-----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, ElmpPFVWDppD24rEZDv+8Tjtmnl+tp4LTfQ8g2hmibkzbSLJfRhe5peeFKUCxNXZ F1nuaiTOsPEbZUErADcTgA== 0000907303-02-000034.txt : 20020413 0000907303-02-000034.hdr.sgml : 20020413 ACCESSION NUMBER: 0000907303-02-000034 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20020118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHUGACH ELECTRIC ASSOCIATION INC CENTRAL INDEX KEY: 0000878004 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 920014224 STATE OF INCORPORATION: AK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-75840 FILM NUMBER: 2513018 BUSINESS ADDRESS: STREET 1: 5601 MINNESOTA DR STREET 2: PO BOX 196300 CITY: ANCHORAGE STATE: AK ZIP: 99518 BUSINESS PHONE: 9075637494 S-1/A 1 forms1a.txt FILED 1-18-02 As filed with the Securities and Exchange Commission on January 18, 2002 Registration No.333-75840 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------------------- Amendment No. 1 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- CHUGACH ELECTRIC ASSOCIATION, INC. (Exact name of Registrant as specified in its charter) Alaska 4911 92-0014224 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification No.) Identification No.) 5601 Minnesota Drive Anchorage, AK 99518 (907) 563-7494 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive office) Donald W. Edwards 5601 Minnesota Drive Anchorage, AK 99518 (907) 762-4790 (Name, Address, including zip code, and telephone number, including area code, of Agent for Service) Copies to: Donald E. Percival Carl F. Lyon, Jr. David R. Wilson Orrick, Herrington & Sutcliffe LLP Heller Ehrman White and McAuliffe LLP 666 Fifth Avenue 701 Fifth Avenue, Suite 6100 New York, NY 10103 Seattle, WA 98104-7098 (212) 506-5180 (206) 447-0900 -------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. -------------------------- If the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, as amended (the "Securities Act") please check the following box. |_| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.|_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. |_| The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JANUARY 18, 2002 PROSPECTUS $120,000,000 % 2002 Series A Bonds Due 2012 $60,000,000 2002 Series B Bonds Due 2012 [CHUGACH LOGO] The 2002 Series A Bonds will mature on , 2012 and will bear interest at % per annum. We will pay interest on the 2002 Series A Bonds semi-annually of each year commencing with , 2002. We may not redeem the 2002 Series A Bonds prior to maturity. The 2002 Series B Bonds (the "Auction Rate Bonds") will mature on , 2012. The Auction Rate Bonds will bear interest from the date of original delivery to and through , 2002 at a rate established by the underwriter prior to their date of delivery and afterwards, will initially bear interest at the rate set for 28-day auction periods. The initial auction date will be , 2002. The applicable interest rate for any 28-day auction period will be the term rate established by the auction agent based on the terms of the auction as described herein. The Auction Rate Bonds may be converted, in our discretion, to a daily, seven-day, 35-day, three-month or a semi-annual period or a flexible auction period. The Auction Rate Bonds are subject to optional and mandatory redemption and to mandatory tender for purchase prior to maturity in the manner and at the times described herein. Bankers Trust Company will act as the auction agent and J.P. Morgan Securities Inc. will act as the initial broker-dealer for the Auction Rate Bonds. See "Description of Bonds" for specific terms of the Auction Rate Bonds, including their auction procedures, and interest rate, payment, optional and mandatory redemption, and remarketing features. Payment of the 2002 Series A Bonds and the Auction Rate Bonds (collectively the "Bonds") initially will be secured by a first lien on substantially all of our tangible and some intangible properties. The first lien will be automatically released when all bonds issued by us prior to April 1, 2001 cease to be outstanding or their holders consent to the release of the lien. After that time, the Bonds will be unsecured obligations, ranking equally with our other unsecured and unsubordinated obligations. In addition, we will be limited in our ability to secure obligations for borrowed money or the deferred purchase price of property after that time unless we equally and ratably secure our outstanding indebtedness subject to the Indenture governing the Bonds. See "Description of the Bonds." The scheduled payment of the principal and interest on the Bonds, when due, will be insured by an insurance policy by MBIA Insurance Corporation to be issued concurrently with the delivery of the Bonds. See "Bond Insurance." [INSURER LOGO]
Price to Underwriting Discounts Proceeds to Public(1) and Commissions to Chugach (2) ----------- ---------------------- -------------- Per Series A Bond...... Total................ Per Auction Rate Bond.. Total................ Combined Total......... - ---------------------------
(1) Plus accrued interest from , 2002, if any. (2) Before deducting expenses payable by us estimated to be $1,650,000. The Bonds are offered by the underwriter subject to certain conditions and subject to prior sale and when, as and if issued and accepted by the underwriter. We have agreed to indemnify the underwriter for some obligations relating to the offering of these bonds. We expect that the Bonds will be available for delivery in New York, New York in book-entry form on or about , 2002, through the facilities of The Depository Trust Company against payment therefor in immediately available funds. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful and complete. Any representation to the contrary is a criminal offense. JPMorgan , 2002 You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, the Bonds only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Bonds. In this prospectus, the words "we," "us," and "our" refer to Chugach Electric Association, Inc. unless the context indicates otherwise. -------------------------- TABLE OF CONTENTS
Page PROSPECTUS........................................................................................................1 SUMMARY...........................................................................................................3 USE OF PROCEEDS...................................................................................................9 SELECTED FINANCIAL DATA..........................................................................................10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................................20 BUSINESS.........................................................................................................22 MANAGEMENT.......................................................................................................35 BOND INSURANCE...................................................................................................39 DESCRIPTION OF THE BONDS.........................................................................................42 CERTAIN FEDERAL INCOME TAX MATTERS...............................................................................56 UNDERWRITING.....................................................................................................56 LEGAL OPINIONS...................................................................................................57 EXPERTS..........................................................................................................57 WHERE TO FIND ADDITIONAL INFORMATION ABOUT CHUGACH...............................................................57 INDEX TO FINANCIAL STATEMENT PAGES..............................................................................F-1 APPENDIX A - SPECIMEN INSURANCE POLICY..........................................................................A-1 APPENDIX B - AUCTION PROCEDURES.................................................................................B-1
-------------------------- The Chugach logo is a trademark of Chugach Electric Association, Inc. All other trademarks or tradenames referred to in this prospectus are the property of their respective owners. Information contained on our web site does not constitute part of this prospectus. Until , 2002 all dealers that effect transactions in the Bonds, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 2 SUMMARY The following summary contains information about our company, the offering and the terms of the 2002 Series A Bonds and the 2002 Series B Bonds that we believe is important. You should read the entire prospectus, including the financial statements and the notes to those financial statements, for a complete understanding of our business and the offering. This prospectus contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, some of which are more fully described elsewhere in this prospectus. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as required by law. Explanation of Accounting Terms We are organized as a cooperative. A cooperative is a business organization owned by its members who are also its customers. As such, we use different accounting terminology than stockholder-owned corporations. In this prospectus, when we refer to assignable margins for a period, we mean revenues in excess of costs for the period. When we refer to patronage capital, we mean assignable margins we have not distributed to our members. Patronage capital constitutes our principal equity and is assigned to each member on the basis of the volume of purchases from us. Terms of the Bonds 2002 SERIES A BONDS Bonds Offered $120,000,000 principal amount of 2002 Series A Bonds due , 2012. The 2002 Series A Bonds will be issued in multiples of $1,000 denominations. Interest The 2002 Series A Bonds bear interest at % per annum. We will pay interest on the bonds on and , beginning , 2002. Redemption The 2002 Series A Bonds are not redeemable by us prior to maturity. AUCTION RATE BONDS Bonds Offered $60,000,000 principal amount of 2002 Series B Bonds due , 2012 (the "Auction Rate Bonds"). The Auction Rate Bonds will be issued in denominations of $50,000 and multiples of $50,000 thereof. Defined Terms See Appendix B--Auction Procedures (the "Auction Procedures") and "Description of the Bonds--Auction Rate Bonds--Glossary of Terms" for definitions of capitalized terms not defined in the below summary discussion. Interest The Auction Rate Bonds will bear interest from the date of original delivery to and through , 2002 at a rate established by J.P. Morgan Securities Inc. prior to their date of delivery. Afterwards, the Auction Rate Bonds will bear interest at the 28-day rate as determined by the Auction Procedures. The Auction Rate Bonds can be converted to a daily, seven-day, 28-day, 35-day, three-month or a semiannual period or a Flexible Auction Period and will bear interest at the rate established for such period through the Auction Procedures. In no event will the Auction Rate Bonds have an interest rate exceeding 15% per annum unless approved by us and the insurer of the Bonds. Auction Procedures The auction agent will establish an interest rate for each auction period sufficient to result in the sale of all of the Auction Rate Bonds most favorable to us consistent with the submission of Sufficient Clearing Bids for all the Auction Rate Bonds. The first auction will take place on , 2002. Thereafter on the business day next preceding each Interest Payment 3 Date, an auction will be held to determine the interest rate for the Auction Rate Bonds for the next succeeding 28-day auction period. Prior to the submission deadline on the date of an auction, owners and potential owners of the Auction Rate Bonds will either themselves or through their broker, need to have submitted an irrevocable hold order, bid or sell order setting forth the principal amount of the bonds and the rate at which they are willing to hold, buy or sell. If an order for all the Auction Rate Bonds held by an existing owner is not submitted to the auction agent prior to the submission deadline, the existing owner will be deemed to have submitted a hold order covering the principal amount of Auction Rate Bonds held by such existing owner and not subject to orders submitted. On each auction date, the auction agent will assemble all orders submitted or deemed submitted to it and will determine (i) the bonds available for sale, (ii) whether there are Sufficient Clearing Bids, and (iii) the Auction Rate. The procedures for submitting orders and bids and the processes in which orders and bids will be allocated in an auction are described in Appendix B--Auction Procedures. See "Description of the Bonds--Auction Rate Bonds--Auction Procedures" for a summary description of the auction procedures. Conversion of Auction Rate Bonds to Another Interest Mode At our option, with the consent of the Bond Insurer, all of the Auction Rate Bonds may be converted to bear interest at a Daily Rate, a Weekly Rate, a Flexible Rate, a Term Rate or a Fixed Rate. On the Mode Adjustment Date applicable to the Auction Rate Bonds to be converted, the Auction Rate Bonds to be converted shall be subject to mandatory tender at a purchase price equal to 100% of the principal amount thereof, plus accrued interest. The purchase price of the Auction Rate Bonds so tendered is payable solely from the proceeds of the remarketing of such Auction Rate Bonds. In the event that the conditions of a conversion are not satisfied, including the failure to remarket all applicable Auction Rate Bonds, the Auction Rate Bonds will not be subject to mandatory tender, will be returned to their owners, will automatically convert to a seven-day auction period and will bear interest at the Maximum Auction Rate. Interest on the Auction Rate Bonds in a daily, seven-day, 28-day, 35-day, a three-month or a Flexible Auction Period of 180 days or less will be computed on the basis of a 360-day year for the actual number of days elapsed. Interest on the Auction Rate Bonds in a semiannual auction period or Flexible Auction Period of more than 180 days will be computed on the basis of a 360-day year of twelve 30-day months. Auction Agent Bankers Trust Company has agreed to act as the initial auction agent, but may resign or be replaced. The auction will be conducted without charge to the holders of the Auction Rate Bonds. Optional Redemption We may redeem the Auction Rate Bonds in whole or in part, at any time on or after , at par, plus any accrued interest. If we redeem less than all of the Auction Rate Bonds, the notes will be redeemed pro rata or any other method the trustee considers fair and appropriate. 4 Sinking Fund Redemption The Auction Rate Bonds will be subject to annual pro-rata sinking fund redemption at a redemption price equal to 100% of the principal amount and will be redeemed commencing , and on in each year thereafter until maturity. See "Description of the Bonds--Sinking Fund Redemption Provisions." 2002 SERIES A BONDS AND AUCTION RATE BONDS Security for the Bonds The 2002 Series A Bonds and the Auction Rate Bonds (the "Bonds") initially will be secured by a first lien on substantially all of our tangible and some of our intangible properties and assets, including generation, transmission and distribution properties, with certain exceptions set forth in the Indenture of Trust, dated September 15, 1991, as amended, between us and U.S. Bank Trust National Association as trustee (the "Existing Indenture"), and subject to certain permitted encumbrances set forth in the Existing Indenture. The first lien will be automatically released on the date on which all bonds issued under the Existing Indenture prior to April 1, 2001 cease to be outstanding or their holders consent to release of the lien (the "Release Date"). We anticipate that the other series of bonds issued prior to April 1, 2001 will be retired or defeased or their holders will consent to the release of the lien prior to March 15, 2002. On the Release Date, the Amended and Restated Indenture dated April 1, 2001, between us and U.S. Bank Trust National Association, as trustee (the "Amended Indenture"), will become effective and replace the Existing Indenture. On the Release Date, the Bonds will become general unsecured obligations and will rank equally and ratably with all our other unsecured and unsubordinated obligations. See "Description of the Bonds--Security for Payment of the Obligations Prior to Release Date; Conversion to Unsecured Obligations on Release Date." When we refer to the "Indenture", we mean the Existing Indenture prior to the Release Date and the Amended Indenture on and after the Release Date. Under the Amended Indenture, we are prohibited from creating or permitting to exist any mortgage, lien, pledge, security interest or encumbrance on our properties and assets (other than those arising by operation of law) to secure the repayment of borrowed money or the obligation to pay the deferred purchase price of property unless we equally and ratably secure all bonds subject to the Amended Indenture, except that we may incur secured indebtedness in an amount not to exceed $5,000,000 or enter into sale and leaseback or similar agreements. Bond Insurance MBIA Insurance Corporation ("MBIA" or the "Bond Insurer") has issued a commitment to provide an insurance policy providing for the payment of principal and interest on the Bonds when due. As an insurer of the Bonds, MBIA (and not the holders of the Bonds) will be considered the holder of the Bonds for the purpose of approving supplemental indentures or other amendments to the Indenture, giving any other approval consent or notice to effect any waiver, exercising any remedies, and taking any other action that could be taken by the holders of Bonds in the absence of such bond insurance. See "Bond Insurance" and "Description of the Bonds--Rights of Insurer." Additional Bonds Prior to the Release Date, subject to meeting certain interest coverage tests, we may issue additional bonds from time-to-time against the cost of certain property acquisitions, the principal amount of retired or defeased bonds and deposits of cash with the trustee. After the Release Date, we may issue 5 additional obligations under the Amended Indenture subject only to meeting certain interest coverage tests. No limitations exist on our ability to issue indebtedness other than under the Amended Indenture. See "Description of the Bonds--Additional Obligations." Rate Covenant The Existing Indenture requires us, subject to any necessary regulatory approval, to establish and collect rates reasonably expected to yield margins for interest equal to at least 1.20 times total interest expense. Margins for interest generally consist of our assignable margins plus total interest expense and income tax accruals. The Amended Indenture will require us, subject to any necessary regulatory approval, to establish and collect rates reasonably expected to yield margins for interest equal to at least 1.10 times total interest expense. Margins for interest are defined in the Amended Indenture as our assignable margins plus total interest expense on obligations to repay borrowed money or the deferred purchase price of property or services (other than from subordinated debt), income tax accruals and non-recurring charges. See "Description of the Bonds--Rate Covenant." Rate Regulation The Regulatory Commission of Alaska ("RCA") must approve the rates at which we sell electricity. We design rates to produce reasonable reserves and margins. We also recover increases in our fuel and purchased power costs through a quarterly adjustment to our rates. These adjustments are approved by the RCA and are not subject to any rate increase limits. Under Alaska law, our financial covenants in the Indenture are valid and enforceable, and rates set by the RCA must be adequate to meet those covenants. Limitations on Distributions to Members The Existing Indenture prohibits us from making any distribution of patronage capital to our customers if an event of default under the Existing Indenture then exists. Otherwise we are permitted to make distributions to our members after December 31, 1990 in the aggregate amount of $7 million plus 35 percent of the aggregate assignable margins earned after December 31, 1990. This restriction does not apply if, after the distribution, our aggregate equities and margins as of the end of the immediately preceding fiscal quarter would be equal to at least 45% of our total liabilities and equities and margins. Based on the unaudited financial statements at September 30, 2001, we could have distributed $4.95 million to our members under this formula. On November 14, 2001, our Board of Directors approved a $3 million distribution of patronage capital, which will be distributed by the end of 2001. The Amended Indenture will prohibit us from making any distribution of patronage capital to our customers if an event of default under the Amended Indenture then exists. Otherwise, we may make distributions to our members in each year equal to the lesser of 5% of our patronage capital or 50% of assignable margins for the prior fiscal year. This restriction will not apply if, after the distribution, our aggregate equities and margins as of the end of the immediately preceding fiscal quarter would be equal to at least 30% of our total liabilities and equities and margins. See "Description of the Bonds--Limitation on Distributions to Members." Reporting Obligations We do not intend to register the Bonds under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). We will, however, initially be subject 6 to the reporting requirements of Section 15(d) of the Securities Exchange Act. The Indenture requires us to continue reporting under the Securities Exchange Act for so long as any of the Bonds are outstanding. Form and Denomination The Bonds will be evidenced by two or more global certificates in fully registered form without coupons, deposited with a custodian for and registered in the name of a nominee of The Depositary Trust Company. Except as described in this prospectus, beneficial interests in the global certificates will be shown on, and transfers of these beneficial interests will be effected only through, records maintained by The Depository Trust Company and its direct and indirect participants. See "Description Of The Bonds--Book-Entry System; Exchangeability." Market for Bonds We do not intend to list either series of Bonds on any securities exchange nor have them quoted on the National Association of Securities Dealers Automated Quotation System. As a result, there may not be a secondary market for the Bonds. The underwriter intends, but is not obligated, to make a market in the Bonds. See "Underwriting." Our Company and Business We are the largest electric utility in Alaska. We provide electricity, either directly or through our wholesale and economy-energy sales, to approximately two-thirds of all electric customers in Alaska. We have approximately 57,900 directly served retail customers and also regularly supply capacity and energy to three wholesale customers and economy energy to one additional customer. We also provide electricity periodically to Anchorage Municipal Light & Power. For the nine months ended September 30, 2001, approximately 64% of our revenues were from sales to our directly served retail customers, approximately 34% were from sales of firm power to our three wholesale customers and approximately 2% were from economy sales. We currently are the only electric utility with the right to provide retail electric service in the certificated service area assigned to us by the Regulatory Commission of Alaska ("RCA"). Our certificated service area extends from Anchorage (except certain downtown and residential areas of Anchorage) to the upper Kenai Peninsula and from Whittier on Prince William Sound to Tyonek on the west side of Cook Inlet. We provide power to Alaskans from Homer to Fairbanks through sales to our wholesale customers. We do not expect the Alaska legislature to pass a law establishing retail competition in the foreseeable future. We have approximately 527 megawatts of installed generating capacity provided by 17 generating units at our four wholly owned power plants: Beluga Power Plant, Bernice Lake Power Plant, International Power Plant and Cooper Lake Hydroelectric Plant, and our 30% interest in the Eklutna Hydroelectric Project. In addition, we have purchase rights to 30.4% (27.4 megawatts) of the output of Bradley Lake Hydroelectric Project and we buy most of the output of the Nikiski cogeneration facility on the Kenai Peninsula, a nominally rated 40 megawatt generation unit. Approximately 96% of our energy was generated from natural gas in the first nine months of 2001, and of that amount, 89% was from our Beluga Power Plant units. We were organized as an Alaska electric generation, transmission and distribution cooperative in 1948. As with electric cooperatives generally, we operate on a not-for-profit basis. As a cooperative, we design our rates on a cost-of-service basis that historically allows us to recover our operating and maintenance costs and expenses; debt service; costs of repairs, replacements, and renewals; and costs for that portion of capital additions not funded by borrowings. We design rates to produce reasonable reserves and margins but not a return on equity for profit. We are exempt from federal income taxation under Section 501(a) of the Internal Revenue Code of 1986, as amended, as an organization described in 501(c)(12) of the Code. 7 The RCA must approve the rates at which we sell electricity. We also recover increases in our fuel and purchased power costs through an automatic quarterly adjustment to our rates. These adjustments are subject to prior approval by the RCA and are not subject to any rate increase limits. Under Alaska law, our financial covenants in the Bonds and the Indenture are valid and enforceable, and rates set by the RCA must be adequate to meet those covenants. Our principal office is located at 5601 Minnesota Drive, Anchorage, Alaska 99519-6300, and our telephone number is (907) 563-7494. 8 USE OF PROCEEDS We will apply the net proceeds of this offering, estimated to be $ after payment of underwriting discounts and offering expenses, to redeem $149.3 million in principal amount of the 1991 Series A Bonds due 2022, to pay the redemption premium on the 1991 Series A Bonds due 2022 in the estimated amount of $ , and for general working capital. The 1991 Series A Bonds due 2022 have an aggregate outstanding principal balance of $149.3 million and bear interest at 9.14% per annum. 9 SELECTED FINANCIAL DATA We derived the selected financial data presented in the table below for and as of the end of each year in the five year period ended December 31, 2000 from our audited financial statements. Our balance sheet as of September 30, 2001, and the related statements of revenues, expenses and patronage capital and cash flows for the nine-month period ended September 30, 2001 and each of the years in the three-year period ended December 31, 2000 and the report of KPMG LLP thereon are included elsewhere in this prospectus. We derived the statement of operations data for the nine months ended September 30, 2001 and 2000 and the balance sheet data as of September 30, 2001 from our unaudited financial statements included in this prospectus. In management's opinion, this unaudited information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The historical results do not necessarily indicate the results you should expect in any future period and the results in interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. The information contained in this table is qualified entirely by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included in this prospectus.
