 (File Numbers 33- 49739 and 33-51181), Form S-8 (File Numbers 2-76551 and 2- 98011) and on Form S-2 (File Number 333-17911) of such reference and Statements. /s/ L. S. Sandlin SANDLIN ASSOCIATES Management Consultants Pasco, Washington August 8, 1997 EX-27 4
UT This schedule contains summary financial information extracted from Entergy Corporation and Subsidiaries financial statements for the quarter ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000065984 ENTERGY CORPORATION 023 ENTERGY CORPORATION AND SUBSIDIARIES 1,000 6-MOS DEC-31-1996 JUN-30-1996 PER-BOOK 18,231,592 971,738 3,072,099 4,707,568 0 26,982,997 2,407 4,477,900 2,384,923 7,186,250 196,237 345,954 9,524,296 400,468 0 0 387,630 0 260,922 152,206 8,850,054 26,982,997 4,223,843 0 3,417,738 3,417,738 806,105 52,685 858,790 417,858 285,064 29,026 256,038 0 0 840,214 0 0
EX-27 5
UT This schedule contains summary financial information extracted from Entergy Arkansas' financial statements for the quarter ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000007323 ENTERGY ARKANSAS 001 ENTERGY ARKANSAS 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 2,821,272 236,472 570,307 462,449 0 4,090,500 470 590,169 502,218 1,209,207 36,027 116,350 1,241,548 667 0 0 17,465 0 98,567 53,086 1,433,933 4,090,500 798,350 0 686,586 686,586 111,764 13,302 125,066 50,940 47,933 5,630 42,303 0 0 177,663 0 0
EX-27 6
UT This schedule contains summary financial information extracted from Entergy Gulf States' financial statements for the quarter ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000044570 ENTERGY GULF STATES 006 ENTERGY GULF STATES 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 4,576,262 85,771 824,734 988,570 0 6,475,337 114,055 1,152,575 371,772 1,689,846 75,210 51,444 1,878,048 0 0 0 150,865 0 69,225 39,639 2,572,504 6,475,337 957,749 0 789,092 789,092 168,657 10,040 178,697 89,400 59,563 13,938 45,625 0 0 213,513 0 0
EX-27 7
UT This schedule contains summary financial information extracted from Entergy Louisiana's financial statements for the quarter ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000060527 ENTERGY LOUISIANA 012 ENTERGY LOUISIANA 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 3,435,097 95,610 364,300 373,995 0 4,269,002 1,088,900 (2,321) 64,197 1,251,276 85,000 100,500 1,338,276 44,115 0 0 53,300 0 44,415 28,000 1,424,620 4,269,002 846,246 0 680,455 680,455 165,791 (480) 165,311 65,695 58,779 6,846 51,933 0 0 115,244 0 0
EX-27 8
UT This schedule contains summary financial information extracted from Entergy Mississippi's financial statements for the quarter ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000066901 ENTERGY MISSISSIPPI 016 ENTERGY MISSISSIPPI 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 1,050,442 13,381 326,228 152,222 0 1,542,273 199,326 (42) 231,786 488,951 0 57,881 464,075 0 0 0 96,000 0 0 0 493,247 1,542,273 413,220 0 350,131 350,131 63,089 823 63,912 23,274 27,751 2,129 25,622 0 0 87,623 0 0
EX-27 9
UT This schedule contains summary financial information extracted from Entergy New Orleans' financial statements for the quarter ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000071508 ENTERGY NEW ORLEANS 017 ENTERGY NEW ORLEANS 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 290,841 3,259 126,541 107,482 0 528,123 33,744 36,294 63,747 153,565 0 19,780 168,920 0 0 0 0 0 0 0 205,638 528,123 234,759 0 216,604 216,604 18,155 180 18,335 7,512 5,856 482 5,374 0 0 29,159 0 0
EX-27 10
UT This schedule contains summary financial information extracted from System Energy's financial statements for the quarter ended June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000202584 SYSTEM ENERGY RESOURCES 018 SYSTEM ENERGY RESOURCES 1,000 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 2,525,121 72,372 326,883 521,687 0 3,446,063 789,350 0 61,826 851,176 0 0 1,359,068 0 0 0 70,000 0 37,501 28,000 1,100,318 3,446,063 316,682 0 168,798 168,798 147,884 3,802 151,686 64,915 48,438 0 48,438 0 0 131,585 0 0
EX-99 11 Exhibit 99(a)
Entergy Arkansas, Inc. Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Dividends June 30, 1992 1993 1994 1995 1996 1997 Fixed charges, as defined: Total Interest Charges 124,101 119,591 110,814 115,337 106,716 107,339 Interest applicable to rentals 17,657 16,860 19,140 18,158 19,121 16,176 ----------------------------------------------------------- Total fixed charges, as defined 141,758 136,451 129,954 133,495 125,837 123,515 Preferred dividends, as defined (a) 32,195 30,334 23,234 27,636 24,731 19,846 ----------------------------------------------------------- Combined fixed charges and preferred dividends, $173,953 $166,785 $153,188 $161,131 $150,568 $143,361 as defined =========================================================== Earnings as defined: Net Income $130,529 $205,297 $142,263 $136,666 $157,798 130,751 Add: Provision for income taxes: Total 50,590 82,337 29,220 72,081 84,445 70,900 Fixed charges as above 141,758 136,451 129,954 133,495 125,837 123,515 ----------------------------------------------------------- Total earnings, as defined $322,877 $424,085 $301,437 $342,242 $368,080 $325,166 =========================================================== Ratio of earnings to fixed charges, as defined 2.28 3.11 2.32 2.56 2.93 2.63 =========================================================== Ratio of earnings to combined fixed charges and preferred dividends, as defined 1.86 2.54 1.97 2.12 2.44 2.27 =========================================================== - ------------------------ (a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate.
EX-99 12 Exhibit 99(b)
Entergy Gulf States, Inc. Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Dividends June 30, 1992 1993 1994 1995 1996 1997 Fixed charges, as defined: Total Interest charges 248,416 210,599 204,134 200,224 192,465 188,231 Interest applicable to rentals 23,759 23,455 21,539 16,648 14,887 15,459 ---------------------------------------------------------- Total fixed charges, as defined 272,175 234,054 225,673 216,872 207,352 203,690 Preferred dividends, as defined (a) 69,617 65,299 52,210 44,651 48,690 43,270 ---------------------------------------------------------- Combined fixed charges and preferred dividends, $341,792 $299,353 $277,883 $261,523 $256,042 $246,960 as defined ========================================================== Earnings as defined: Income (loss) from continuing operations before extraordinary items and the cumulative effect of accounting changes $139,413 $69,462 ($82,755) $122,919 ($3,887) 160,793 Add: Income Taxes 55,860 58,016 (62,086) 63,244 102,091 107,683 Fixed charges as above 272,175 234,054 225,673 216,872 207,352 203,690 ---------------------------------------------------------- Total earnings, as defined (b) $467,448 $361,532 $80,832 $403,035 $305,556 $472,166 ========================================================== Ratio of earnings to fixed charges, as defined 1.72 1.54 0.36 1.86 1.47 2.32 ========================================================== Ratio of earnings to combined fixed charges and preferred dividends, as defined 1.37 1.21 0.29 1.54 1.19 1.91 ========================================================== (a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate. (b) Earnings for the year ended December 31, 1994, for GSU were not adequate to cover fixed charges combined fixed charges and preferred dividends by $144.8 million and $197.1 million, respectively.
EX-99 13 Exhibit 99(c)
Entergy Louisiana, Inc. Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Dividends June 30, 1992 1993 1994 1995 1996 1997 Fixed charges, as defined: Total Interest 141,513 136,957 136,444 136,901 132,412 132,585 Interest applicable to rentals 9,363 8,519 8,332 9,332 10,601 8,925 ------------------------------------------------------------ Total fixed charges, as defined 150,876 145,476 144,776 146,233 143,013 141,510 Preferred dividends, as defined (a) 42,026 40,779 29,171 32,847 28,234 23,285 ------------------------------------------------------------ Combined fixed charges and preferred dividends, $192,902 $186,255 $173,947 $179,080 $171,247 $164,795 as defined ============================================================ Earnings as defined: Net Income $182,989 $188,808 $213,839 $201,537 $190,762 $153,626 Add: Provision for income taxes: Total Taxes 87,037 110,813 63,288 117,114 118,559 104,602 Fixed charges as above 150,876 145,476 144,776 146,233 143,013 141,510 ------------------------------------------------------------ Total earnings, as defined $420,902 $445,097 $421,903 $464,884 $452,334 $399,738 ============================================================ Ratio of earnings to fixed charges, as defined 2.79 3.06 2.91 3.18 3.16 2.82 ============================================================ Ratio of earnings to combined fixed charges and preferred dividends, as defined 2.18 2.39 2.43 2.60 2.64 2.43 ============================================================ - ------------------------ (a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate.