Nine months ended September 30, Years ended December 31, --------------------- ------------------------------------------------------ Statements of Operations Data: 2001 2000 2000 1999 1998 1997 1996 (in thousands, except ratios) Operating revenues.................. $ 126,401 $ 114,258 $ 158,541 $ 142,644 $ 141,825 $ 143,948 $ 134,877 Operating expenses.................. (103,752) (90,079) (126,430) (110,457) (110,737) (113,071) (100,914) Interest expense.................... (20,409) (18,334) (24,718) (24,135) (24,469) (25,085) (25,349) -------- -------- -------- -------- -------- -------- -------- Net operating margins........... 2,240 5,845 7,393 8,052 6,619 5,792 8,614 Nonoperating Margins(1)............. 738 837 2,287 1,615 2,111 1,762 1,217 -------- -------- -------- -------- -------- -------- -------- Assignable margins.............. $ 2,978 $ 6,682 $ 9,680 $ 9,667 $ 8,730 $ 7,554 $ 9,831 ========= ========== ========= ========= ========= ========= ========= Ratio of earnings to fixed charges(1,2)........................ 1.140 1.335 1.360 1.385 1.345 1.294 1.379
September 30, December 31, ------------ ----------------------------------------------------- Balance Sheet Data: 2001 2000 1999 1998 1997 1996 ------------ --------- --------- --------- --------- --------- (in thousands) Assets: Plant net: In service................... $ 443,639 $ 427,127 $ 398,545 $ 386,235 $ 393,229 $ 400,053 Construction work in progress 37,698 42,028 47,257 30,406 24,664 19,827 ---------- --------- --------- --------- --------- --------- Electric plant, net........ 481,337 469,155 445,802 416,641 417,893 419,880 Other assets.................... 92,084 70,591 72,554 64,450 67,674 62,608 ---------- --------- --------- --------- --------- --------- Total assets................. $ 573,421 $ 539,746 $ 518,356 $ 481,091 $ 485,567 $ 482,488 ========== ========= ========= ========= ========= ========= Liabilities: Current liabilities............. $ 52,933 $ 77,286 $ 33,970 $ 33,081 $ 34,461 $ 36,686 Deferred credits................ 19,734 21,425 24,711 28,069 29,979 33,418 Long-term debt (excluding current portion).............. 369,310 312,220 337,150 305,918 312,007 307,906 Equities and margins............ 131,444 128,815 122,525 114,023 109,120 104,478 ---------- --------- --------- --------- --------- --------- Total liabilities............ $ 573,421 $ 539,746 $ 518,356 $ 481,091 $ 485,567 $ 482,488 ========== ========= ========= ========= ========= =========
________________ 1 The decrease in net operating margins and assignable margins is primarily attributable to an increase in depreciation due to a substantial increase in plant in the fourth quarter of 2000 related to the Beluga unit 6 re-powering, increased interest expense due to the issuance of $150 million of long-term debt in the second quarter of 2001, and a decrease in capitalized interest charged to construction. Another factor in the margin decrease was that our requested interim base rate increase did not become effective until September 14, 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Nine months ended September 30, 2001 compared to nine months ended September 30, 2000." 2 For purposes of this ratio, earnings consist of earnings plus fixed charges. Fixed charges consist of interest expense and the estimated interest portion of rent expense. Income taxes have been excluded because we are a tax-exempt organization. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Caution Regarding Forward Looking Statements Statements in this prospectus that do not relate to historical facts, including statements relating to future plans, events or performance, are forward-looking statements that involve risks and uncertainties. Actual results, events or performance may differ materially. Readers should not place undue reliance on these forward-looking statements. They speak only as of the date of this prospectus and their accuracy is subject to many uncertainties. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect actual events or circumstances that may occur after the date of this prospectus or the effect of those events or circumstances on any of the forward-looking statements contained in this prospectus, except as required by law. Results of Operations Overview Margins. We operate on a not-for-profit basis and, accordingly, seek only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation and principal and interest on our indebtedness and to provide for the establishment of reasonable margins and reserves. These amounts are referred to as "margins." Patronage capital, the retained margins of our members, constitutes our principal equity. Times Interest Earned Ratio (TIER). Alaska electric cooperatives generally set their rates on the basis of TIER. TIER is determined by dividing the sum of assignable margins plus long-term interest expense (excluding capitalized interest) by long-term interest expense (excluding capitalized interest). We manage our business with a view toward achieving a TIER of 1.25 or greater. We achieved TIERs for the past five years and estimate the TIER for 2001 to be as follows: Year TIER ---- ---- 2001 (estimate) 1.21 2000 1.39 1999 1.40 1998 1.35 1997 1.30 1996 1.39 Our TIER for the nine months ended September 30, 2001 was 1.15. We estimate TIER for 2001 to be 1.21 due to the 1.6% interim base rate increase that became effective September 14, 2001, as well as the 3.97% interim base rate increase that was implemented on November 1, 2001. We have proposed to the RCA that we set our rates in the future based on a rate-based rate of return methodology rather than a TIER methodology. See "Business--Rate Regulation and Rates" for additional information. Rates. Our rates are made up of two components: "base rates" and "fuel surcharge rates. "Base rates" are composed of fixed and variable charges in connection with the generation and transmission of electricity. Although a base fuel and purchased power component is included in base rates, they consist primarily of costs other than fuel and purchased power costs. "Fuel surcharge" rates take into account the rise and fall of fuel and purchased power costs and ensure collection of fuel and purchased power costs above the base component included in the base energy rate. The RCA approves the amounts paid by our wholesale and retail customers under base rates and approves the quarterly fuel surcharge filing authorizing rate changes in the fuel surcharge calculations. Base Rates. We recover operating and maintenance and other non-fuel and purchased power costs through our base rates established through an order of the RCA following a general rate case, where we propose a rate increase or decrease for each class of customer based on our costs to service those classes during a recent year referred to as a test year. While this process typically takes nine months to one year, the RCA may authorize, after a 11 notice period, rate changes on an interim and refundable basis. In addition, the RCA has been willing to open limited reviews of rate cases to resolve specific issues from which expeditious decisions can often be generated. We filed a general rate case in July 2001, requesting a permanent base rate increase of 6.5%, and an interim base rate increase of 4%. On September 5, 2001, the RCA granted a 1.6% interim increase effective September 14, 2001. We filed a petition for reconsideration and on October 25, 2001, the RCA approved an interim base rate increase of 3.97%. The additional rate increase was implemented on November 1, 2001. The 3.97% interim base rate increase is anticipated to result in approximately $0.7 million in additional revenue in 2001 compared to previous permanent base rates, or $4.1 million on an annualized basis. The interim base rate increase is based on a normalized, or adjusted for recurring expenses, test year and a system ratemaking TIER of 1.35. The requested permanent base rate increase of 6.5%, if approved by the RCA, is anticipated to result in $7.5 million in additional revenue each year, or approximately $3.4 million more than the interim base rate increase approved by the RCA which became effective on November 1, 2001, and margins of $10.8 million for 2002 at the rate base submitted. The requested permanent base rate increase is scheduled for a hearing before the RCA in August 2002. Prior to 2001, our base rates to our retail customers had not increased since 1994. As part of a settlement of disputes over rate adjustments with our wholesale customers (the "Settlement Agreement"), we agreed that our base rate for wholesale customers would not exceed 1995 levels at least through 1999 and could be reduced if those rates provide returns significantly higher than those specified in the settlement. As discussed below, we have granted refunds for rates based on our 1996 costs. The RCA issued an order on February 27, 2001, that no rate reduction or refunds were required based on our 1997 test year costs. The 1998 test year hearing has been completed but an order from the RCA has not yet been issued but is anticipated within the next several months. Our base rate changes, excluding fuel surcharges, for retail and wholesale customer classes, for the nine months ended September 30, 2001 and the years 1998 through 2000 were as follows:
Nine months ended September 30, 2001 2000 1999 1998 ------------------ ---- ---- ---- Retail* 1.6% 0.0% 0.0% 0.0% Wholesale: Homer 1.6% (0.7%) (0.3%) 0.0% MEA 1.6% (0.8%) (3.8%) (0.2%) Seward 0.0% 0.0% 0.0% (15.0%)
- ---------------- *The 2001 base rate increase was not applied to small general service or lighting customer classes. The rate reductions shown in the table for Matanuska Electric Association ("MEA") and Homer Electric Association ("Homer") in 1999 and 2000 relate to our filing under the Settlement Agreement of our cost of service for 1996. Our calculations indicated that a rate reduction was required and that a refund was owed for the previous periods. We recorded provisions for wholesale rate refunds that totaled $2.7 million at December 31, 1999. Early in 2000, we issued additional refunds of $86,132 to Homer and $1.8 million to MEA that represented uncontested amounts owed to them under the Settlement Agreement. In June 2000, the RCA issued a final order approving our 1996 test year cost of service. As a result of that order, we issued additional refunds to MEA and Homer in the amounts of $332,157 and $503,272, respectively, on July 25, 2000. Consistent with the Settlement Agreement, these refunds were based on demand and energy purchases retroactive to January 1, 1997. The RCA issued an order for the 1997 test year that did not reduce wholesale rates or require refunds under the Settlement Agreement. The 1998 test year hearing has been completed but an order from the RCA has not yet been issued. No additional test years remain to be reviewed under the Settlement Agreement. The rate reduction to the City of Seward ("Seward") in 1998 was the result of a contract re-negotiation through which Seward moved from being a firm customer to an interruptible customer. The rate reduction reflects a negotiated reduction of rates for Seward since the Seward load can be interrupted. 12 Fuel Surcharge. We pass fuel and purchased power costs above base amounts included in the base rate directly to our wholesale and retail customers through the fuel surcharge. Changes in fuel and purchased power costs are primarily due to fuel price adjustment mechanisms in our gas supply contracts based on natural gas, crude oil and fuel oil indexed price changes. We pass these costs directly to our retail and wholesale customers. The fuel surcharge is approved on a quarterly basis by the RCA. There are no limitations on the number or amount of fuel surcharge rate changes. Increases in our fuel and purchased power costs result in increased revenues while decreases in these costs result in lower revenues. Therefore, revenue from the fuel surcharge normally does not impact margins. The RCA ordered refunds of approximately $1.2 million because of alleged over-collection of fuel surcharges in 1995, 1996 and 1997. We appealed that finding to the Superior Court, which overturned it. MEA appealed that decision to the Alaska Supreme Court and the RCA filed an amicus brief generally supporting the MEA position. A hearing before the court was held October 17, 2001 and a decision is pending. Nine months ended September 30, 2001 compared to nine months ended September 30, 2000 Margins Our margins for the nine months ended September 30, 2001 and 2000 were as follows: Nine months ended September 30, -------------------------------- 2000 2001 ------------- ------------ Net operating margins.............. $5,845,558 $2,240,000 Nonoperating margins............... 836,771 738,190 ------------- ------------ Assignable margins................. $6,682,329 $2,978,190 ============= ============ The decrease in net operating margins and assignable margins is primarily attributable to an increase in depreciation due to a substantial increase in plant in the fourth quarter of 2000 related to the Beluga unit 6 re-powering, increased interest expense due to the issuance of $150 million of long-term debt in the second quarter of 2001, and a decrease in capitalized interest charged to construction. Another factor in the margin decrease was that our requested interim base rate increase did not become effective until September 14, 2001. Nonoperating margins include interest income, allowance for funds used during construction, capital credits and patronage capital allocations. Nonoperating margins decreased by $99,000, or 12%, in the first nine months of 2001 compared to the same period in 2000 due to a decrease in Allowance for Funds Used During Construction ("AFUDC") due to lower Construction Work in Progress ("CWIP") balances in 2001. Revenues Operating revenues include sales of electrical energy to retail, wholesale and economy energy customers and other miscellaneous revenues. Revenues for the nine months ended September 30, 2001, were $126.4 million, an increase of 11% over the same nine month period in 2000, due to increased fuel prices resulting in increased revenue collected through the fuel surcharge. The increase was also due to the 1.6% interim base rate increase in September 2001. The increase is offset by lower economy energy sales to Golden Valley Electric Association ("GVEA"). We sold 76.8 million kWh of power to GVEA during the nine months ended September 30, 2001, 13 compared to 233.7 million kWh during the comparable period of 2000. The major components of our operating revenue for the nine months ended September 30, 2001 and 2000, were as follows: Nine months ended September 30, -------------------------------- 2001 2000 -------------- ------------- Retail............................. $ 79,617,388 $ 70,896,302 Wholesale: Homer.......................... 16,823,628 13,650,135 MEA............................ 22,901,064 18,828,755 Seward......................... 2,072,412 1,764,815 Economy energy..................... 3,117,712 6,621,754 Other.............................. 1,868,752 2,496,510 ------------- ------------- Total revenue.................. $126,400,956 $114,258,272 ============= ============= Expenses The major components of our operating expenses for the nine months ended September 30, 2001 and 2000, were as follows: Nine months ended September 30, --------------------------------- 2001 2000 -------------- ----------- Power production................... $ 47,587,932 $36,257,283 Purchased power.................... 9,147,759 7,072,014 Transmission....................... 2,731,599 2,491,633 Distribution....................... 7,260,234 7,521,075 Consumer accounts.................. 4,042,754 3,995,952 Sales expense...................... 352,051 817,221 Administrative, general and other.. 13,951,269 14,743,566 Depreciation....................... 18,678,752 17,180,273 ------------- ------------ Total operating expenses....... $103,752,350 $90,079,017 ============= ============ Power Production. Power production expense increased in the first nine months of 2001 by $11.3 million, or 31%, over the same period in 2000 due to an increase in fuel expense. Purchased Power. Purchased power costs increased in the first nine months of 2001, over the same period in 2000, by $2.1 million, or 29%, due to the unavailability of Beluga unit 7, the limited availability of Bernice Lake unit 3, and the Nikiski unit being placed back in service under a new contract with Alaska Electric Generation & Transmission Cooperative, Inc. ("AEG&T"). This new contract requires the Nikiski unit to run at full capacity except during required maintenance. Transmission. Transmission expense increased $240,000, or 9%, in the first nine months of 2001, over the same period in 2000, due to increased substation maintenance and unplanned maintenance on our submarine cable circuit. Sales Expense. Sales expense decreased by $465,000, or 57%, in the first nine months of 2001 over the same period in 2000 due to the sale of our internet service provider business in March 2001. See "Sale of a Segment" below. Administrative, General and Other. Administrative, general and other expense decreased in the first nine months of 2001 over 2000 by $792,000, or 5%, due primarily to the sale of the internet service provider business in March 2001. 14 Depreciation. Depreciation expense increased in the first nine months of 2001 over the same period in 2000 by $1.5 million, or 9%, due to a substantial increase in plant in the fourth quarter of 2000 related to the Beluga unit 6 re-powering. Interest Expense (Net). Interest on long-term debt increased by $1.2 million, or 6%, to $20.1 million, in the first nine months of 2001 over the same period in 2000 due to the issuance of $150 million of 2001 Series A Bonds in the second quarter of 2001. Our weighted average cost of total borrowings for the first nine months of 2001 was 7.83% compared to 8.01% for the comparable period in 2000. This was due to increased borrowing under our short-term line of credit at September 30, 2000, which carried a higher variable interest rate than the remaining total borrowings. Net interest expense includes interest on long-term debt and short-term debt, reduced by interest charged to construction. The amortization of the gain on refinancing debt offset by the amortization of losses on refinancing debt and transaction costs resulted in a net interest expense reduction of $847,000 for the first nine months of 2001, and by $897,000 for the comparable period in 2000. Year ended December 31, 2000 compared to the years ended December 31, 1999 and 1998 Margins Our margins for the years ended December 31, 2000, 1999 and 1998, were as follows: 2000 1999 1998 ----------- ----------- ----------- Net Operating Margins............ $7,392,551 $8,052,060 $6,619,263 Nonoperating Margins............. 2,287,227 1,615,374 2,111,141 Assignable Margins............... 9,679,778 9,667,434 8,730,404 The decrease in net operating margins in 2000 over 1999 by $660,000, or 8%, was primarily attributable to an increase in interest on debt due to increased funds needed to fund the Beluga unit 6 repowering project and the Cooper Lake overhaul project. The increase in net operating margins in 1999 over 1998 by $1.4 million, or 22%, was primarily attributable to increased revenue associated with increased sales to GVEA due to operating problems with the Healy Clean Coal Plant (the "Healy Plant"), as well as increased kWh sales due to colder weather. Nonoperating margins increased in 2000 over 1999 by $672,000 or 42%. This was due to an allowance for funds used during construction based on higher construction work in progress balances during the year, increased allocations of patronage capital from CoBank, ACB ("CoBank"), and higher interest earnings in 2000 as a result of increased short-term investment balances. Nonoperating margins decreased in 1999 over 1998, by $496,000, or 23%. The primary contributor to the decrease from 1998 was the gain on the sale of a surplus compressor rotor to GVEA in 1998. The variance was also due in part to higher-than-anticipated patronage capital from CoBank but was offset by a decrease in interest earnings in 1999 as a result of decreased short-term investment balances. Revenues For the year ended December 31, 2000, operating revenues were $15.9 million, or 11%, higher than in 1999 primarily due to increased sales of economy energy to GVEA following the shutdown of the Healy Plant in February 2000, higher recoverable fuel and purchased power costs and increased revenue generated by our non-traditional business ventures. In 1999, operating revenues were $819,000, or 0.57%, higher than in 1998. Retail base rates did not change in 1999 while base rates charged to MEA and Homer decreased slightly. Revenues and power sold were as follows for the years ended December 31: 15
2000 1999 1998 ------------- ------------- ------------- Retail............................. $ 98,536,690 $ 94,057,713 $ 93,203,537 Wholesale: Homer.......................... 19,060,244 17,357,727 18,225,575 MEA............................ 27,252,051 25,063,734 25,203,272 Seward......................... 2,369,550 2,168,982 2,284,409 Economy energy..................... 7,820,998 1,864,873 1,338,725 Other.............................. 3,501,581 2,131,298 1,569,855 ------------- ------------- ------------- Total revenue.................. $ 158,541,114 $ 142,644,327 $ 141,825,373 ============= ============= ============= MWh sold........................... 2,405,389 2,190,253 2,055,963
We make economy sales to GVEA. These sales commenced in 1988 and have contributed to our growth in operating revenues. We do not take economy sales into consideration in our long-range resource planning process because these sales are non-firm sales that depend on GVEA's need for additional energy and our available generating capacity at the time. In 2000, 1999, and 1998, economy sales to GVEA constituted approximately 5.03%, 0.79%, and 0.92%, respectively, of our sales revenues. The increase in economy sales in 2000 from 1999 is due primarily to the shutdown of the Healy Plant, increasing the need for GVEA to make economy purchases. The Healy Plant is a 50 megawatt demonstration project in Healy, Alaska on the Alaska Intertie between Fairbanks and Anchorage. Following the test period in 1998, GVEA asserted that the demonstration was not successful. Litigation ensued and the Healy Plant has been shut down since that time pending further analysis of alternatives for our operation. As a result, GVEA began buying economy energy from us at the time of the Healy Plant shutdown. Expenses The major components of our operating expenses for the years ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998 -------------- -------------- -------------- Power production......................... $ 52,726,374 $ 40,301,607 $ 45,261,450 Purchased power.......................... 9,152,248 8,581,979 8,462,835 Transmission............................. 3,828,630 3,813,438 2,771,652 Distribution............................. 9,774,860 9,400,618 8,876,890 Consumer accounts........................ 5,275,455 4,387,421 4,177,980 Sales expense............................ 1,112,804 1,227,908 1,125,410 Administrative, general and other........ 21,343,393 22,892,479 17,592,829 Depreciation............................. 23,216,509 19,851,436 22,468,395 -------------- -------------- -------------- Total operating expenses............... $ 126,430,273 $ 110,456,886 $ 110,737,441 ============== ============== ==============
Power Production. Power production expense increased in 2000 from 1999 by $12.4 million, or 31%, due primarily to an increase in fuel expense from $29.6 million in 1999 to $42.5 million in 2000, which resulted from an average 40% increase in fuel prices from 1999 to 2000. Power production expense decreased by $4.9 million, or 11%, in 1999 from 1998 due primarily to a decrease in fuel expense. Purchased Power. Purchased power costs increased from 1999 to 2000 by $570,000, or 7%. We purchased more power from the Soldotna 1 unit and Anchorage Municipal Light and Power ("AML&P") than anticipated due to avalanche damage to our transmission lines early in the year, the unavailability of Beluga 3 and Beluga 6 units during the summer months and an increase in economy energy purchases for GVEA. Purchased power costs did not vary materially from 1998 to 1999. Transmission. Transmission expense did not vary materially from 1999 to 2000. Transmission expense increased in 1999 from 1998 by $1 million, or 38%, due to unanticipated transmission line repairs, Y2K preparation and testing and overhead line maintenance activity as a result of outages early in 1999. Distribution. Distribution expense increased in 2000 from 1999 by $374,000, or 4%, due primarily to an update in allocations of cost related to the information services and garage clearing. This update shifted those costs from the general and administrative category to the appropriate functional areas of the company. Distribution expense increased in 1999 from 1998 by $525,000, or 6%, due primarily to the increased outage activity that occurred early in 1999, which resulted in increased labor costs. 16 Consumer Accounts. Consumer accounts expense increased in 2000 from 1999 by $888,000 or 20%. This was due to less charges to costs for doubtful accounts in 1999 as compared to 2000. In addition, the update to allocations of cost related to information services caused an increase to this category in 2000. The increase in consumer accounts in 1999 from 1998 was not material but resulted from additional allocated marketing costs offset by less charges to costs for doubtful accounts in 1999. Sales Expense. Sales expense did not vary materially in 2000, 1999 or 1998. The slight variances are due to changes in the number of employees in the marketing department in these years. Administrative, General and Other. Administrative, general and other expense decreased by $1.55 million, or 6.8%, from 1999 to 2000. This decrease was a result of costs incurred in 1999 for outside counsel, consulting, advertising and internal labor costs associated with an unsolicited MEA takeover attempt and resultant special meeting in 1999 and an update in allocations of cost related to information services in 2000. General and administrative expense increased by $5.3 million, or 30%, from 1998 to 1999, primarily due to the costs associated with the MEA takeover attempt, an increase in software amortization expense, increased maintenance costs of Year 2000 compliant software implementation completed in 1998, additional expenses associated with our ancillary businesses and multiple insurance settlements paid in 1999. In addition, general plant maintenance expenses were higher due to multiple projects completed in 1999. Depreciation. We use the composite method of depreciation. The increase in depreciation expense from 1999 to 2000 was $3.4 million, or 17%, and was the result of more transmission assets being placed in service in 2000. Depreciation expense decreased in 1999 from 1998 by $2.6 million, or 12%, due to a change in the useful lives of portions of general plant. Interest Expense (Net). Interest on long-term debt increased for the year ended December 31, 2000 over 1999, by $849,000, or 4%, to $25 million due to higher amounts of outstanding debt. Our outstanding indebtedness increased due to the issuance of $30 million in bonds to CoBank and to increased borrowing under the lines of credit with CoBank and the National Rural Utilities Cooperative Finance Corporation ("CFC") to fund the Beluga unit 6 re-powering project. Interest on short-term debt increased from 1999 to 2000 by $912,000, or 91%, because of higher balances maintained and higher interest rates. Our weighted average cost of total borrowings for 2000 was 8.06% compared to 8.14% for 1999. Interest on long-term debt was lower by $1 million, or 4%, in 1999 than 1998 due primarily to the refinancing of $34.9 million of Series A Bonds due 2022 in the first quarter of 1999. Our weighted average cost of total borrowings for 1998 was 8.43%. Net interest expense includes interest on long-term debt and short-term debt, reduced by interest charged to construction. The amortization of the gain on refinancing debt offset by the amortization of losses on refinancing debt and transaction costs resulted in a net interest expense reduction of $1.54 million, $1.07 million and $1.44 million in 1998, 1999 and 2000, respectively. Patronage Capital (Equity) Our patronage capital and total equity have shown steady growth. The following table summarizes our patronage capital and total equity position for the nine months ended September 30, 2001 and for the years ended December 31, 2000, 1999 and 1998.
Nine months eded September 30, Years ended December 31, ----------------- --------------------------------------------------------- 2001 2000 1999 1998 ----------------- ------------- --------------- ---------------- Patronage capital beginning of year................... $122,925,253 $117,735,481 $109,622,996 $104,800,092 Retirement of capital credits and estate payments........ (232,849) (4,090,006) (1,954,949) (3,907,500) Assignable margins........... 2,978,190 9,679,778 9,667,434 8,730,404 ------------ ----------- ----------- ------------ Patronage capital at end of year 125,670,594 122,925,253 117,335,481 109,622,996 Other equity................. 5,773,469 5,890,087 5,189,164 4,400,300 ------------ ------------ ------------ ------------ Total equity at end of year $131,444,063 $128,815,340 $122,524,645 $114,023,296 ============ ============ ============ ============
17 In furtherance of our operations as a cooperative, we credit to our members all amounts received from them for the furnishing of electricity in excess of our operating costs, expenses and provision for reasonable reserves. These excess amounts (i.e., assignable margins) are considered capital furnished by the members, and are credited to their accounts and held by us until such future time as they are retired and returned without interest. Approval of distributions of these amounts to members, also known as capital credits, is at the discretion of our Board of Directors. We currently have a practice of retiring capital credits on a first-in, first-out basis for retail customers. We have not retired any capital credits in the year 2001 at this time, however, at December 31, 2000, we had retired all retail capital credits attributable to margins earned in periods prior to 1984 and approximately 19% of 1985 retail capital credits. Prior to 2000, wholesale capital credits had been retired on a 10-year cycle pursuant to an Equity Management Plan Settlement Agreement despite its expiration in 1995. However, in 2000, there was no wholesale retirement as we implemented a plan to return the capital credits of wholesale and retail customers on a 15-year rotation. The Existing Indenture includes a covenant restricting the distribution of patronage capital to members. We cannot distribute capital credits to members if 1) an event of default exists or 2) the aggregate amount of patronage capital distributions after September 15, 1991, exceeds the sum of $7 million plus 35% of the aggregate assignable margins earned after December 31, 1990. At September 30, 2001, we were permitted to distribute $4.95 million to our members under the Existing Indenture under this formula. The Amended Indenture prohibits us from making any distributions, payment or retirement of patronage capital to our customers if an event of default under the Amended Indenture exists. Otherwise, we may make distributions to our members in each year equal to the lesser of 5% of our patronage capital or 50% of assignable margins for the prior fiscal year. This restriction does not apply if, after the distribution, our aggregate equities and margins as of the end of the immediately preceding fiscal quarter is equal to at least 30% of our total liabilities and equities. We also retire our patronage credits through annual payments to our members. The table below sets forth a five-year summary of anticipated capital credit retirements: Year Ending Wholesale Retail Total ----------- ----------- ------------ ------------- 2001 $ 0 $ 3,000,000 $ 3,000,000 2002 0 3,500,000 3,500,000 2003 0 3,500,000 3,500,000 2004 1,359,000 3,500,000 4,859,000 2005 1,109,000 3,500,000 4,609,000 Sale of a Segment As of March 20, 2001, we sold the bulk of our internet service provider assets related to dial-up services (excluding DSL services) to GCI Communication Corporation. The aggregate purchase price was $759,049 at closing, plus an additional amount of $70,075, which was based on the number of subscriber accounts retained during the ninety-day transition period following closing. Changes in Financial Condition Total assets increased by $33.7 million, or 6.2%, from December 31, 2000 to September 30, 2001. This increase was due to a $18.5 million, or 95.2%, increase in deferred charges, attributed in large part to the recording of the estimated regulatory asset associated with the liability established for the treasury rate-lock agreement and the transaction costs associated with the issuance of the 2001 Series A Bonds in April 2001. There was a $12.2 million, or 2.6%, increase in net utility plant caused by the completion of several projects, including the Supervisory Control and Data Acquisition upgrade, the International Power Plant auxiliaries improvement and miscellaneous distribution projects. There was also an increase in cash and cash equivalents, which was associated with funds borrowed on a line of credit for working capital. This was offset by a decrease in non-utility property due to the sale of our internet service provider business, as well as a decrease of $1.3 million, or 44.9%, in fuel cost recovery due to the additional recovery through fuel surcharge rates providing recovery of the under-collection of fuel costs. 18 Notable changes to total liabilities include the $15.7 million recording of the estimated settlement value of the treasury rate-lock agreement, in compliance with FASB 133. There was an increase of $57.1 million, or 18.3%, in long-term debt, which was associated with issuance of the 2001 Series A Bonds in April 2001. That was offset by a $15.2 million, or 9.0%, decrease in First Mortgage bonds payable, due to outstanding bonds purchased and a principal bond payment in March 2001. There was also an increase of $4.1 million, or 61.9%, in current installments of long-term debt due to the first installment of CoBank 5 Bond due in June of 2002. This was offset by the decrease of $35 million in short-term borrowings, which were repaid with the proceeds of our public bond offering in April 2001. There was also a decrease of $6.0 million, or 63.3%, in accounts payable due to the payment of year-end accruals, as well as a $4.5 million, or 76.1%, decrease in accrued interest as a result of the September semi-annual bond interest payment. Liquidity And Capital Resources We satisfy our operational and capital cash requirements primarily through internally-generated funds, a $50 million line of credit from CFC and a $35 million line of credit with CoBank. At September 30, 2001, there was no outstanding balance with CFC and a $5 million outstanding balance with CoBank. The CoBank line of credit bears interest at a variable rate, which was 6% as of September 30, 2001 and is currently reset monthly. Principal maturities and sinking fund payments of our outstanding indebtedness at September 30, 2001 on a pro forma basis to give effect to the receipt and application of the net proceeds of this offering are set forth below: Pro Forma Pro Forma Year Ending Sinking Fund Principal December 31 Requirements Maturities Pro Forma Total - ----------- ------------ ---------- --------------- 2002 2003 2004 2005 2006 Thereafter For the nine months ended September 30, 2001, we have spent approximately $30.9 million on capital construction projects, which includes interest capitalized during construction. We develop five-year work plans that are updated every year. Our capital improvement requirements are based on long-range plans and other supporting studies and are executed through a five-year construction work plan. Our estimate of capital expenditures for the years 2002 through 2006 is: Year Capital Expenditures (estimate) ---- ------------------------------- 2002 $30.1 million 2003 $23.6 million 2004 $43.8 million 2005 $32.5 million 2006 $24.0 million The anticipated large increase in capital expenditures in 2004 represents the construction of a transmission line from the International Power Plant to University Station via new South Anchorage Bulk, and the Wind Turbine capital project and an overhaul of Beluga unit 6. We expect cash flows from operations and external funding sources will be sufficient to cover operational expenses, debt service and capital expenditures through the term of our current five year business plan. 19 Changes in Accounting Principles We were required to adopt SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, effective January 1, 2001. This new standard requires all derivative financial instruments to be reflected on the balance sheet. As of September 30, 2001, we have established a regulatory asset for $15.7 million and a liability for the same amount. The regulatory asset and liability will be adjusted for changes in the fair value of a treasury rate-lock agreement entered into by us. See "Quantitative and Qualitative Disclosures about Market Risk - Interest Rate Risk." Management believes it is probable the regulatory asset will be recovered through rates. In July 2001, the Financial Accounting Standards Board issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 30, 2001. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. The provisions of Statement 142 are required to be applied starting with fiscal years beginning after December 15, 2001. We believe the adoption of Statement 141 and 142 will have no impact on our financial statements. In August 2001, the Financial Accounting Standards Board issued Statement No. 143, Accounting for Asset Retirement Obligations. Statement No. 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets. Statement No. 143 also requires the enterprise to record the contra to the initial obligation as an increase to the carrying amount of the related long-lived asset. Enterprises are required to adopt Statement No. 143 for fiscal years beginning after June 15, 2002. We believe the adoption of Statement No. 143 will have no impact on our financial statements. In October 2001, the Financial Accounting Standards Board issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement, and broadens the presentation of discontinued operations to include more disposal transactions. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. Statement No. 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. We believe the adoption of Statement No. 144 will have no impact on our financial statements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to a variety of risks, including changes in interest rates and changes in commodity prices due to repricing mechanisms inherent in gas supply contracts. In the normal course of our business, we manage our exposure to these risks as described below. We do not engage in trading market risk-sensitive instruments for speculative purposes. Interest Rate Risk As of September 30, 2001, all of our outstanding long-term borrowings were at fixed interest rates with varying maturity dates. We used the proceeds from our sale of fixed-rate debt in April 2001 to repay substantially all our variable-rate debt. The $150 million of fixed-rate bonds sold in April 2001 mature in 2011. The following table provides information regarding cash flows for principal payments on total debt by maturity date as of September 30, 2001. 20
Total Debt* 2001 2002 2003 2004 2005 Thereafter Total Fair Value - ----------------------- -------- ------- -------- -------- ------- ---------- --------- ------------ (dollars in thousands) Fixed-rate.......... $ 0 $10,410 $5,907 $6,447 $17,036 $339,920 $379,720 $401,161 Average interest rate 6.90% 8.62% 8.62% 8.12% 7.50% 7.55% Variable-rate....... $5,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 5,000 $ 5,000 Average interest rate 6.00% - - - - - 6.00%
- ---------------------- * Includes current portion As of September 30, 2001, the aggregate principal amount of outstanding 1991 Series A Bonds due 2022 was $154.3 million. On December 10, 2001, we reacquired $5 million of our Series A 2022 Bonds for $5.7 million, which included accrued interest and premium. The 1991 Series A Bonds due 2022 are not subject to redemption until March 15, 2002. We intend to use a substantial portion of the proceeds of the Bonds to defease the 1991 Series A Bonds prior to that date and to redeem those bonds on that date. To manage interest rate exposure for refinancing of these bonds on their first available call date, March 15, 2002, we entered into a treasury rate-lock agreement with Lehman Brothers Financial Products Inc. ("Lehman Brothers") in March 1999. The treasury rate-lock agreement has a settlement date of February 15, 2002. On December 7, 2001, we terminated 50%, $98.0 million, of the 10-year U.S. Treasury portion of the treasury rate-lock agreement for a settlement payment of $4 million to Lehman Brothers. We settled the remaining 50% of the treasury rate-lock agreement for $3 million on December 19, 2001. The settlement payments will be accounted for as a regulatory asset. We believe the regulatory asset will be recovered through rates. Commodity Price Risk Our gas supply contracts provide for adjustments to gas prices based on fluctuations of certain commodity prices and indices. Because fuel and purchased power costs are passed directly to our wholesale and retail customers through the fuel surcharge, fluctuations in the price paid for gas pursuant to long-term gas supply contracts does not normally impact margins. 21 BUSINESS General We are the largest electric utility in Alaska. We are engaged in the generation, transmission and distribution of electricity to approximately 69,900 meters in our service area. Through an interconnected regional electrical system, our energy is distributed throughout Alaska's Railbelt, a 600-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska's largest cities, Anchorage and Fairbanks. Neither we nor any other electric utility in Alaska has any connection to the electric grid of the mainland United States or Canada. Through direct service to retail customers and indirectly through wholesale and economy energy sales, we provide some or all of the electricity used by approximately two-thirds of Alaska's electric customers. We also supply much of the power requirements of three wholesale customers, MEA, Homer and Seward. In addition, on an occasional basis, we provide electricity to AML&P. AML&P has about 30,000 meters. We have approximately 527 megawatts of installed generating capacity provided by 17 generating units at our five owned power plants: Beluga Power Plant, Bernice Lake Power Plant, International Power Plant, Cooper Lake Hydroelectric Plant and Eklutna Hydroelectric Project, in which we own a 30% interest. In the first nine months of 2001, approximately 96% (by rated capacity) of our generating capacity was fueled by natural gas, which we purchase under long-term gas contracts. The remainder of our generating resources are hydroelectric facilities. In the first nine months of 2001, approximately 89% of our energy was generated at our Beluga facility. In addition, we purchase up to 27.4 megawatts from the Bradley Lake Hydroelectric Project and up to 40 megawatts from the Nikiski power plant on the Kenai Peninsula. We operate 1,610 miles of distribution lines and 402 miles of transmission lines. For the year ended December 31, 2000, we sold 2.4 billion kilowatt-hours ("kWh") of energy. For the nine months ended September 30, 2001, we have sold 1.6 billion kWh of power. We were organized as an Alaska electric cooperative in 1948. Cooperatives are business organizations owned by their members. As not-for-profit organizations, cooperatives are intended to provide services to their members at low cost, in part by eliminating the need to produce profits or a return on equity other than reasonable reserves and margins. Today, cooperatives operate throughout the United States in such diverse areas as utilities, agriculture, irrigation, banking, insurance and credit. All cooperatives are based upon similar principles and legal foundations. Because members' equity is not considered an investment, a cooperative's objectives and policies are oriented to serving member interests, rather than maximizing return on investment. Our members are the consumers of the electricity sold by us. As of September 30, 2001, we had approximately 56,686 retail members receiving service at approximately 69,900 meters and three major wholesale customers. No individual retail customer receives more than 5% of our energy. Our customers are billed through a tariff rate on a monthly basis for electrical power consumed during the preceding month. Billing rates are approved by the RCA. See "Rate Regulation and Rates" below. Rates (derived from the historic cost of service basis) may generate revenues in excess of current period costs (net operating margins and nonoperating margins) in any year and such excess is designated on our Statements of Revenues, Expenses and Patronage Capital as "assignable margins." Retained assignable margins are designated on our balance sheet as "patronage capital" that is assigned to each member on the basis of patronage. We are a rural electric cooperative that is exempt from federal income taxation as an organization described in Section 501(c)(12) of the Internal Revenue Code ("Code"). Alaska electric cooperatives must pay to the State of Alaska, in lieu of state and local ad valorem, income and excise taxes, a tax at the rate of $0.0005 per kWh of electricity sold in the retail market during the preceding year. In addition, we collect a regulatory charge of $.000360 per kWh of retail electricity sold. This charge is assessed to fund the operations of the RCA. We pass-through this cost to our customers and thus it does not impact our margins. Our workforce consists of approximately 351 full time employees. Approximately two-thirds of our employees are members of the International Brotherhood of Electric Workers (the "IBEW"). We have three collective bargaining agreements with the IBEW that are in effect through June 30, 2003. We also have an 22 agreement with Hotel Employees, Restaurant Employees, Local 878 in effect through June 30, 2003. We believe our relationship with our employees is good. Our Service Areas Our service areas and those of our wholesale and economy energy customers are often described collectively as the Railbelt region of Alaska because the three geographic areas (the Southcentral, the Kenai Peninsula and the Interior) are linked by the Alaska Railroad. Anchorage is located in the south central portion of Alaska and is the trade, service and financial center for most of Alaska and serves as a major center for many state governmental functions. Other significant contributing factors to the Anchorage economy include a large federal government and military presence, tourism, air and rail transportation facilities and headquarters support for the petroleum, mining and other basic industries located elsewhere in the state. The Matanuska-Susitna Borough is immediately north of Anchorage, centered around the communities of Palmer and Wasilla. Although agriculture, tourism, mining and forestry are factors in the economy of the Matanuska-Susitna Borough, the economic well-being of the area is closely tied to that of Anchorage and many Matanuska-Susitna residents commute to jobs in Anchorage. The Kenai Peninsula is south of Anchorage and has an economy substantially independent of the Anchorage area. The most significant industry on the Kenai Peninsula is the production and processing of petroleum products from the Cook Inlet region. Other important industries include tourism and fish harvesting and processing. Principal communities on the Kenai Peninsula are Homer, Seward, Kenai and Soldotna. Fairbanks is the center of economic activity for the central part of the state (known as the Interior). Fairbanks (250 air miles north of Anchorage and about 400 air miles south of Alaska's northern border) is Alaska's second largest city. Economic activities in the Fairbanks region include federal and state government and military operations, the University of Alaska, tourism and support of natural resource development in the Interior and northern parts of the state. A major gold mine operates near Fairbanks; another is being developed. The Trans-Alaska Pipeline System (which transports crude oil) passes near Fairbanks on its route from the North Slope oilfield to Valdez. Alyeska Pipeline Company operates the Trans-Alaska oil pipeline from Prudhoe Bay to Valdez has its main operations base in Fairbanks. Competition We have taken several steps to be effectively positioned to meet the challenge of a competitive market for electricity. We have been active at the Alaska Legislature in support of the customer's right to choose their electric power supplier. For example, we have requested the RCA permit us access over a neighboring utility's distribution and transmission system. The RCA ruled that retail competition is permitted in Alaska only after prior review and approval by the RCA. We are appealing this ruling in the courts. Nearly all other Alaskan utilities have opposed our efforts to develop retail competition and are treating their service territories as exclusive. At this time no bill relating to customer choice has moved out of committee in the Alaskan legislature. We do not expect the legislature to pass a law granting retail competition for electric service for the foreseeable future. We have made organizational changes in preparation for retail competition. Recognizing that the new marketplace will probably be "unbundled" along the functional lines of generation, transmission and distribution, and retail services, our organizational structure reflects these functions. Operating with three divisions: Finance and Energy Supply, Transmission and Distribution Network Services and Retail Services, we have positioned ourselves to meet retail competition in the electric industry should it develop. It is our objective to continually improve the efficiency and cost effectiveness of our operations. We participate in customer satisfaction surveys, benchmark the performance of system operations against an international peer group and perform studies on how to implement business process best practices. These ongoing programs focus on distribution and transmission lines, substations, power plants, fleet operations and administrative services. 