EX-99 14 Exhibit 99(d)
Entergy Mississippi, Inc. Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Dividends June 30, 1992 1993 1994 1995 1996 1997 Fixed charges, as defined: Total Interest 64,066 55,359 52,764 51,635 48,007 47,313 Interest applicable to rentals 521 1,264 1,716 2,173 2,165 2,227 -------------------------------------------------------------- Total fixed charges, as defined 64,587 56,623 54,480 53,808 50,172 49,540 Preferred dividends, as defined (a) 12,823 12,990 9,447 9,004 7,720 6,976 -------------------------------------------------------------- Combined fixed charges and preferred dividends, $77,410 $69,613 $63,927 $62,812 $57,892 $56,516 as defined ============================================================== Earnings as defined: Net Income $65,036 $101,743 $48,779 $68,667 $79,210 64,218 Add: Provision for income taxes: Total income taxes 23,147 55,993 12,476 34,877 41,107 31,481 Fixed charges as above 64,587 56,623 54,480 53,808 50,172 49,540 -------------------------------------------------------------- Total earnings, as defined $152,770 $214,359 $115,735 $157,352 $170,489 $145,239 =============================================================== Ratio of earnings to fixed charges, as defined 2.37 3.79 2.12 2.92 3.40 2.93 =============================================================== Ratio of earnings to combined fixed charges and preferred dividends, as defined 1.97 3.08 1.81 2.51 2.94 2.57 =============================================================== - ------------------------ (a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate.
EX-99 15 Exhibit 99(e)
Entergy New Orleans, Inc. Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Dividends June 30, 1992 1993 1994 1995 1996 1997 Fixed charges, as defined: Total Interest 24,648 20,494 17,562 17,183 16,304 15,328 Interest applicable to rentals 444 544 1,245 916 831 931 -------------------------------------------------------------- Total fixed charges, as defined 25,092 21,038 18,807 18,099 17,135 16,259 Preferred dividends, as defined (a) 3,214 2,952 2,071 1,964 1,549 1,682 -------------------------------------------------------------- Combined fixed charges and preferred dividends, $28,306 $23,990 $20,878 $20,063 $18,684 $17,941 as defined ============================================================== Earnings as defined: Net Income $26,424 $47,709 $13,211 $34,386 $26,776 $15,746 Add: Provision for income taxes: Total 16,065 31,938 4,600 20,467 16,216 12,437 Fixed charges as above 25,092 21,038 18,807 18,099 17,135 16,259 -------------------------------------------------------------- Total earnings, as defined $67,581 $100,685 $36,618 $72,952 $60,127 $44,442 ============================================================== Ratio of earnings to fixed charges, as defined 2.69 4.79 1.95 4.03 3.51 2.73 ============================================================== Ratio of earnings to combined fixed charges and preferred dividends, as defined 2.39 4.20 1.75 3.64 3.22 2.48 ============================================================== - ------------------------ (a) "Preferred dividends," as defined by SEC regulation S-K, are computed by dividing the preferred dividend requirement by one hundred percent (100%) minus the income tax rate. (b) Earnings for the twelve months ended December 31, 1991 include the $90 million effect of the 1991 NOPSI Settlement.
EX-99 16 Exhibit 99(f)
System Energy Resources, Inc. Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Fixed Charges June 30, 1992 1993 1994 1995 1996 1997 Fixed charges, as defined: Total Interest 204,541 190,938 176,504 151,512 143,720 129,520 Interest applicable to rentals 6,265 6,790 7,546 6,475 6,223 5,754 --------------------------------------------------------------- Total fixed charges, as defined $210,806 $197,728 $184,050 $157,987 $149,943 $135,274 =============================================================== Earnings as defined: Net Income $130,141 $93,927 $5,407 $93,039 $98,668 $100,194 Add: Provision for income taxes: Total 88,853 78,552 36,838 75,493 82,121 78,456 Fixed charges as above 210,806 197,728 184,050 157,987 149,943 135,274 --------------------------------------------------------------- Total earnings, as defined $429,800 $370,207 $226,295 $326,519 $330,732 $313,924 =============================================================== Ratio of earnings to fixed charges, as defined 2.04 1.87 1.23 2.07 2.21 2.32 ===============================================================
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