23 Rate Regulation and Rates The RCA regulates our rates. We can seek increases in our base rates and fuel surcharge by filing general rate cases with the RCA. While the formal ratemaking process typically takes nine months to one year, it is within the RCA's authority to authorize, after a notice period, rate changes on an interim, refundable basis. In addition, the RCA has been willing to open limited reviews of matters to resolve specific issues from which expeditious decisions can often be rendered. The RCA has exclusive regulatory control of our rates, subject to appeal to the Alaska courts. Under Alaska law, financial covenants of an Alaska electric cooperative contained in a debt instrument are valid and enforceable, and rates set by the RCA must be adequate to meet those covenants. Under Alaska law, a cooperative utility that is negotiating to enter into a mortgage or other debt instrument that provides for a TIER greater than the ratio the RCA most recently approved for that cooperative must submit the mortgage or debt instrument to the RCA before the instrument takes effect. However, the rate covenant contained in the Amended Indenture will impose no greater TIER requirement than does the rate covenant contained in the Existing Indenture. We do not expect the requirements of either the Existing Indenture or the Amended Indenture to exceed the TIER most recently approved for us by the RCA. We expect to continue to recover changes in our fuel and purchased power expenses through routine fuel surcharge filings with the RCA. See "Management's Discussion and Analysis of Results of Operations -Rates." The Existing Indenture governing all of our outstanding bonds requires us to set rates designed to yield margins for interest equal to at least 1.20 times total interest expense. On the Release Date, the Amended Indenture will supersede the Existing Indenture and require us to set rates designed to yield margins for interest equal to at least 1.10 times total interest expense. See "Description of Bonds - Rate Covenant." Under RCA orders establishing our current base rates, we are permitted to achieve a TIER of 1.35. For the year ended December 31, 2000, our achieved TIER was 1.39. For the nine months ended September 30, 2001, our achieved TIER was 1.15 due to the delay between the increase in our costs and the RCA's approval of an increase in our interim base rate. Another factor in the margin decrease was the increase in our long-term interest expense due to the issuance of $150 million of long-term debt in the second quarter of 2001. In our general rate case filed July 10, 2001 based on the 2000 test year, we proposed that margins be calculated using a rate base/rate of return methodology rather than the TIER methodology previously used by us. Under this methodology, we can assign different rates of return to our various business functions, such as generation, transmission and distribution, in order to recover appropriate risk premiums for each individual function. In addition, the change in methodology allows us to more efficiently allocate our cost of funds. The resultant system TIER would be 1.38 based on the proposed capital structure contained in that filing. We do not believe that our request to change from the TIER-based methodology to the return-on-rate-base methodology will have any material adverse affect on future ratemaking or on our ability to service our outstanding indebtedness. 24 Sales to Customers The following table shows the energy sales to and electric revenues from our retail, wholesale, and economy energy customers for the nine months ended September 30, 2001:
For nine months ended September 30, 2001 ----------------------------------------------------- Percent of MWh Revenues total revenues ----------- ------------- -------------- Direct retail sales: Residential.................... 377,641 $ 41,269,624 33% Commercial..................... 428,573 38,347,765 31% ----------- ------------- -------------- Total.......................... 806,214 79,617,389 64% Wholesale sales: MEA............................ 398,941 22,901,064 18% Homer.......................... 313,744 16,823,628 13% Seward......................... 44,943 2,072,412 2% ----------- ------------- -------------- Total.......................... 757,628 41,797,104 33% Economy energy sales ............... 76,825 3,117,712 3% ----------- ------------- Total sales to customers............ 1,640,667 44,914,816 100% ========== ====== Miscellaneous energy revenue(1) .... 1,672,683 ------------- Total energy revenues............... $126,204,888 =============
- --------------------- (1) Miscellaneous energy revenue consists of wheeling, rental, late fees, damage claims, microwave business venture and other miscellaneous revenue. Retail Customers Service Territory. Our retail service area covers the populated areas of Anchorage (other than downtown Anchorage) as well as remote mountain areas and villages. The service area ranges from the northern Kenai Peninsula on the south, to Tyonek on the west, to Whittier on the east and to Fort Richardson on the north. Customers. As of September 30, 2001, we had approximately 56,700 members being served by approximately 69,900 meters (some members are served by more than one meter). Our customers are primarily urban and suburban. The urban nature of our customer base means that we have a relatively high customer density per line mile. Higher customer density means that fixed costs can be spread over a greater number of customers. As a result of lower average costs attributable to each customer, we benefit from a greater stability in revenue, as compared to a less dense distribution system in which each individual customer would have a more significant impact on operating results. For the past five years no retail customer accounted for more than 5% of our revenues. Wholesale Customers We are the principal supplier of power to MEA, Seward and Homer under separate wholesale power contracts. In the first nine months of 2001, our wholesale power contracts produced $41.8 million in revenues, representing 33% of our total revenues and 46% of our total kWh sales to customers. MEA and Homer. We have two power sales contracts with AEG&T: one for sales to MEA and one for sales to Homer. AEG&T is a generation and transmission cooperative that was formed by MEA and Homer. Under each of these contracts, we sell power to AEG&T, which resells the power to MEA and Homer. MEA and Homer have recently indicated that they may be disbanding or substantially changing their relationship with AEG&T but no changes to our contracts have been made at this time. Under our contracts, each of MEA and Homer is obligated to pay us for the power sold to AEG&T even if AEG&T does not pay. Under the contract, MEA is obligated to purchase all of its electric power and energy requirements from us. Contractually, MEA has the right, on advance notice and subject to RCA approval, to convert to a net requirements purchaser of power, and as such MEA would be obligated to buy its needed power from us net of its power needs 25 satisfied from any of its own or AEG&T's resources. The notice period required for such conversion may be up to five years, depending on which non-Chugach resources MEA proposes to use to satisfy its power needs. MEA has not invoked this right, at this time. If MEA converts to a net requirements purchaser under the contract, MEA cannot reduce its payment for power that it purchases from us below a certain minimum amount. MEA will be required to pay demand charges based upon the highest post-1985 historical coincident peak on the MEA system. Therefore, if MEA converts to net-requirements service, we will continue to recover all or substantially all of the fixed costs assigned to it. Also, our revenues from energy sales to MEA would partially decline in proportion to the reduction in the energy sold, but this decline would be offset to an extent by savings in the variable costs associated with energy production. MEA also has the right, on seven years advance notice and subject to RCA approval, to convert to a take-or-pay purchase of a fixed amount of power, also subject to minimum payment requirements associated with prior purchases. The MEA contract is in effect through December 31, 2014. This contract does not protect us against loss of load resulting from retail competition in MEA's distribution service territory if retail competition is ever permitted in Alaska. We do not expect that the Alaska legislature will pass a law granting retail competition in the foreseeable future and it is not possible at this time to estimate the potential impact on our revenues that could result from such competition. See "Competition" above. During the past several years, we have had numerous disputes and engaged in substantial litigation with MEA regarding many aspects of our contractual relationship. For a discussion of material pending litigation between MEA and us, see "Legal Proceedings." Our contract for the benefit of Homer obligates Homer (through AEG&T) to take or pay for 73 megawatts of capacity, and not less than 350,000 MWh per year. The Homer contract includes limitations on the costs that may be included in our rates charged to it. The Homer contract expires on January 1, 2014. Homer's remaining resource requirements are provided by AEG&T's Nikiski cogeneration facility and AEG&T's entitlement for power from the Bradley Lake hydroelectric project for the benefit of Homer. In February 1999, we entered into a dispatch agreement with AEG&T to operate the Nikiski unit as a Chugach system resource. The agreement provides that, in addition to the energy that we already sell to AEG&T and Homer, we will sell energy to AEG&T equal to Homer's residual energy requirements less its allocated share of the Bradley Lake project, up to a maximum of 320,000 MWh per year. A portion of the Nikiski unit output may be dispatched for Homer's needs in excess of the sum of our contract demand plus Homer's share of energy from the Bradley Lake project. The dispatch agreement will terminate in 2014 when our power supply contract for the benefit of Homer terminates. On August 24, 2001, Alaska Electric and Energy Cooperative, Inc. ("AEEC") and AEG&T filed an Application to Transfer Certificate of Public Convenience and Necessity No. 345 to serve as the wholesale power supplier of Homer, instead of AEG&T. Homer is the sole member of AEEC. The RCA was requested to act on the transfer prior to the end of 2001, however, the application includes the expectation that our power sales agreement will be assigned to AEEC and the Nikiski dispatch agreement will be assigned to Homer. Homer has been requested to meet with us in that regard. Seward. We currently provide nearly all the power needs of the City of Seward. In February 1998, we entered into a new power sales agreement with Seward that allows us to interrupt service to Seward up to 12 times per year and thereby reduces the demand charge by 1/3 (approximately $350,000 annually). This agreement was originally set to expire on September 1, 2001, but we negotiated an amendment to the agreement that extended its term to January 31, 2006. The amendment was fully executed on December 12, 2000 and subsequently filed for approval with the RCA on February 5, 2001. The RCA conditionally approved the extension on April 19, 2001, with an effective date of September 11, 2001. The RCA required an amendment to the contract to include an option to re-negotiate the terms of the contract if rates are adjusted by the general rate case we filed in July 2001. Seward has three choices within sixty days of the final order of the RCA in that general rate case. The choices are to continue the contract using the rate methodology adopted in the case, negotiate a new contract or give notice of termination effective twelve months from the effective final order of the RCA. 26 Economy Customers Since 1988, we have sold economy (nonfirm) energy to GVEA under an agreement that expires in 2008. Under the agreement, we use available generating capacity in excess of our own needs to produce electric energy for sale to GVEA, which uses that energy to serve its own loads in place of more expensive energy that it would otherwise generate itself or purchase from other sources. We purchased gas from Marathon Oil Company ("Marathon") to produce energy for sale to GVEA, and we charge GVEA a rate sufficient to recover the gas cost, the costs of incremental operations and maintenance expense resulting from increased use of our generators for GVEA, and an agreed-upon markup or margin for each kWh sold. In 2000, the RCA approved an amendment to our agreement with GVEA and a settlement of an inter-utility dispute. As a result, the market for economy energy sold to GVEA has now been divided into two parts. The larger part continues to be governed by our agreement with GVEA, in which we are assured of selling 300 million kWh of GVEA's load and an additional 80% of the excess over 450 million kWh of energy that GVEA purchases each year if we are capable of producing that energy. The remaining energy purchases by GVEA are made through the "Economy Energy Spot Market." Neither we nor any other seller enjoys a contractual priority in making such sales. GVEA makes purchases from the seller offering the lowest competitive price. One of those sellers, AML&P, is expected to dominate sales in the Economy Energy Spot Market for the immediate future, partly because AML&P prices its gas at a rate less than the rate on which we rely in making such sales (based on Marathon gas). Load Forecasts The following table sets forth our projected load forecasts for five years:
Load (MWh) 2002 2003 2004 2005 2006 - ----------------- ---------- ---------- ---------- ---------- --------- Retail............ 1,131,666 1,157,509 1,179,497 1,197,027 1,206,932 Wholesale......... 1,128,347 1,163,645 1,196,738 1,225,912 1,248,269 Economy........... 160,000 160,000 160,000 160,000 160,000 Losses............ 126,104 129,329 132,184 134,562 136,118 ---------- ---------- ---------- ---------- --------- Total........ 2,546,117 2,610,483 2,668,419 2,717,501 2,751,319
Sales are expected to increase over the next five years principally due to economic growth in the service sector. Based on a study by the University of Alaska, our total energy requirements are expected to grow at an average compounded annual rate of 2.6% from 2001 to 2005-retail sales at a rate of 2.1% and wholesale sales at a rate of 3.2%. Properties General We have 527.1 megawatts of installed capacity consisting of 17 generating units at five power plants. These include 379.7 megawatts of operating capacity at the Beluga facility on the west side of Cook Inlet; 67.5 megawatts of power at the Bernice Lake facility on the Kenai Peninsula; 46.7 megawatts of power at the International Power Plant in Anchorage; and 20.6 megawatts at the Cooper Lake facility, which is also on the Kenai Peninsula. We also have 12.6 megawatts of capacity from the two Eklutna Hydroelectric Project generating units we jointly own with MEA and AML&P. In addition to our own generation, we purchase power from the 126 megawatt Bradley Lake hydroelectric project owned by the Alaska Energy Authority ("AEA") through the Alaska Industrial Development and Export Authority. The Bradley Lake facility is operated by Homer and dispatched by us. The Beluga, Bernice Lake and International facilities are all fueled by natural gas. We own our offices and headquarters, located adjacent to our International Power Plant in Anchorage. We also lease warehouse space for some generation, transmission and distribution inventory (including a small amount of office space). 27 Generation Assets We own the land and improvements comprising our generating facilities at Beluga and International facilities. We also own all improvements comprising our generating plant at Bernice Lake, located on land leased from Homer. The Bernice Lake ground lease expires in 2011. The Cooper Lake facility is located on federal land pursuant to a major project license granted to us by the Federal Power Commission in 1957 and which expires in 2007. We have no reason to believe that we will not be able to renew the federal license or the Bernice Lake facility ground lease if desirable. In 1997, we acquired a 30% interest in the Eklutna Hydroelectric Project. The plant is located on federal land pursuant to a United States Bureau of Land Management right-of-way grant issued in October 1997. Our principal generation units are Beluga units 3, 5, 6, 7 and 8. These units have a combined capacity of 340.5 MWh and meet most of our load. All other units are used principally as reserve. While the Beluga turbine-generators have been in service for many years, they have been maintained in good working order with periodic upgrades. Beluga unit 3 had a major overhaul in 1996. Beluga unit 5 received a major overhaul in 1997. Beluga unit 6 was "repowered" in 2000 adding in excess of 25 years to its life. Beluga unit 7 is currently being repowered. Beluga unit 8, a steam turbine, was overhauled in 1994 and is slated for another major overhaul in 2002. 28 The following table depicts nomenclature, run hours as of September 30, 2001 and percentages of contribution and other historical information for all of our generation units.
Percent of Percent of Commercial Rating Run Hours Total Time Facility Operation Date Nomenclature (MW)(1) (2000) Generation Available ---------------- -------------- ------------ ------- -------- ---------- --------- Beluga Power Plant (3) Unit 1 1968 GE Frame 5 19.6 548.7 0.37% 73.4% Unit 2 1968 GE Frame 5 19.6 368.2 0.25 74.8 Unit 3 1972 GE Frame 7 64.8 5,195.6 17.42 69.3 Unit 5 1975 GE Frame 7 68.7 4,762.1 16.35 66.4 Unit 6 1975 BB 11D-4NM 81.0 5,889.3 28.11 67.7 Unit 7 1978 BB 11D-4NM 71.0 2,881.1 13.44 40.4 Unit 8 1981 BB DK-21150(2) 55.0 6,046.8 13.26 69.0 Bernice Lake Power Plant(3) Unit 2 1971 GE Frame 5 19.0 0.0 0.00 100.0 Unit 3 1978 GE Frame 5 26.0 3,888.8 4.62 95.0 Unit 4 1981 GE Frame 5 22.5 2,049.1 2.26 91.9 Cooper Lake Hydroelectric Plant Unit 1 1960 BB MV 230/10 10.3 4,103.6 2.29 49.7 Unit 2 1960 BB MV 230/10 10.3 2,768.3 1.49 32.4 International Power Plant Unit 1 1964 GE Frame 5 14.1 98.5 0.05 100.0 Unit 2 1965 GE Frame 5 14.1 114.0 0.04 100.0 Unit 3 1969 Westinghouse 191G 18.5 100.5 0.05 88.6 Eklutna Hydroelectric Plant (4) Unit 1 1955 Newport News 6.3 N/A5 N/A5 N/A5 Unit 2 1955 Newport News 6.3 N/A5 N/A5 N/A5 -------- ------ System Total 38,814.6 100%
- ------------------- (1) Capacity rating in MW at 30 degrees Fahrenheit. (2) Steam-turbine powered generator with heat provided by exhaust from natural-gas fueled Units 6 and 7 (combined-cycle). (3) Beluga Unit 4 and Bernice Lake Unit 1 were retired during 1994. (4) The Eklutna Hydroelectric Plant is jointly owned by MEA, AML&P and us. The capacity shown is our 30% share of the plant's maximum output. (5) Because Eklutna Hydroelectric Plant is operated by MEA and managed by a committee of the three owners, we do not record run hours or in-commission rates. 29 Transmission and Distribution Assets As of September 30, 2001, our transmission and distribution assets included 39 substations and 402 miles of transmission lines, 930 miles of overhead distribution lines and 680 miles of underground distribution lines. We own the land on which 20 of our substations are located and a portion of the right-of-way connecting our Beluga facility to Anchorage. As part of our 1997 acquisition of 30% of the Eklutna facility, we also acquired a partial interest in two substations and additional transmission facilities. Many substations and a substantial number of our transmission and distribution rights-of-way are the subject of federal or state permits and licenses. Under a federal license and a permit from the United States Forest Service, we operate the Quartz Creek transmission substation, substations at Hope, Summit Lake and Daves Creek, and transmission lines over all federal lands between Cooper Lake on the Kenai Peninsula and Anchorage. Long-term permits from the Alaska Division of Lands and the Alaska Railroad Corporation govern much of the rest of our transmission system outside the Anchorage area. Within the Anchorage area, we operate our University substation and several major transmission lines pursuant to long-term rights-of-way grants from the U.S. Department of the Interior, Bureau of Land Management, and transmission and distribution lines have been constructed across privately owned lands pursuant to easements across public rights-of-way and waterways pursuant to authority granted by the appropriate governmental entity. Title Until the Release Date, substantially all of our tangible and some of our intangible properties and assets, including generation, transmission and distribution properties, but excluding all excepted property identified in the Existing Indenture, are pledged to secure repayment of the bonds issued under the Existing Indenture. See "Description of the Bonds - Security for Payment of the Obligations Prior to Release Date; Conversion to Unsecured Obligations on Release Date." In addition to the lien of the Existing Indenture, many of our properties are burdened by easements, plat restrictions, mineral reservation, water rights and similar title exceptions common to the area or customarily reserved in conveyances from federal or state governmental entities, and to additional minor tide encumbrances and defects. We do not believe that any of these title defects will materially impair the use of our properties in the operation of our business. Under the Alaska Electric and Telephone Cooperative Act, we possess the power of eminent domain for the purpose and in the manner provided by Alaska condemnation laws for acquiring private property for public use. Other Assets Bradley Lake. We are a participant in the Bradley Lake hydroelectric project, which is a 126 megawatt rated capacity hydroelectric facility near Homer on the southern end of the Kenai Peninsula that was placed into service in September 1991. The project is nominally scheduled at 90 megawatts to minimize losses and insure system stability. We have a 27.4 megawatt or 30.4% share in the Bradley Lake project's output, and take Seward's and MEA's shares which we net bill to them, for a total of 45% of the project's capacity. We pay Homer a fixed sum of $120,000 annually to dispatch and schedule their share of the project's capacity. The project was financed and built by AEA through grants from the State of Alaska and the issuance of $166 million principal amount of revenue bonds supported by power sales agreements with six electric utilities that share the output from the facility (AML&P, Homer and MEA (through AEG&T), GVEA, Seward and us). The participating utilities have entered into take-or-pay power sales agreements under which AEA has sold percentage shares of the project capacity and the utilities have agreed to pay a like percentage of the annual costs of the project (including ownership, operation and maintenance costs, debt-service costs and amounts required to maintain established reserves). We also provide transmission and related services as a wheeling agent (one who dispatches and transmits power of third parties over its own system) for all of the participants in the Bradley Lake project. The length of our Bradley Lake power sales agreement is fifty years from the date of commercial operation of the facility (September 1991) or when the revenue bond principal is repaid, whichever is the longer. We believe 30 that our maximum annual liability for our take-or-pay obligations is approximately $4.1 million. We believe that so long as this project produces power taken by us for our use that this expense will be recoverable through a fuel surcharge. The share of Bradley Lake indebtedness for which we are responsible is approximately $44 million. Upon the default of a participant, and subject to certain other conditions, AEA is entitled to increase each other participant's share of costs and output pro rata, to the extent necessary to compensate for the failure the defaulting participant to pay its share, provided that no participant's percentage share may be increased by more than 25%. We negotiated with AEG&T a scheduling agreement whereby we schedule Homer's share of the Bradley Lake project through AEG&T for the benefit of the Railbelt electric system. AEG&T continues to pay its Bradley Lake project costs and receives credit for the Bradley Lake energy generated for Homer. We pay a fixed annual fee of $112,000 to AEG&T for these scheduling rights. This agreement allows us to improve the efficiency of our generating resources through better hydrothermal coordination. Eklutna. We purchased a 30% undivided interest in the Eklutna Hydroelectric Project from the federal government in 1997. MEA also owns 17% of the Eklutna Hydroelectric Project. The power MEA purchases from the Eklutna Hydroelectric Project is pooled with our purchases and sold back to MEA to be used in meeting MEA's overall power requirements. AML&P owns the remaining 53% undivided interest in the Eklutna Hydroelectric Project. Fuel Supply and Transportation For the nine months ending September 30, 2001, 96% of our power was generated from gas, and 89% of that gas-fired generation took place at Beluga. Our primary sources of natural gas are the Beluga River Field producers (Phillips Alaska, Inc. ("Phillips"), AML&P and Chevron USA Inc. ("Chevron")) and Marathon. Phillips, AML&P and Chevron each own one-third of the gas produced from the Beluga River Field and in the first nine months of 2001 provided approximately equal shares of the Beluga gas. We have approximately 362 billion cubic feet ("BCF") of remaining gas committed to us from the Beluga River Field producers and Marathon. We currently use approximately 23 BCF of natural gas per year for firm service. We believe that this usage will increase approximately 0.5 BCF per year and estimate that our contract gas will last 10 to 15 years. The deliverability requirements under the Beluga River Field producers and Marathon contracts are in excess of the peak winter demand requirements of the Beluga plant. Beluga River Field Producers We have similar requirements contracts with each of Phillips, AML&P and Chevron that were executed in April 1989, superseding contracts that had been in place since 1973. Each of the contracts with the Beluga River Field producers provides for delivery of gas on different terms in three different periods. Period 1 related to the delivery of gas previously committed by the respective producer under the 1973 contracts and ended in June 1996. During Period 2, which began in June 1996 and continues until the earlier of the delivery of 180 BCF of natural gas or December 31, 2013, we are entitled to take delivery of up to 180 BCF of natural gas (60 BCF per Beluga River Field producer). During this period, we are required to take 60% of our total fuel requirements at Beluga from the three Beluga River Field producers, exclusive of gas purchased at Beluga under the Marathon contract for use in making sales to GVEA or certain other wholesale purchasers. The price for gas during this period under the Phillips and AML&P contracts is approximately 88% of the price of gas under the Marathon contract (described below) ($2.4324 per million cubic feet ("MCF") on October 1, 2001), plus taxes. The price during this period under the Chevron contract is approximately 110% of the price of gas under the Marathon contract ($3.0405 per MCF on October 1, 2001), plus taxes. During Period 3 under the Beluga River Field producers' contracts, which begins on the earlier of December 31, 2013 or the end of Period 2, we may become entitled to take delivery of up to 120 BCF of natural gas (40 BCF per producer). Whether any gas will be taken in Period 3, and the price and take requirements with respect thereto, are to be determined in the future based upon then-current market conditions. 31 We have supplemental, annually renewable contracts with the Beluga River Field producers to supply supplemental gas (for peak periods of energy usage) if they have it available in excess of the amounts guaranteed in the long-term contracts. The supplemental gas contracts raise the daily deliverability of gas from the Beluga River Field producers to an aggregate of 85,200 MCF per day. The base price of the gas under these contracts is the same as the base price under the Marathon contract, plus taxes. Marathon We entered into a requirements contract with Marathon in September 1988 for an initial commitment of 215 BCF. The contract expires on the earlier of December 31, 2015 or the date on which Marathon has delivered to us a volume of gas in total which equals or exceeds 215 BCF, which we currently expect to occur by mid-2009. The base price for gas under the Marathon contract is $1.35 per MCF, adjusted quarterly to reflect the percentage change between the preceding twelve-month period and a base period in the average prices of West Texas Intermediate Crude Oil (a benchmark of the Light Sweet Crude Oil Futures Index), the Producer Price Index for natural gas, and the Consumer Price Index for heating fuel oil. The price on October 1, 2001, exclusive of taxes, was $2.7641 per MCF. Under the terms of the Marathon contract, Marathon generally provides the primary supply of gas required for sales to GVEA, all of our requirements at Bernice Lake, International and Nikiski and 40% of the requirements at Beluga. Marathon also has a right of first refusal to provide additional gas under any sales agreements that we may enter into with electric utilities we do not currently serve. The terms of the Marathon contract also gave Marathon a right to provide additional volumes in the period following depletion of the initial commitment of 215 BCF. On June 13, 2001, we were notified that Marathon will not commit to supply any additional volumes. ENSTAR We entered into a transportation agreement with ENSTAR Natural Gas Company ("ENSTAR") in December 1992, whereby ENSTAR would transport our gas purchased from the Beluga River Field producers or Marathon on a firm basis to our International Power Plant at a transportation rate of $0.63 per MCF. In addition, ENSTAR agreed to transport gas on an interruptible basis for off-system sales at a rate of $0.30 per MCF. The agreement contains a minimum monthly bill of $2,600 for firm service. Under a tariff approved by the RCA in the event that the transportation agreement is subsequently canceled. ENSTAR is obligated to supply all of the gas we require at a price approved by the RCA. There would be a monthly minimum bill of $10,465, but no requirement to actually use any gas at the International Power Plant. Environmental Matters General Our operations are subject to certain federal, state and local environmental laws and regulations which seek to limit to air, water and other pollution and regulate hazardous or toxic waste disposal. While we monitor these laws and regulations to ensure compliance, they frequently change and often become more restrictive. When this occurs, the costs of our compliance generally increase. We include costs associated with environmental compliance in both our operating and capital budgets. We accrue for costs associated with environmental remediation obligations when those costs are probable and reasonably estimable. We do not anticipate that environmental related expenditures will have a material effect on our results of operations or financial condition. We cannot, however, predict the nature, extent or cost of new laws or regulations relating to environmental matters. The Clean Air Act and Environmental Protection Agency ("EPA") regulations under the act (the "Clear Air Act") establish ambient air quality standards and limit the emission of many air pollutants. Some Clean Air Act programs that regulate electric utilities, notably the Title IV "acid rain" requirements, do not apply to facilities located in Alaska. The EPA's anticipated regulations to limit mercury emissions from fossil-fired steam-electric generating facilities, are not expected to materially impact Chugach because our thermal power plants burn exclusively natural gas. 32 New Clean Air Act regulations impacting electric utilities may result from future events or may result from new regulatory programs that may be established to address problems such as global warming. While we cannot predict whether any new regulation would occur or its limitation, it is possible that new laws or regulations could increase our capital and operating costs. We have obtained or applied for all Clean Air Act permits currently required for the operation of our generating facilities, and we are not aware of any future requirements that will materially impact our financial condition. We are subject to numerous other environmental statutes including the Clean Water Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Endangered Species Act, and the Comprehensive Environmental Response, Compensation and Liability Act and to the regulations implementing these statutes. We do not believe that compliance with these statutes and regulations to date has had a material impact on our financial condition or results of operation. However, new laws or regulations, implementation of final regulations or changes in or new interpretations of these laws or regulations could result in significant additional capital or operating expenses. Cooper Lake We discovered polychlorinated biphenyls ("PCBs") in paint, caulk and grease at the Cooper Lake Hydroelectric Plant during initial phases of a turbine overhaul. A Federal Energy Regulatory Commission ("FERC), approved plan, prepared in consultation with the EPA, was implemented to remediate the PCBs in the plant. As a condition of its approval of the license amendment for the overhaul project, FERC required us also to investigate the presence of PCBs in Kenai Lake. A sampling plan was developed by us in consultation with various agencies and approved by FERC. In 2000, we sampled sediments and fish collected from Kenai Lake and other waters. While extremely low levels of PCBs were found in some sediment samples taken near the plant, no pathway from sediment to fish was established. Additional sediment sampling and analysis in this area is being performed. While the presence of PCBs in fish did not reveal amounts above background levels, we are conducting additional sampling and analysis of fish in Kenai Lake and other waters. We have asked FERC for a 45 day extension in which to file a report currently due on December 31, 2001 on the results of the additional fish and sediment sampling. Management believes the costs of this work will be recoverable through rates and therefore will have no material impact on our financial condition or results of operations. Legal Proceedings Matanuska Electric Association, Inc. v. Chugach Electric Association, Inc. On July 7, 1999, MEA filed a complaint against us in Alaska Superior Court in Anchorage, asserting that we violated state statutes, our bylaws and its power supply agreement with us in failing to provide MEA with information about several different matters that MEA asserts could affect the cost of the power MEA purchases from us. MEA also asserted that we violated the power supply agreement in our management of our long-term bond indebtedness. On February 8, 2000, MEA added a claim requesting an order requiring us to present our general rate case filing to the Joint Committee (a review panel comprised of two representatives of our Board of Directors and one MEA director) prior to presenting it to the RCA. On July 10, 2001, in accordance with the power sales agreement, we filed our general rate case directly with the RCA requesting interim base rate relief without review by the Joint Committee. On September 10, 2001, MEA filed a motion for partial summary judgment based on this filing. On September 28, 2001, we filed a cross motion for summary judgment on this issue. Briefing is now complete on this issue and the parties are awaiting a decision from the court. In a decision dated November 16, 2001, the Superior Court granted our motion for partial summary judgment dismissing the fifth cause of action challenging our management of our long-term bond indebtedness. As a result of that decision, all of MEA's claims, except their request for an order requiring us to present our general rate case filing to the Joint Committee, have been dismissed either by a decision of the court or by stipulation of the parties. Should trial on the remaining issue be necessary, it is set for April 2002. MEA has indicated its intention to appeal the court's November 16, 2001, ruling. 33 Other We have certain additional litigation matters and pending claims that arise in the ordinary course of our business. In the opinion of management, no individual matter or the matters in the aggregate is likely to have a material adverse effect on our results of operations or financial condition. 34 MANAGEMENT Executive Officers and Directors We operate under the direction of a Board of Directors that is elected at large by our membership. Day-to-day business and affairs are administered by the General Manager. Our seven-member Board of Directors sets policy and provides direction to our General Manager. The following table sets forth certain information with respect to our executive officers and director as of January 1, 2002.
Name Age Position - -------------------------------------------- ----- --------------------------------------------- Eugene N. Bjornstad......................... 63 General Manager Lee D. Thibert.............................. 46 Executive Manager, Transmission and Distribution Network Services Evan J. Griffith............................ 60 Executive Manager, Finance and Energy Supply William R. Stewart.......................... 54 Executive Manager, Retail Services Bruce Davison............................... 53 President and Director H. A. ("Red") Boucher....................... 80 Vice President and Director Christopher Birch........................... 51 Secretary and Director Jeffrey W. Lipscomb......................... 50 Treasurer and Director Elizabeth ("Pat") Kennedy................... 63 Director Pat Jasper.................................. 72 Director Dave Cottrell............................... 54 Director
Eugene N. Bjornstad was appointed our General Manager on June 22, 1994. Prior to that he served as Acting General Manager from March 28, 1994, until his permanent appointment. He joined us in 1983 and served as Executive Manager, Operating Divisions from 1988 to 1994. Lee D. Thibert was appointed our Executive Manager, Transmission & Distribution Network Services in a reorganization on June 1, 1997. Prior to that he was Executive Manager, Operating Divisions from June of 1994. Before moving up to the Executive Manager position, he served as Director of Operations from May 1987. Evan J. Griffith has been our Executive Manager, Finance and Energy Supply since our internal reorganization on June 1, 1997. Prior to that, he was Executive Manager, Finance & Planning from August 1989 to June 1997. Prior to coming to us, he was Budget/Program Analyst for the Anchorage Municipal Assembly from August 1984 to August 1989. William R. Stewart has been our Executive Manager, Retail Services since the June 1, 1997 reorganization. Prior to that, he was our Executive Manager, Administration from July 1987 to June 1, 1997. He was our Division Director of Administration from January 1984 to July 1987 and our Staff Assistant to the General Manager from November 1982 to January 1984. He has been employed by us since 1969. Bruce Davison serves as President of the Board. He had served as the Secretary of the Board since April 1998. Mr. Davison was first appointed to the Board in June 1997. Prior to his appointment, he served two years on our Bylaws Committee. He is a partner in the law firm of Davison & Davison, Inc. Red Boucher became Vice President of the Board in April 2001. He was elected to the Board in April 1999. In addition to being a director, Mr. Boucher owns a consulting firm, serves as president of a telecommunication firm and hosts a weekly statewide TV show. He has held many elected offices in Alaska including Lieutenant Governor. 35 Chris Birch has been serving as Secretary of the Board since April 2001. He was appointed to fill a Board vacancy in October 1996. Mr. Birch was then elected to that seat in April 1997. He has previously served as Secretary and President. He is a professional engineer for the Alaska Department of Transportation and Public Facilities. Jeff Lipscomb was elected director in April 2000 and currently serves as Treasurer. Mr. Lipscomb is the principal of JWL Engineering which he founded in 1995. He is a professional mechanical engineer with over 20 years of experience in Alaskan oil and gas production facility design. Pat Kennedy has served on the Board since 1993 and has served as both Secretary and President. She is an attorney who has been licensed to practice law since 1976. Pat Jasper most recently served as the President of the Board from April 2000 to April 2001. Ms. Jasper was originally elected to the Board in April 1995. Since 1995, she has held several offices including Secretary, Vice President and President. She is a small business owner and has been a computer programmer and systems analyst. Dave Cottrell was elected to the Board in April 2001. Mr. Cottrell has been the president and managing partner at Mikunda Cottrell & Co., an accounting firm he owns in Anchorage, since 1977. Mr. Cottrell is a certified public accountant. Executive Compensation Cash Compensation The following table sets forth all remuneration paid by us for the last three years to each of our four executive officers, each of whose total cash and cash equivalent compensation exceeded $100,000 for 2000, and for all the executive officers as a group:
Name Principal Position Year Salary Bonus Total - --------------------- --------------------- ------ ---------- --------- --------- Eugene N. Bjornstad General Manager 2000 $230,074 - $230,074 1999 168,057 $36,891 204,948 1998 166,427 33,996 200,423 Lee D. Thibert Executive Manager, Transmission & 2000 131,710 - 131,710 Distribution 1999 123,390 12,757 136,147 Network Services 1998 125,880 - 125,880 Evan J. Griffith Executive Manager, 2000 131,657 - 131,657 Finance & 1999 135,140 12,757 147,897 Energy Supply 1998 131,634 3,300 134,934 William R. Stewart Executive Manager, 2000 134,398 - 134,398 Retail Services 1999 137,376 12,757 150,133 1998 140,193 3,300 143,493
Our directors are compensated for their services in the amount of $100 per board meeting attended (including committee meetings) up to a maximum of seventy meetings per year for a director and eighty-five meetings per year for the President. Upon termination, Mr. Bjornstad's employment agreement provides that he may receive an amount equal to his salary for the greater of six months or remaining term of his employment agreement (which number shall not be less than six months) plus any accrued annual leave or other compensation then due as of the effective date of the notice of termination. 36 Compensation Pursuant to Benefit Plans We have elected to participate in the National Rural Electric Cooperative Association ("NRECA") Retirement and Security Program (the "Plan"), a multiple employer defined benefit master pension plan maintained and administered by the NRECA for the benefit of its members and their employees. The Plan is intended to be a qualified pension plan under Section 401(a) of the Code. All our employees not covered by a union agreement become participants in the Plan on the first day of the month following completion of one year of eligibility service. An employee is credited with one year of eligibility service if he completes 1,000 hours of service either in his first twelve consecutive months of employment or in any calendar year for us or certain other employers in rural electrification (related employers). Pension benefits vest at the rate of 10% for each of the first four years of vesting service and become fully vested and nonforfeitable on the earlier of the date a participant has five years of vesting service or the date the participant attains age fifty-five while employed by us or a related employer. A participant is credited with one year of vesting service for each calendar year in which he performs at least one hour of service for us or a related employer. Pension benefits are generally paid upon the participant's retirement or death. A participant may also elect to receive pension benefits while still employed by us if he has reached his normal retirement date by completing thirty years of benefit service (defined below) or, if earlier, by attaining age sixty-two. A participant may elect to receive actuarially reduced early retirement pension benefits before his normal retirement date provided he has attained age fifty-five. Pension benefits paid in normal form are paid monthly for the remaining lifetime of the participant. Unless an actuarially equivalent optional form of benefit payment to the participant is elected, upon the death of a participant the participant's surviving spouse will receive pension benefits for life equal to 50% of the participant's benefit. The annual amount of a participant's pension benefit and the resulting monthly payments the participant receives under the normal form of payment are based on the number of his years of participation in the Plan (benefit service) and the highest five-year average of the annual rate of his base salary during the last ten years of his participation in the Plan (final average salary). Annual compensation in excess of $200,000, as adjusted by the Internal Revenue Service for cost of living increases, is disregarded after January 1, 1989. The participant's annual pension benefit at his normal retirement date is equal to the product of his years of benefit service (up to thirty) times final average salary times 2%. In 1998, NRECA notified us that there were employees whose pension benefits from the Plan would be reduced because of limitations on retirement benefits payable under Section 401(a)(17) or 415 of the Code. NRECA made available a Pension Restoration Severance Pay Plan and a Pension Restoration Deferred Compensation Plan for cooperatives to adopt in order to make employees whole for their lost benefits. In May 1998, we adopted both of these plans to protect the benefits of current and future employees whose pension benefits would be reduced because of these limitations. The following table sets forth the estimated annual pension benefit payable at normal retirement date for participants in the specified final average salary and years of benefit service categories:
Years of Benefit Service Final Average ------------------------------------------------------------------ Salary 15 20 25 30+ ------------- -------- --------- -------- -------- $125,000 $37,500 $50,000 $62,500 $75,000 150,000 45,000 60,000 75,000 90,000
The annual pension benefits indicated above are the joint and surviving spouse life annuity amounts payable by the Plan, and they are not subject to any deduction for Social Security or other offset amounts. 37 Benefit service as of December 31, 2000 taken into account under the Plan for the executive officers is shown below. Base salary for 2000 taken into account under the Plan for purposes of determining final average salary is also included.
Covered Name Principal Position Benefit Service Compensation - ------------------------------ -------------------------------- --------------- --------------- Eugene N. Bjornstad........... General Manager 16.7 $165,027 Lee D. Thibert................ Executive Manager, Transmission 12.7 130,790 & Distribution Network Services Evan J. Griffith.............. Executive Manager, Finance & 10.4 130,166 Energy Supply William R. Stewart............ Executive Manager, Retail 30.0 130,187 Services
Employment Arrangements In August 2001, we entered into an employment agreement with Eugene Bjornstad, our General Manager. He is paid an annual base salary of $175,000. Mr. Bjornstad also is eligible to receive additional compensation, bonus and benefits for meeting performance goals established annually by the Board of Directors. In the event that Mr. Bjornstad is terminated without cause, he will be entitled to severance in an amount equal to six months of his annual salary, plus any accrued annual leave and any bonuses or other compensation then due. 38 BOND INSURANCE The following information has been furnished by MBIA Insurance Corporation ("MBIA") for use in this prospectus. Reference is made to Appendix A for a specimen of MBIA's policy. MBIA's policy unconditionally and irrevocably guarantees the full and complete payment required to be made by us or on our behalf to the Paying Agent or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by MBIA's policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner of the Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law (a "Preference"). MBIA's policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bonds. MBIA's policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Paying Agent or any other paying agent for the Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Paying Agent or any owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the Bonds in any legal proceeding related to payment of insured amounts on the Bonds, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners or the Paying Agent payment of the insured amounts due on such Bonds, less any amount held by the Paying Agent for the payment of such insured amounts and legally available therefor. MBIA MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. New York has laws prescribing minimum capital requirements, limiting classes and concentrations of investments and requiring the approval of policy rates and forms. State laws also regulate the amount of both the aggregate and individual risks that may be insured, the payment of dividends by MBIA, changes in control and transactions among affiliates. Additionally, MBIA is required to maintain contingency reserves on its liabilities in certain amounts and for certain periods of time. 39 MBIA does not accept any responsibility for the accuracy or completeness of this prospectus or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the policy and MBIA set forth under the heading "Bond Insurance." Additionally, MBIA makes no representation regarding the Bonds or the advisability of investing in the Bonds. The Financial Guarantee Insurance Policies are not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law. MBIA Information The following documents filed by MBIA with the Securities and Exchange Commission (the "SEC") are incorporated herein by reference: (1) Annual Report on Form 10-K for the year ended December 31, 2000; (2) Quarterly Report on Form 10-Q for the quarter ended September 30, 2001; and (3) The report on Form 8-K filed by MBIA on January 30, 2001. Any documents filed by MBIA pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended, after the date of this prospectus and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this prospectus and to be a part hereof. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this prospectus, shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. MBIA files annual, quarterly and special reports, information statements and other information with the SEC under File No. 1-9583. Copies of the SEC filings (including (1) MBIA's Annual Report on Form 10-K for the year ended December 31, 2000, (2) MBIA's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and (3) the report on Form 8-K filed by MBIA on January 30, 2001) are available (i) over the Internet at the SEC's web site at http://www.sec.gov; (ii) at the SEC's public reference room in Washington D.C.; (iii) over the Internet at MBIA's web site at http://www.mbia.com; and (iv) at no cost, upon request to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504. The telephone number of MBIA is (914) 273-4545. As of December 31, 2000, MBIA had admitted assets of $7.6 billion (audited), total liabilities of $5.2 billion (audited), and total capital and surplus of $2.4 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of September 30, 2001, MBIA had admitted assets of $8.4 billion (unaudited), total liabilities of $6.0 billion (unaudited), and total capital and surplus of $2.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. 40 Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA." Fitch, Inc. rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. MBIA does not guaranty the market price of the Bonds nor does it guaranty that the ratings on the Bonds will not be revised or withdrawn. 41 DESCRIPTION OF THE BONDS General The Bonds will be issued under and secured initially by the Existing Indenture. U.S. Bank National Association currently acts as trustee under the Existing Indenture (the "Trustee"). On the earliest date when all bonds issued under the Existing Indenture prior to April 2001 cease to be outstanding or their holders have consented to release of the lien (the "Release Date"), the Existing Indenture will be superseded in its entirety by the Amended Indenture. Our currently outstanding 1991 Series A Bonds Due 2002 are not redeemable, and our 1991 Series A Bonds Due 2022 are not redeemable until March 15, 2002, so the earliest date on which we expect that the Amended Indenture could take effect is March 15, 2002. For purposes hereof, reference to the "Indenture" refers to the Existing Indenture at all times prior to the Release Date, and to the Amended Indenture at all times on and after the Release Date. Obligations of all series that have been or may be issued under the Indenture, including the Bonds, may be referred to in this prospectus as "Obligations." The following summaries of provisions of the Bonds do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Indenture, including the definitions therein of certain terms. Wherever particular sections of the Indenture or capitalized terms are referred to in this prospectus, such sections and the definitions of such capitalized terms contained in the Indenture are incorporated by reference in their entirety. The Indenture is included as an exhibit to the registration statement of which this prospectus is a part. A copy of the Indenture may also be obtained from the Trustee or from us. In connection with the issuance of the Auction Rate Bonds, the Trustee will enter into an Auction Agreement with the Auction Agent which, among other things, sets forth the duties and responsibilities of the Auction Agent. Reference is made to Appendix B--Auction Procedures to this prospectus, which is a part of the Indenture and the Auction Agreement (the "Auction Procedures"). Unless otherwise defined in this prospectus, capitalized terms referred to in "Description of the Bonds--Auction Rate Bonds" are defined either in the Auction Agreement, the Auction Procedures or under "Description of the Bonds--Auction Rate Bonds--Glossary of Terms." Terms contained in the Auction Agreement are incorporated by reference in their entirety. The Auction Agreement is included as an exhibit to the registration statement of which this prospectus is a part. A copy of the Auction Agreement may also be obtained from the Trustee or from us. 2002 Series A Bonds The 2002 Series A Bonds will mature on , 2012 and will bear interest at the annual rate of % (on the basis of a 360-day year) from their date of issuance or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semi-annually on and of each year, commencing , 2002, to the person in whose name the 2002 Series A Bonds are registered at the close of business on the Regular Record Date for such interest, which shall be the last day (whether or not a business day) of the calendar month next preceding such Interest Payment Date. If interest on the 2002 Series A Bonds is not punctually paid or duly provided for, we will pay such amount instead to each registered holder of the bonds on a special record date not more than 15 nor less than 10 days prior to the date of the proposed payment. Principal of, and premium (if any) and interest on, the 2002 Series A Bonds will be payable, and the transfer of interests in the bonds will be effected, through the facilities of The Depository Trust Company, a New York corporation ("DTC"), as described under "Book-Entry System; Exchangeability." The 2002 Series A Bonds will be issued in multiples of $1,000 denominations. Auction Rate Bonds The Auction Rate Bonds will mature on , 2012 bear interest from the date of original delivery to and through , 2002 at a rate established by the underwriter, prior to their date of delivery. Afterwards, the Auction Rate Bonds will bear interest at the applicable rate set for 28-day Auction Periods. The initial Auction Date will be , 2002. After this date, the applicable interest rate will be the term rate established by the Auction Agent based on the terms of the Auction Procedures. Unless approved by us and consented to by the Bond Insurer, the term rate will not exceed the Maximum Rate. The Auction Rate Bonds will be issued in denominations of (i) for the Auction Rate Bonds bearing interest at a Daily 42 Rate, a Weekly Rate or a Flexible Rate, $100,000 or any integral multiple of $5,000 in excess thereof; (ii) for the 2002 Series B Bonds bearing interest at an Auction Mode Rate, $50,000 and multiples of $50,000 thereof; and (iii) for the 2002 Series B Bonds bearing interest at a Term Rate or a Fixed Rate, $5,000 or any integral multiple thereof (collectively the "Authorized Denominations"). The Auction Rate Bonds can at our direction on any conversion date be converted to a daily, seven-day, 28-day, 35-day, three-month or a semiannual period or a Flexible Auction Period and will bear interest at the rate established for such period through the Auction Procedures. The consent of the Bond Insurer is required prior to the conversion to an Auction Period of greater than 35 days. Upon conversion to a daily, seven-day, 28-day, 35-day, three-month or a semiannual period or a Flexible Auction Period, the Auction Rate Bonds will be subject to mandatory tender on the conversion date at a price equal to 100% of the principal amount thereof plus accrued interest, if any, to such date. Interest on the Auction Rate Bonds in a daily, seven-day, 28-day, 35-day, a three-month or a Flexible Auction Period of 180 days or less will be computed on the basis of a 360-day year for the actual number of days elapsed. Interest on the Auction Rate Bonds in a semiannual Auction Period or Flexible Auction Period of more than 180 days will be computed on the basis of a 360-day year of twelve 30-day months. Auction Agent The Trustee will enter into the Auction Agreement initially with Bankers Trust Company, pursuant to which Bankers Trust Company, as agent for the Trustee, shall perform the duties of Auction Agent. The Auction Agreement provides, among other things, that the Auction Agent will determine the Auction Rate for each Auction in accordance with the Auction Procedures. Auction Date An Auction to determine the interest rate with respect to the Auction Rate Bonds for the next succeeding Auction Period will be held on the business day next preceding each Interest Payment Date except when the Auction Rate Bonds are in a daily Auction Period when an Auction will be held every business day. The first Auction will take place on , 2002. Orders The procedure for submitting Orders prior to the Submission Deadline on each Auction Date is described in the Auction Procedures. Submission of Orders; Auction Procedures Prior to the Submission Deadline on an Auction Date, existing and potential owners of the Auction Rate Bonds will, either themselves or through their broker, need to have submitted an irrevocable Hold Order, Bid or Sell Order to the Auction Agent setting forth the principal amount of Auction Rate Bonds and the interest rate at which they are willing to hold, buy or sell. If an Order for all the Auctions Rate Bonds held by an existing owner is not submitted to the Auction Agent prior to the Submission Deadline, the existing owner will be deemed to have submitted a Hold Order covering all the principal amount of Auction Rate Bonds held by such existing owner and not subject to orders submitted. Promptly after the Submission Deadline on each Auction Date, the Auction Agent assembles all Orders submitted or deemed submitted to it by the broker-dealers (each such Order as submitted or deemed submitted by a broker-dealer being hereinafter referred to as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, and collectively as a "Submitted Order") and will determine (i) the Available Bonds, (ii) whether there are Sufficient Clearing Bids, and (iii) the Auction Rate. In the event the Auction Agent fails to calculate, or for any reason fails to timely provide, the Auction Rate for any Auction Period, the Auction Rate for such Auction Period will be the No Auction Rate. 43 In the event of Sufficient Clearing Bids, Submitted Orders are accepted or rejected in the following order of priority: (i) the Submitted Hold Order of each existing owner will be accepted, thus requiring each the existing owner to continue to hold the Bonds that are the subject of the Submitted Hold Order; (ii) the Submitted Sell Order of each existing owner will be accepted and the Submitted Bid of each existing owner specifying any rate that is higher than the Winning Bid Rate will be rejected, thus requiring each such existing owner to sell the Bonds that are the subject of the Submitted Sell Order or Submitted Bid; (iii) the Submitted Bid of each existing owner specifying any rate that is lower than the Winning Bid Rate will be accepted, thus requiring each such existing owner to continue to hold the Bonds that are the subject of the Submitted Bid; (iv) the Submitted Bid of each potential owner specifying any rate that is lower than the Winning Bid Rate will be accepted, thus requiring each such existing owner to purchase the Bonds that are the subject of the Submitted Bid; (v) the Submitted Bid of each existing owner specifying a rate that is equal to the Winning Bid Rate will be accepted, thus requiring each such existing owner to continue to hold the Bonds that are the subject of the Submitted Bid, but only up to and including the principal amount of Bonds obtained by multiplying (A) the aggregate principal amount of Outstanding Bonds which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii) or (iv) above by (B) a fraction the numerator of which will be the principal amount of Outstanding Bonds held by such existing owner subject to the Submitted Bid and the denominator of which will be the aggregate principal amount of Outstanding Bonds subject to the Submitted Bids made by all the existing owners that specified a rate equal to the Winning Bid Rate, and the remainder, if any, of the Submitted Bid will be rejected, thus requiring each such existing owner to sell any excess amount of Bonds; (vi) the Submitted Bid of each potential owner specifying a rate that is equal to the Winning Bid Rate will be accepted, thus requiring each such potential owner to purchase the Bonds that are the subject of the Submitted Bid, but only in an amount equal to the principal amount of Bonds obtained by multiplying (A) the aggregate principal amount of Outstanding Bonds which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii), (iv) or (v) above by (B) a fraction the numerator of which will be the principal amount of Outstanding Bonds subject to the Submitted Bid and the denominator of which will be the sum of the aggregate principal amount of Outstanding Bonds subject to the Submitted Bids made by all the potential owners that specified a rate equal to the Winning Bid Rate, and the remainder of the Submitted Bid will be rejected; and (vii) the Submitted Bid of each potential owner specifying any rate that is higher than the Winning Bid Rate will be rejected. In the event there are not Sufficient Clearing Bids, Submitted Orders will be accepted or rejected as follows in the following order of priority: (i) the Submitted Hold Order of each existing owner will be accepted, thus requiring each such existing owner to continue to hold the Bonds that are the subject of the Submitted Hold Order; (ii) the Submitted Bid of each existing owner specifying any rate that is not higher than the Maximum Auction Rate will be accepted, thus requiring each such existing owner to continue to hold the Bonds that are the subject of the Submitted Bid; 44 (iii) the Submitted Bid of each potential owner specifying any rate that is not higher than the Maximum Auction Rate will be accepted, thus requiring each such potential owner to purchase the Bonds that are the subject of the Submitted Bid; (iv) the Submitted Sell Orders of each existing owner will be accepted as Submitted Sell Orders and the Submitted Bids of each existing owner specifying any rate that is higher than the Maximum Rate will be deemed to be and will be accepted as Submitted Sell Orders, in both cases only up to and including the principal amount of Bonds obtained by multiplying (A) the aggregate principal amount of Bonds subject to Submitted Bids described in paragraph (iii) of this subsection (b) by (B) a fraction the numerator of which will be the principal amount of Outstanding Bonds held by such existing owner subject to the Submitted Sell Order or the Submitted Bid deemed to be a Submitted Sell Order and the denominator of which will be the principal amount of outstanding Auction Rate Bonds subject to all the Submitted Sell Orders and the Submitted Bids deemed to be Submitted Sell Orders, and the remainder of each the Submitted Sell Order or Submitted Bid will be deemed to be and will be accepted as a Hold Order and each such existing owner will be required to continue to hold such excess amount of Auction Rate Bonds; and (v) the Submitted Bid of each potential owner specifying any rate that is higher than the Maximum Auction Rate will be rejected. Amendment of Auction Procedures The Auction Procedures may be amended by obtaining the consent of all the owners of all Auction Rate Bonds. All owners of the Auction Rate Bonds will be deemed to have consented if on the first Auction Date occurring at least 20 days after the Auction Agent mailed notice to such owners the Auction Rate determined for such date is the Winning Bid Rate. Changes to the Auction Periods and Auction Dates do not require the amendment of the Auction Procedures or any consents, except the Bond Insurer's consent for Auction Periods greater than 35 days. Conversion from One Auction Period to Another At our option, and with the Bond Insurer's consent for Auction Periods greater than 35 days, the Auction Rate Bonds can on any conversion date be converted to a daily, seven-day, 28-day, 35-day, three-month or a semiannual period or a Flexible Auction Period. On the conversion date from one Auction Period to another, the Auction Rate Bonds which are not the subject of a specific Hold Order or Bid will be deemed to be subject to a Sell Order. In the event of a failed conversion to another Auction Period due to the lack of Sufficient Clearing Bids, the Auction Rate Bonds will automatically convert to a seven-day Auction Period and will bear interest at the Maximum Auction Rate. In connection with a conversion from one Auction Period to another, written notice of such conversion will be given in accordance with the Auction Procedures; however, the Auction Rate Bonds will not be subject to mandatory tender on such conversion date. Conversion of Auction Rate Bonds to Another Interest Mode At our option, all of the Auction Rate Bonds may be converted to bear interest at a Daily Rate, a Weekly Rate, a Flexible Rate, a Term Rate or a Fixed Rate. On the Mode Adjustment Date applicable to the Auction Rate Bonds to be converted, the Auction Rate Bonds to be converted shall be subject to mandatory tender at a purchase price equal to 100% of the principal amount thereof, plus accrued interest. The purchase price of the Auction Rate Bonds so tendered is payable solely from the proceeds of the remarketing of such Auction Rate Bonds. In the event that the conditions of a conversion are not satisfied, including the failure to remarket all applicable Auction Rate Bonds on a mandatory tender date, the Auction Rate Bonds will not be subject to mandatory tender, will be returned to their owners, will automatically convert to a seven-day Auction Period and will bear interest at the Maximum Auction Rate. Should the Auction Rate Bonds be converted to bear interest at a Daily Rate, a Weekly Rate, a Flexible Rate, a Term Rate or a Fixed Rate, such Auction Rate Bonds may need to be registered on a registration statement covering such securities. We will agree to take such reasonable additional actions, if any, necessary in order to register the Auction Rate Bonds under, and to otherwise comply with, each of the Securities Act and the Securities Exchange Act upon remarketing of the Auction Rate Bonds. 45 Broker-Dealer Broker-dealers may submit orders in any Auction for their own account. If a broker-dealer submits an order for its own account in any Auction, it might have an advantage over other bidders in that it would have knowledge of orders placed through it in that Auction; such broker-dealer, however, would not have knowledge of orders submitted by other broker-dealers (if any) in that Auction. Special Considerations The Auction Agent may resign from its duties as Auction Agent by giving at least 90 days' notice or 30 days' notice, if it has not been paid, to us and the Trustee and does not require, as a condition to the effectiveness of such resignation, that a replacement Auction Agent be in place if its fee has not been paid. The Broker-Dealer Agreement provides that the broker-dealer thereunder may resign upon five business days' notice or immediately, in certain circumstances, and does not require, as a condition to the effectiveness of such resignation, that a replacement broker-dealer be in place. For any Auction Period during which there is no duly appointed Auction Agent, or during which there is no duly appointed broker-dealer, it will not be possible to hold Auctions, with the result that the interest rate on the Auction Rate Bonds will be the No Auction Rate. Optional Redemption for the Auction Rate Bonds During the Auction Mode, the Auction Rate Bonds may be redeemed at our option in whole or in part on any Interest Payment Date immediately following the end of an Auction Period, at the principal amount of the bonds to be redeemed without premium together with the accrued interest; provided, however, in the event of a partial redemption of the Auction Rate Bonds bearing interest at the Auction Mode Rate, the aggregate principal amount not so redeemed shall be an integral multiple of $50,000. Sinking Fund Installments and Mandatory Redemption for the Auction Rate Bonds The Auction Rate Bonds are subject to mandatory redemption prior to maturity from sinking fund installments, on in the years and in the principal amounts set forth below at a redemption price equal to % of the principal amount being redeemed, plus accrued interest to the redemption date: Principal Amount to be Year Redeemed 2003 2004 2005 2006 2007 2008 2009 2010 2011 Selection of Auction Rate Bonds to be Redeemed If we redeem less than all of the Auction Rate Bonds, the Auction Rate Bonds to be redeemed will be selected at random by the Trustee in such manner as the Trustee considers fair and appropriate and the portion of the Auction Rate Bonds not so redeemed will be in an Authorized Denomination. Notice of Redemption The Trustee, on our behalf, shall give notices of redemption by mail, postage prepaid not less than 15 days prior to the redemption date, to each holder of Auction Rate Bonds which are to be redeemed, at its last address, if any, appearing upon the registry books. Notice having been given in the manner provided in the Indenture, as the 46 case may be, on the redemption date so designated, if there is sufficient moneys available therefor, then the Auction Rate Bonds of so called for redemption will become due and payable on such redemption date at the redemption price, plus interest accrued and unpaid to the redemption date. Glossary of Terms The following glossary of terms contains key terms used in the below summary of the Auction Rate Bonds. Capitalized terms found in this section but not defined in the glossary or in Appendix B--Auction Procedures have the meaning assigned them in the Auction Agreement. "Daily Mode" means the Interest Mode during which the Auction Rate Bonds of a particular series bear interest at Daily Rates. "Daily Rate" means the interest rate applicable to the Auction Rate Bonds during the Daily Mode, determined as provided in the Indenture. "Favorable Opinion of Bond Counsel" shall mean, with respect to any action to be taken hereunder with respect to the Auction Rate Bonds, an opinion of nationally recognized bond counsel to the effect that such action is permitted by the terms of the Indenture. "Fixed Mode" means the Interest Mode during which the Auction Rate Bonds bear interest at the Fixed Rate. "Fixed Rate" means the interest rate applicable to the Auction Rate Bonds during the Fixed Mode, determined as provided in the Indenture. "Flexible Mode" means the Interest Mode during which the Auction Rate Bonds bear interest at Flexible Rates. "Flexible Rate" means the interest rate applicable to the Auction Rate Bonds during the Flexible Mode, determined as provided in the Indenture. "Interest Accrual Period" means the period from and including each Interest Payment Date to, but excluding, the next Interest Payment Date. The initial Interest Accrual Period for the Auction Rate Bonds shall begin on (and include) the Delivery Date. The final Interest Accrual Period for any Offered Security shall end on the day next preceding the maturity or redemption date of such Offered Security, as the case may be. "Interest Mode" means a period of time relating to the frequency with which the interest rate on the Auction Rate Bonds is determined pursuant to the Indenture. An Interest Mode may be the Auction Mode, the Daily Mode, the Weekly Mode, the Flexible Mode, the Term Mode or the Fixed Mode. "Interest Period" means the period from and including a Rate Adjustment Date to but excluding the next succeeding Rate Adjustment Date; provided, however, that (a) the first Interest Period for the Auction Rate Bonds shall be the period from and including the Delivery Date to but excluding the first Rate Adjustment Date and (b) the final Interest Period for the Auction Rate Bonds shall be the period from and including the last Rate Adjustment Date preceding the maturity or redemption date of such Offered Security to but excluding such maturity or redemption date. "Maximum Rate" shall mean fifteen percent (15%) per annum, or such higher rate as shall be approved by us if (1) a Favorable Opinion of Bond Counsel shall have been delivered to parties entitled to notice and (2) such higher rate shall have been consented to in writing by the Bond Insurer. "Mode Adjustment Date" means any date on which the Interest Mode or Interest Period to which the Auction Rate Bonds are subject is to be changed to another Interest Mode or Interest Period, as the case may be, determined as provided in the Indenture. 47 "No Auction Rate" means, as of any Auction Date, the rate determined by multiplying the Percentage of Index set forth below, based on the Prevailing Rating of the Auction Rate Bonds in effect at the close of business on the business day immediately preceding such Auction Date, by the Index: Percentage Prevailing Rating of Index ------------------- ---------- AAA/Aaa/AAA 100% AA/Aa/AA 110 A/A/A 125 BBB/Baa/BBB 150 Below BBB/Baa/BBB 200 provided, however, that in no event will the No Auction Rate exceed the Maximum Auction Rate. "Rate Adjustment Date" means the day on which each Auction Mode Rate, Daily Rate, Weekly Rate, Flexible Rate, Term Rate or Fixed Rate shall become effective. "Rate Determination Date" means the time and date as of which an interest rate for the Auction Rate Bonds shall be determined as provided in the Indenture. "Record Date" means the close of business on the Business Day immediately preceding such Interest Payment Date. "Sufficient Clearing Bids" means an Auction for which (a) the aggregate principal amount of Auction Rate Bonds that are the subject of Submitted Bids by potential owners specifying one or more rates not higher than the Maximum Auction Rate is not less than (b) the aggregate principal amount of Auction Rate Bonds that are the subject of Submitted Sell Orders and of Submitted Bids by existing owners specifying rates higher than the Maximum Auction Rate. "Term Mode" means the Interest Mode during which the Auction Rate Bonds bear interest at Term Rates. "Term Rate" means the interest rate applicable to the Auction Rate Bonds during the Term Mode, determined as provided in the Indenture. "Weekly Mode" means the Interest Mode during which the Auction Rate Bonds bear interest at Weekly Rates. "Weekly Rate" means the interest rate applicable to the Auction Rate Bonds during the Weekly Mode, determined as provided in the Indenture. Security for Payment of the Obligations Prior to Release Date; Conversion to Unsecured Obligations on Release Date Until the Release Date, the Bonds will be secured equally and ratably with all other Obligations issued (whether previously or subsequent to issuance of the Bonds) under the Existing Indenture, by a first lien on substantially all of our tangible properties and certain of our other assets, including generation, transmission and distribution properties, excluding Excepted Property. The Existing Indenture defines Excepted Property to include, among other things, cash on hand, instruments and certain securities, patents and trademarks, transportation equipment (including vehicles, vessels and barges) in which a security interest cannot be perfected by filing a financing statement under the Uniform Commercial Code, leases for an original term of less than five years, certain nonassignable permits, licenses and contractual rights, property located outside the State of Alaska and not used in connection with our generation, transmission and distribution system, and other personal property in which a security interest cannot legally be perfected. The lien of the Existing Indenture is subject to certain permitted encumbrances (the "Permitted Encumbrances"), which the Indenture defines to include, among other things, certain identified restrictions, exceptions, reservations, conditions and limitations existing on September 15, 1991, reservations in U.S. patents, non-delinquent or contested tax liens, local improvement district assessments, 48 contractors' liens and similar liens arising in the ordinary course of business, certain easements, leases and reservations and liens for non-delinquent rent or wages. The lien of the Existing Indenture is also subject to a lien in favor of the Trustee to recover amounts owing to the Trustee under the Indenture. In addition, our title to the mortgaged property and the lien of the Existing Indenture are subject to certain other prior rights and encumbrances which we do not believe adversely affects in any material respect our right to use such property to secure the Bonds. Immediately following this offering and the application of the proceeds hereof to the repayment of the 1991 Series A Bonds due 2002 and the redemption of the 1991 Series A Bonds due 2022, there will be approximately $149 million of Obligations, including the Bonds, outstanding under the Existing Indenture. From and after the Release Date, the Bonds, all other Obligations then still outstanding and any other Obligations thereafter issued under the Indenture will be unsecured general obligations and will rank equally with all of our other unsecured and unsubordinated obligations. On the Release Date, any lien or security interest arising under the Indenture will automatically terminate and the Trustee is required to take any actions we deem reasonably necessary to confirm or give notice of the termination and release of any lien or security interest arising under the Indenture and to evidence the reconveyance, re-assignment and transfer to us of all right, title and interest of the Trustee in the collateral. Rights of Insurer The Indenture provides that if any person provides an insurance policy, letter of credit, surety bond or other undertaking that unconditionally obligates that person to pay any Obligations when they become due, to the extent not paid by us, then as long as that credit enhancer is not in default in performing that undertaking, that credit enhancer (and not the holders of the Obligations to which the credit enhancement relates) will be considered the holder of those Obligations for purposes of giving any approval or consent to any supplemental indenture or other amendment to the Indenture (other than modifications that cannot be effecting without unanimous approval of the holders of those Obligations), the giving any other approval, consent or notice, effecting any waiver or authorization, exercising any remedies or the taking of any other action under the Indenture. Because MBIA will issue an insurance policy insuring the payment of principal and interest on the Bonds, MBIA will have the exclusive authority to exercise such powers and take such actions under the Indenture in lieu of the actual holders of the Bonds. In addition we have agreed with MBIA that if an Event of Default under the Indenture related to nonpayment of interest and principal shall occur and be continuing, that, as long as MBIA is not in default in performing its duties as the Bond Insurer, MBIA may direct us to convert from one Auction Period to another or from the current Interest Mode to a Fixed Rate mode, subject to the satisfaction of the other conditions to the conversion set forth in the Indenture. See "Bond Insurance." Release and Substitution of Property Prior to Release Date; Negative Pledge After Release Date Until the Release Date, property subject to the lien of the Existing Indenture may be released to facilitate the day-to-day operation of our business. In addition, property may be released upon deposit of cash, retirement of Obligations or acquisition of additional property. The lien of the Indenture terminates on the Release Date when the Existing Indenture is replaced by the Amended Indenture. However, the Amended Indenture will thereafter prohibit us from creating or permitting to exist any mortgage, lien, pledge, charge, security interest or other encumbrance of any kind (other than those arising by operation of law) for the purpose of securing repayment of borrowed money or any obligation to pay the deferred purchase price for goods or services, except for security interests securing other debt not exceeding $5,000,000. Rate Covenant Until the Release Date, subject to any necessary approval or determination of any regulatory authority with jurisdiction over rates, rents, charges, fees and other compensation (collectively, "Rates"), the Indenture requires us to establish and collect Rates for the use or the sale of the output, capacity or service of our electric generation, transmission and distribution system which are reasonably expected to yield margins for interest for the 12-month period commencing with the effective date of such Rates equal to at least 1.20 times total interest expense during such 12-month period. Margins for interest generally consist of our assignable margins plus total interest expense and income tax accruals. Promptly upon any material change in the circumstances which were contemplated at the time such Rates were most recently reviewed, but not less frequently than once every 12 months, we will review the Rates and, subject to any necessary regulatory approval, promptly establish or revise the Rates as necessary to obtain the required margins for interest and produce moneys sufficient to enable us to comply with our other covenants 49 under the Indenture. After the Release Date, the Amended Indenture will require us to establish and collect Rates reasonably expected to yield margins for interest for each fiscal year equal to 1.10 times total interest expense for the fiscal year. Margins for interest are defined in the Amended Indenture as our assignable margins plus total interest expense on obligations to repay borrowed money or the deferred purchase price of property or services (other than from subordinated debt), income tax accruals and non-recurring charges. We must also review Rates at least annually and promptly revise them to comply with the margins for interest covenant subject to any necessary regulatory approvals. Depreciation Deposits Prior to Release Date Until the Release Date, the Indenture requires us to deposit with the Trustee, on or before July 1 of each year, cash (a "Depreciation Deposit") in an amount equal to the excess (if any) obtained by subtracting the aggregate amount of property acquired by us since July 1, 1991 that is subject to the lien of the Indenture to the date of such Depreciation Deposit from our aggregate depreciation expense incurred from January 1, 1992 through the end of the calendar year immediately preceding the date of deposit. Depreciation Deposits and other amounts deposited with the Trustee may be withdrawn on the basis of Bondable Additions of property or retirement or defeasance of Obligations. To date, we have not been required to make, and have not made, any Depreciation Deposits. The Indenture will not require us to make any Depreciation Deposits after the Release Date. Limitations on Issuance of Short-Term Debt Prior to Release Date Until the Release Date, the Indenture prohibits us or any of our subsidiaries from incurring or permitting to be outstanding any indebtedness (other than trade payables) with an original maturity of less than one year or which is redeemable at the option of the holder within one year from the date of original issuance, if, after giving effect thereto, the outstanding principal amount of such indebtedness (other than trade payables) would exceed 15% of our net utility plant determined on a consolidated basis as of the end of the immediately preceding fiscal quarter. Fifteen percent of our net utility plant as of September 30, 2001 was approximately $72.2 million. This specific restriction on our ability to issue short-term debt will end on the Release Date. Limitation on Certain Cash Investments Prior to Release Date Until the Release Date, the Indenture prohibits us from investing or directing the Trustee to invest more than 25% of the aggregate of (i) cash on hand, (ii) moneys received by the Trustee following a release of property, proceeds from a taking or insurance, or disposition of a portion of the trust estate or other money the Indenture does not require to be applied in any other manner, and (iii) cash deposited with the Trustee as a basis for Additional Obligations, other than in (a) obligations unconditionally guaranteed by the United States of America or certificates or other evidences of interests in those obligations, (b) securities issued by any agency or instrumentality of the United States of America or any corporation created pursuant to any act of Congress, (c) commercial paper rated in either of the two highest rating categories by a national credit rating agency, (d) demand or time deposits, certificates of deposit and bankers' acceptances issued or accepted by any bank or trust company having capital surplus and undivided profits aggregating at least $50,000,000, (e) any non-convertible debt securities rated in any of the three highest rating categories by a national credit rating agency, (f) repurchase agreements that are secured by a perfected security interest in securities listed in clauses (a) or (b) above entered into with a government bond dealer recognized as a primary dealer by the Federal Reserve Bank of New York or any bank described in clause (d) above, or (g) any short-term institutional investment fund or account which invests solely in any of the foregoing obligations. These restrictions on our cash investments will end on the Release Date. Book-Entry System; Exchangeability Each series of the Bonds will be represented by one or more global bonds that we will deposit with DTC or its agent. The Bonds will be registered in the name of DTC's nominee, Cede & Co. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. will effect no change in beneficial ownership. Upon the issuance of each global bond, DTC will credit the accounts of persons held with it with the respective principal amounts of the Bonds represented by such global bond designated by the Underwriters with respect to the Bonds. 50 The Bonds will settle in DTC's Same-Day Funds Settlement System and trade in that system in book-entry form until maturity. Therefore, secondary market trading activity for the Bonds will settle in immediately available funds. We will pay principal and interest to DTC in immediately available funds. There can be no assurance as to the effect, if any, that settlement in immediately available funds will have on trading activity in the Bonds. DTC has advised as follows: It is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act. DTC was created to hold securities for its participating organizations and to facilitate the clearance and settlement of securities transactions between participants in such securities through electronic book-entry changes in accounts of its participants. Direct participants include securities brokers and dealers (including the underwriters), banks and trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to indirect participants such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a direct participants either directly or indirectly. Persons who are not participants may beneficially own securities held by DTC only through participants. Under the terms of the Indenture, we and the trustee will treat the persons in whose names the Bonds are registered as the owners of the Bonds for the purpose of receiving payment of principal and interest on the Bonds and for all other purposes. Except as set forth below, owners of beneficial interests in a global bond representing the Bonds will not be entitled to have the Bonds represented by such global bond registered in their names, will not receive or be entitled to receive physical delivery of Bonds in definitive form and will not be considered the owners or holders thereof under the Indenture including, without limitation, for purposes of consenting to any amendment thereof or supplement thereto. DTC has no knowledge of the actual owners of beneficial interests in the global bonds representing the Bonds. DTC's records reflect only the identity of the direct participants to whose accounts the Bonds are credited, which may or may not be the beneficial owners. Ownership of beneficial interests in global bonds representing the Bonds will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC's participants or persons that hold through DTC's participants. DTC's participants will remain responsible for keeping account of their holdings on behalf of their customers. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a global bond. Payment of principal of (and premium, if any) and interest, if any, on Bonds registered in the name of or held by DTC or its nominee will be made to DTC or its nominee, as the case may be, as the registered owner or the holder of the global bonds representing the Bonds. We expect that DTC or its nominee, upon receipt of any payment of principal of (and premium, if any) or interest on global bonds, will credit participants' accounts on the date such payment is payable in accordance with their respective beneficial interests in the principal amount of such global bonds as shown on the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in such global bond held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of such participants. None of Chugach, the Trustee, any Paying Agent or the Security Registrar for the Bonds will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a global bond for the Bonds or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Unless and until exchanged in whole for Bonds in definitive form, a global bond representing Bonds may not be transferred except as a whole by DTC to DTC's nominee by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee to a successor of DTC or a nominee of such successor. We have obtained the information in this section concerning DTC and DTC's book-entry system from sources that we believe to be reliable. We take no responsibility for the accuracy of such information. If DTC is at any time unwilling or unable to continue as depositary for the global bonds representing the Bonds and a successor depositary is not appointed by us within 90 days, we will issue Bonds in definitive registered 51 form in exchange for the global bond or securities representing the Bonds. In addition, we may at any time and in our sole discretion, determine not to have any Bonds in registered form represented by one or more global bonds and, in such event, will issue Bonds in definitive registered form in exchange for the global bond or securities representing the Bonds. In any such instance, an owner of a beneficial interest in a global bond will be entitled to physical delivery in definitive form of Bonds represented by such global bond equal in principal amount to such beneficial interest and to have the Bonds registered in the name of the owner of such beneficial interest. Additional Obligations The aggregate principal amount of Obligations that may be issued under the Indenture is not limited. Issuance of Additional Bonds Prior to Release Date Until the Release Date, additional obligations, ranking equally and ratably with the Bonds, may be issued from time-to-time in the aggregate amount of (i) 10/11 (90.909%) of the amount of Bondable Additions, (ii) the aggregate principal amount of retired or defeased Obligations, and (iii) deposits of cash with the Trustee. We have approximately $123 million of Bondable Additions currently available to support our issuance of additional debt. Taking into account the issuance of the Bonds in this offering, the retirement of $5 million of outstanding 1991 Series A Bonds maturing on March 15, 2002, and the redemption on March 15, 2002, of $149 million of outstanding 1991 Series Bonds due 2022, we will continue to have the capacity to issue approximately $86 million of additional bonds under the Indenture as in effect prior to the Release Date, plus the bondable value of all Property Additions after September 30, 2001, minus the bondable value of all property subject to the lien of the Indenture that is retired or disposed of after September 30, 2001 ("Retirements"). For the purpose of calculating the amount of Property Additions and Retirements, the bondable value of property is the lesser of its cost or fair value to us. Until the Release Date, we cannot issue additional Obligations on the basis of Bondable Additions or (where the new Obligations will accrue interest at a rate greater than that accruing on the retired or deferred Obligations) retirement or defeasance of Obligations unless we certify that (i) our margins for interest (assignable margins plus interest expense, income tax accruals and non-recurring charges) during a 12-month period within the 18-month period immediately preceding its request for additional Obligations was at least 1.20 times total interest expense during such 12-month period and (ii) the sum of our margins for interest for such 12-month period plus the maximum annual interest (making certain assumptions with respect to variable rate debt) that will accrue on the additional Obligations to be issued (net of annual interest savings on any Obligations and other obligations secured by liens prior to or equal in priority with the lien of the Existing Indenture that are retired with the proceeds of such additional Obligations) would equal at least 1.20 times the sum of the total interest expense during such 12-month period plus such maximum annual interest that will accrue on the additional Obligations to be issued (net of interest on retired Bonds and other obligations secured by liens prior to or equal in priority to the lien of the Existing Indenture). If after the commencement of the period for which margins for interest is being calculated, we acquire any property, or we will acquire with the proceeds of the Obligations being issued any property which was, during the 6-month period prior to its acquisition, used in a business similar to ours, then, in computing our margins for interest there shall be included, to the extent not otherwise included, the net operating earnings or net operating losses of such property for the entire 12-month period. The calculation of margins for interest shall also be adjusted if an independent engineer of favorable national repute determines that efficiencies, inefficiencies or other effects likely to result from the acquisition are significant enough to render the historical performance of the separate properties an inaccurate indicator of the future performance of the combined properties. The additional adjustment shall take into account the efficiencies, inefficiencies or other effects to the extent determined by the independent engineer. Issuance of Additional Obligations After Release Date Beginning on the Release Date, we may issue additional indebtedness under the Amended Indenture, ranking equally and ratably with the Bonds, from time-to-time as authorized by our Board of Directors. Before issuing any additional indebtedness on or after the Release Date, we must certify that our margins for interest during a 12 consecutive month period within the 18-month period immediately preceding our request to the Trustee for authentication of additional indebtedness under the Amended Indenture was at least 1.10 times total interest expense 52 during such 12-month period. The additional indebtedness that we may issue may contain provisions for, among other things, optional redemption, prepayment, amortization of principal, and covenants and events of default that differ from the terms of the Bonds. The aggregate principal amount of Additional Obligations which may be authenticated and delivered and Outstanding under the Indenture is not otherwise limited, except as provided in the provisions of any supplemental indenture creating any series of Obligations and except as may be limited by law. Limitation on Distributions to Members The Indenture prohibits us from making any distribution of patronage capital (each a "Distribution") to our members prior to the Release Date if, giving effect to such Distribution, (i) an Event of Default then exists or (ii) the aggregate amount expended for Distributions after September 15, 1991 would exceed the sum of $7 million plus 35% of our aggregate assignable margins earned after December 31, 1990. This restriction does not apply if, giving effect to a Distribution, our aggregate equities and margins would equal at least 45% of our total liabilities and equities as of the end of the immediately preceding fiscal quarter. At September 30, 2001, we could have distributed $4.1 million to our members. On November 14, 2001 our Board of Directors approved a $3 million retirement of patronage capital, which will be distributed by the end of 2001. Beginning on the Release Date, the Indenture will prohibit us from making any Distribution if, giving effect to a Distribution, (i) an Event of Default exists, or (ii) our aggregate equities and margins as of the end of our most recent fiscal quarter would be less than 30% of our total long-term debt and equities at such time. Notwithstanding these restrictions, we would be permitted, in any fiscal year, to make a Distribution of up to the lesser of (A) 5% of our aggregate equities and margins as of the end of the immediately preceding fiscal year or (B) 50% of the prior fiscal year's margins. For this purpose, aggregate equities and margins and total long-term debt and equities shall not include any earnings retained in any of our subsidiaries or affiliates or the debt of any subsidiary or affiliate. Events of Default and Remedies Events of Default under the Indenture are: o failure to pay principal of or premium, if any, on any Obligation when due (subject to any applicable grace period); o failure to pay any interest on any Obligation when due, continued beyond any applicable grace period (the duration of which, unless specified otherwise is such Obligation, is 30 days); o any other breach by us of any of our warranties or covenants contained in the Indenture, continued for 30 days after written notice as provided in the Indenture; o failure to pay when due any portion of the principal of any of indebtedness for money borrowed (other than pursuant to the Indenture), which failure resulted in the indebtedness becoming due or being declared due and payable prior to the date on which it would otherwise have become due and payable, in an aggregate amount in excess of $1 million ($10 million after the Release Date) unless such indebtedness is discharged or such acceleration rescinded within 10 days after such acceleration (and, for nonpayment or acceleration prior to the Release Date, continuance of such default for a period of 30 days after notice thereof from the Trustee or the Holders of at least 10% in principal amount of the Obligations); or o certain other proceedings in bankruptcy, receivership, insolvency, liquidation or reorganization. In addition, it is an Event of Default after the Release Date if a judgment against us in an amount exceeding $10 million is not discharged or stayed within the period ending on the later of (i) 30 days after the judgment date or expiration of any such stay and (ii) 10 days after written notice of default from the Trustee or holders of at least 10% of the principal amount of the Outstanding Obligations. 53 Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee indemnity reasonably satisfactory to the Trustee. Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Obligations will have the right to require the Trustee to proceed to enforce the Indenture and to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee to the extent the discretion is not in conflict with law and the Trustee has determined that the action is not unjustly prejudicial to non-directing holders. If an Event of Default shall occur and be continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Obligations may accelerate the maturity of all Obligations. However, after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of Outstanding Obligations may, under certain circumstances, rescind such acceleration if, among other things, all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. No Holder of any Obligation will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless (i) such Holder shall have previously given to the Trustee written notice of a continuing Event of Default, (ii) the Holders of at least 25% in aggregate principal amount of the Outstanding Obligations shall have made written request and offered indemnity reasonably satisfactory to the Trustee to institute such proceeding as trustee, (iii) the Trustee for 60 days after its receipt of such notice, request and indemnity shall have failed to institute any such proceeding, and (iv) the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the Outstanding Obligations a direction inconsistent with such request during such 60-day period. However, such limitations on the Holders' rights to institute proceedings do not apply to a suit instituted by a Holder of an Obligation for the enforcement of payment of the principal of and premium, if any, or interest on such Obligation on or after the respective due date stated therein. If an Event of Default affects the holders of the Bonds only, any action previously described that requires the approval of Holders of Obligations can be taken by the Holders of the Bonds alone in the same percentage. The Indenture provides that the Trustee, within 90 days after the occurrence of an Event of Default, shall give to the Holders of Obligations notice of all uncured defaults known to it, except that in the case of a default in the payment of principal of, premium (if any), sinking fund payment or interest on any Obligations, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interest of the Holders of the Obligations. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee shall exercise such of its rights and powers under the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. If an Event of Default occurs and is continuing prior to the Release Date, the Trustee may sell the Trust Estate, in either judicial or nonjudicial proceedings. The proceeds from disposition of the Trust Estate prior to the Release Date, and any other moneys collected by the Trustee in the exercise of any remedies available to it on behalf of the Holders, shall, after payment of amounts owing to the Trustee, be applied as follows: (i) if all Obligations shall have become due and payable, to the payment of Outstanding Obligations without preference or priority between interest or principal or among Obligations, (ii) if any principal shall not have become due and payable, then (A) first to interest installments in the order of their maturity and (B) second to principal or redemption price. Following the Release Date, money collected by the Trustee following an Event of Default shall be applied as follows: (i) to the payment of all amounts due the Trustee; (ii) if all Obligations shall have become due and payable, to the payment of Outstanding Obligations without preference or priority between interest or principal (and premium, if any) or among Obligations; (iii) if any principal shall not have become due and payable, then (A) first to interest installments in the order of their maturity and (B) second to principal or premium. 54 Prior to the date the Trustee obtains a judgment for the payment of money due, the Holders of at a majority in principal amount of the Outstanding Obligations, by written notice to the Trustee, may waive any past defaults, except a default in payment of the principal or interest on any Obligation, or in respect of any covenant or provision that by its terms cannot be modified or amended without the consent of the Holder of each Obligation affected. Upon any such waiver, the default shall cease to exist and any Event of Default arising therefrom shall be deemed cured. Because MBIA is a credit enhancer with respect to the Bonds, MBIA--and not the actual Holders of the Bonds--will have the right to exercise any remedies that would otherwise be exercisable by the Holders of the Bonds under the Indenture. See "Rights of Insurer." The Indenture requires us to deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement as to our compliance (determined without regard to any grace period or notice requirement) with all conditions and covenants under the Indenture. In addition, we required to deliver to the Trustee, promptly after any of our officers may be reasonably deemed to have knowledge of a default under the Indenture, a written notice specifying the nature and duration of the default and the action we are taking and propose to take with respect thereto. Amendments and Supplemental Indentures Without the Consent of Holders Without the consent of the Holders of any Obligations, we and the Trustee may from time-to-time enter into one or more supplemental indentures to add to the conditions, limitations and restrictions on the authorized amount, terms or purposes of the issue, authentication and delivery of Obligations or of any series of Obligations under the Indenture; to create any new series of Obligations; to evidence the succession of another corporation and the assumption by any such successor of our covenants; to add to our covenants or to surrender any of our rights or powers; to cure any ambiguity, to correct or supplement any provision in the Indenture which may be inconsistent with any other provision or to make any other provisions, with respect to matters or questions arising under the Indenture, which shall not be inconsistent with the provisions of the Indenture, provided such action shall not adversely affect the interests of the Holders of the Obligations in any material respect; to modify, eliminate or add to the provisions of the Indenture to the extent necessary to effect the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "1939 Act"), or under any similar federal statute hereafter enacted; or to make any other change in the Indenture that, in the reasonable judgment of the Trustee, will not materially and adversely affect the rights of Holders of Obligations. Prior to the Release Date, we and the Trustee may also enter into one or more supplemental indentures, without the consent of Holders of Obligations, to correct or amplify the description of any property at any time subject to the lien of the Indenture, to confirm property subject or required to be subjected to the lien of the Indenture, or to subject additional property to the lien of the Indenture. Effective from and after the Release Date, without the consent of the Holders of any Obligations, we and the Trustee may also from time-to-time, without the consent of Holders of Obligations, enter into one or more supplemental indentures to evidence the appointment of any successor trustee or separate trustee and to define the rights, powers, duties and obligations conferred upon any such separate trustee or trustees or to add or change the Indenture to such extent as necessary to permit or facilitate the issuance of Obligations in bearer form, registrable or not registrable as to principal and with or without interest coupons or in book-entry form. With the Consent of the Holders With the consent of the Holders of not less than a majority in principal amount of the Obligations of all series then Outstanding affected by such supplemental indenture, we and the Trustee may enter into one or more supplemental indentures to add, change or eliminate any of the provisions of the Indenture or modify the rights of the Holders of Obligations, but no such supplemental indenture shall, without the consent of the Holder of each Outstanding Obligation affected thereby, change the Stated Maturity of or reduce the principal of, or any installment of interest on, any Obligation, or any premium payable upon the redemption thereof, or change any Place of Payment where any Obligation, or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); reduce the percentage in principal amount of the Outstanding Obligations the consent of the Holders of which is required for various purposes; modify what constitutes an Outstanding Obligation, modify the Indenture in such a manner as to affect the rights of the Holders to the benefits of the sinking fund; modify the 55 Indenture as to the application of moneys received by the Trustee; or permit (prior to the Release Date) the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any of the Trust Estate. Defeasance The Indenture provides that Obligations of any series will be deemed to have been paid, and (subject to receipt of certain rulings or opinions relating to tax matters) all obligations of the Company to be holders of such Obligations will be discharged, if we deposit with the Trustee Defeasance Securities the principal and interest on which when due, together with cash deposited by us with the Trustee, will provide moneys sufficient to pay when due the principal or (if applicable) Redemption Price and interest due and to become due on such Obligations. Defeasance Securities are defined to include bonds or other obligations the principal and interest on which constitute direct obligations of, or are unconditionally guaranteed by, the U.S. Government, certain AAA-rated, pre-refunded municipal bonds, and certificates of interest or participation in any such obligations, or in specified portions thereof. If sufficient Defeasance Securities are deposited with respect to Obligations of any series at any time at which the Indenture imposes a lien on any of our property or assets, any such lien of the Indenture shall be deemed to have been extinguished with respect to the Obligations of such series. Trustee, Paying Agent The Trustee and Paying Agent under the Indenture is U.S. Bank Trust National Association. CERTAIN FEDERAL INCOME TAX MATTERS Qualification as a Tax-Exempt Entity We currently qualify for exemption from federal income tax under Section 501(c)(12) of the Code. In order to maintain our qualification as a tax-exempt entity as an organization described in Section 501(c)(12) of the Code, we must operate on a cooperative basis and at least 85% of our income must consist of amounts collected from members for the sole purpose of meeting losses and expenses. Unrelated Business Taxable Income Entities like us that are exempt from federal income tax under Section 501(a) of the Code are nonetheless subject to tax on the amount of their "unrelated business taxable income." Unrelated business taxable income is income derived from an "unrelated trade or business" regularly carried on by a tax-exempt entity. The Code defines an unrelated trade or business, in general, as a trade or business the conduct of which is not substantially related to the exercise or performance by the tax-exempt entity of the purpose or function constituting the basis for its tax exemption. UNDERWRITING Subject to the terms and conditions in the Underwriting Agreement (the "Underwriting Agreement"), between us and J.P. Morgan Securities Inc. (the "Underwriter"), we have agreed to sell the entire amount of the bonds to the Underwriter. The Underwriting Agreement provides that the obligations of the Underwriter to pay for and accept delivery of the bonds is subject to approval of certain legal matters by its counsel and other conditions. The Underwriter is committed to purchase all of the bonds if any are purchased. The Underwriter has advised us that it proposes to offer all or part of the bonds directly to the public initially at the offering price set forth on the cover page of this Prospectus and to dealers at such prices less a concession not in excess of % of the principal amount of the 2002 Series A Bonds and % of the principal amount of the Auction Rate Bonds. After the initial offering, the public offering prices and concessions may be changed. We have agreed to indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriter may be required to make in connection with the sale of the bonds. 56 The Bonds have no established trading market and no assurance can be given as to the liquidity of, or the existence of a trading market for, the Bonds. The Underwriter has advised us that it intends to make a market in the Bonds but is not obligated to do so and may discontinue making a market at any time without notice. In order to facilitate the offering of the Bonds, the Underwriter may engage in transactions that stabilize, maintain or otherwise affect the price of the Bonds. Specifically, the Underwriter may overallot in connection with the offering, creating a short position in the Bonds for its own account. In addition, to cover over allotments or to stabilize the price of the Bonds, the Underwriter may bid for, and purchase the Bonds in the open market. Any of these activities may stabilize or maintain the market price of the Bonds above independent market levels. The Underwriter is not required to engage in these activities and may end any of the activities at any time. The Underwriter may engage in transactions with and perform services for us from time-to-time in the ordinary course of business. LEGAL OPINIONS Heller Ehrman White & McAuliffe LLP, Seattle, Washington, will pass upon the legality of the Bonds for us. Orrick, Herrington & Sutcliffe LLP, New York, New York, will pass upon certain legal matters in connection with the Bonds for the Underwriter. EXPERTS The financial statements and schedule of Chugach Electric Association, Inc. as of December 31, 2000 and 1999, and for each of the years in the three-year period ended December 31, 2000, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent accountants, appearing elsewhere herein, and upon said authority of the firm as experts in accounting and auditing. WHERE TO FIND ADDITIONAL INFORMATION ABOUT CHUGACH We have filed with the SEC a registration statement on a Form S-1. This prospectus, which constitutes a part of the registration statement, does not contain all of the information included in the registration statement. You may review a copy of the registration statement, including exhibits, at the SEC's public reference room at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. You can also obtain copies of these documents, upon payment of a duplicating fee, by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. Our SEC filings are also available to the public from the SEC's web site at http://www.sec.gov. The Indenture requires us to file reports under the Securities Exchange Act. Quarterly and annual reports will be made available upon request of holders of the Bonds, which annual reports will contain financial information that has been examined and reported upon by, with an opinion expressed by, an independent public or certified public accountant. 57 FINANCIAL STATEMENTS AND SCHEDULE INDEX
Financial Statements Pages Independent Auditors' Report................................................................F-2 Balance Sheets, September 30, 2001 (Unaudited), December 31, 2000 and 1999..............................................................F-3 Statements of Revenues, Expenses and Patronage Capital, Nine-Months Ended September 30, 2001 and 2000 (Unaudited), Years ended December 31, 2000, 1999 and 1998...........................................................................F-4 Statements of Cash Flows, Nine-Months Ended September 30, 2001 and 2000 (Unaudited), Years ended December 31, 2000, 1999 and 1998...............................F-5 Notes to Financial Statements...............................................................F-6 to F-20 Financial Statement Schedule Schedule - Valuation and Qualifying Accounts, Nine-Months Ended September 30, 2001 (Unaudited), Years ended December 31, 2000, 1999 and 1998.....................................................................F-21
F-1 Independent Auditors' Report The Board of Directors Chugach Electric Association, Inc. We have audited the financial statements of Chugach Electric Association, Inc. as listed in the accompanying index. In connection with our audits of the financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Association's management. Our responsibility is to express an opinion on these financial statements and financial statements schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Chugach Electric Association, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Anchorage, Alaska February 23, 2001, except as to note 17, which is as of March 6, 2001 F-2 CHUGACH ELECTRIC ASSOCIATION, INC. BALANCE SHEETS September 30, 2001, December 31, 2000 and 1999
Assets September 30, 2001 December 31, 2000 December 31, 1999 ------------------ ----------------- ----------------- (unaudited) Utility plant (notes 2, 6, 13 and14): Electric plant in service $ 703,708,999 $ 687,127,130 $ 641,627,328 Construction work in progress 37,697,915 42,027,617 47,257,296 ------------------ ----------------- ----------------- 741,406,914 729,154,747 688,884,624 Less accumulated depreciation (260,069,559) (259,999,872) (243,082,832) ------------------ ----------------- ----------------- Net utility plant 481,337,355 469,154,875 445,801,792 ------------------ ----------------- ----------------- Other property and investments, at cost: Nonutility property 3,550 443,555 413,515 Investments in associated organizations (note 3) 9,937,216 9,857,153 8,946,861 ------------------ ----------------- ----------------- 9,940,766 10,300,708 9,360,376 ------------------ ----------------- ----------------- Current assets: Cash and cash equivalents, including repurchase agreements of $7,162,211 at September 30, 2001, $3,905,283 in 2000 and $6,574,457 in 1999 5,842,617 1,695,162 4,110,030 Cash-restricted construction funds 180,293 378,848 538,404 Special deposits 222,163 212,163 182,164 Accounts receivable, less provisions for doubtful accounts of $576,702 at September 30, 2001, $441,933 in 2000 and $389,223 in 1999 19,490,052 19,200,912 17,730,994 Fuel cost recovery 1,606,783 2,915,733 180,755 Materials and supplies 14,981,362 15,357,198 17,180,136 Prepayments 1,512,434 755,276 861,947 Other current assets 352,925 332,246 341,702 ------------------ ----------------- ----------------- Total current assets 44,188,629 40,847,538 41,126,132 ------------------ ----------------- ----------------- Deferred charges (notes 6, 9 and 15) 37,954,701 19,442,859 22,067,237 ------------------ ----------------- ----------------- $ 573,421,451 $ 539,745,980 $ 518,355,537 ================== ================= =================
Liabilities and Equities September 30, 2001 December 31, 2000 December 31, 1999 ------------------ ----------------- ----------------- (unaudited) Equities and margins (note 11): Memberships $ 1,046,623 $ 1,009,663 $ 960,808 Patronage capital (note 4) 125,670,594 122,925,253 117,335,481 Other (note 5) 4,726,846 4,880,424 4,228,356 ------------------ ----------------- ----------------- 131,444,063 128,815,340 122,524,645 ------------------ ----------------- ----------------- Long-term obligations, excluding current installments (notes 6, 7 and 11): 2001 Series A bonds payable 150,000,000 0 0 First Mortgage bonds payable 154,310,000 169,542,000 194,139,000 National Bank for Cooperatives bonds payable 65,000,000 142,677,945 143,011,295 ------------------ ----------------- ----------------- 369,310,000 312,219,945 337,150,295 ------------------ ----------------- ----------------- Current liabilities: Current installments of long-term obligations (notes 6, 7 and 11) 10,409,945 6,430,350 6,372,405 Short-term borrowings (note 6) 5,000,000 40,000,000 0 Accounts payable 3,487,720 9,493,875 9,508,851 Consumer deposits 1,548,300 1,324,213 1,059,677 Accrued interest 1,402,741 5,861,390 6,066,114 Salaries, wages and benefits 4,709,359 4,586,407 4,053,228 Fuel 9,278,144 8,154,559 4,381,304 Estimated settlement of rate lock agreement 15,684,930 0 0 Other current liabilities 1,411,570 1,434,562 2,527,798 ------------------ ----------------- ----------------- Total current liabilities 52,932,709 77,285,356 33,969,377 ------------------ ----------------- ----------------- Deferred credits (note 12) 19,734,679 21,425,339 24,711,220 ------------------ ----------------- ----------------- $ 573,421,451 $ 539,745,980 $ 518,355,537 ================== ================= =================
See accompanying notes to financial statements. F-3 CHUGACH ELECTRIC ASSOCIATION, INC. Statements of Revenues, Expenses and Patronage Capital Nine-Months ended September 30, 2001 and 2000, Years ended December 31, 2000, 1999 and 1998
Nine-Months ended September 30, Year ended December 31, ---------------------------- ---------------------------------------------- 2001 2000 2000 1999 1998 ------------- ------------- ------------- ------------- -------------- (unaudited) Operating revenues $ 126,400,956 $ 114,258,272 $ 158,541,114 $ 142,644,327 $ 141,825,373 Operating expenses: Power Production 47,587,932 36,257,283 52,726,374 40,301,607 45,261,450 Purchased power 9,147,759 7,072,014 9,152,248 8,581,979 8,462,835 Transmission 2,731,599 2,491,633 3,828,630 3,813,438 2,771,652 Distribution 7,260,234 7,521,075 9,774,860 9,400,618 8,876,890 Consumer accounts / Information expense 4,042,754 3,995,952 5,275,455 4,387,421 4,177,980 Sales expense 352,051 817,221 1,112,804 1,227,908 1,125,410 Administrative, general and other 13,951,269 14,743,566 21,343,393 22,892,479 17,592,829 Depreciation and amortization 18,678,752 17,180,273 23,216,509 19,851,436 22,468,395 ------------- ------------- ------------- ------------- -------------- Total operating expenses 103,752,350 90,079,017 126,430,273 110,456,886 110,737,441 ------------- ------------- ------------- ------------- -------------- Interest Expense: On long-term obligations 20,116,937 18,856,861 24,987,033 24,137,593 25,159,660 Charged to construction-credit (814,285) (1,706,470) (2,178,425) (1,000,246) (821,137) ------------- ------------- ------------- ------------- -------------- On short-term obligations 1,105,954 1,083,306 1,909,682 998,034 130,146 Net interest expense 20,408,606 18,333,697 24,718,290 24,135,381 24,468,669 ------------- ------------- ------------- ------------- -------------- Net operating margins 2,240,000 5,845,558 7,392,551 8,052,060 6,619,263 ------------- ------------- ------------- ------------- -------------- Nonoperating margins: Interest income 536,828 513,235 703,807 592,208 711,155 Other 381,818 338,706 1,615,161 1,003,029 1,050,899 ------------- ------------- ------------- ------------- -------------- Property gain (loss) (180,456) (15,170) (31,741) 20,137 349,087 ------------- ------------- ------------- ------------- -------------- Assignable margins 2,978,190 6,682,329 9,679,778 9,667,434 8,730,404 Patronage capital at beginning of period 122,925,253 117,335,481 117,335,481 109,622,996 104,800,092 ------------- ------------- ------------- ------------- -------------- Retirement of capital credits and estate payments (note 4) (232,849) (287,544) (4,090,006) (1,954,949) (3,907,500) ------------- ------------- ------------- ------------- -------------- Patronage capital at end of period $ 125,670,594 $ 123,730,266 $ 122,925,253 $ 117,335,481 $ 109,622,996 ============= ============= ============ ============= =============
See accompanying notes to financial statements. F-4 CHUGACH ELECTRIC ASSOCIATION, INC. Statement of Cash Flows Nine-Months ended September 30, 2001 and 2000, Years ended December 31, 2000, 1999 and 1998
Nine-Months ended September 30, Year ended December 31, ----------------------------- ---------------------------------------------- Cash flows from operating activities: 2001 2000 2000 1999 1998 - ------------------------------------- ------------- ------------- -------------- ------------ -------------- (unaudited) Assignable margins ............................... $ 2,978,190 $ 6,682,329 $ 9,679,778 $ 9,667,434 $ 8,730,404 - -------------------------------------------------- ------------- ------------- ------------- ------------- ------------- Adjustments to reconcile assignable margins to net cash provided by operating activities: Depreciation and amortization ............... 22,379,953 20,417,900 27,575,408 23,563,805 24,605,760 Capitalization of equity allowance .......... (233,837) (304,883) (340,838) (151,474) (260,258) Property (gains) losses and obsolete inventory write off ......................... (190,456) 8,854 (25,425) 242 (349,087) Other ....................................... (115) (1,489) (1,155) (221) 60,734 Changes in assets and liabilities: (Increase) decrease in assets: Special Deposits ........................ (10,000) 0 (29,999) (61,000) 30,540 Accounts receivable ..................... (289,140) 4,794,167 (1,469,918) (1,049,512) 2,549,024 Fuel cost recovery ...................... 1,308,950 (844,996) (2,734,978) 381,029 4,206,848 Prepayments ............................. (757,158) (451,193) 106,671 55,434 (359,010) Materials and supplies .................. 375,836 (326,189) 1,822,938 (1,216,702) (344,349) Deferred charges ........................ (6,385,230) (2,383,437) (1,231,531) (14,179,418) (7,898,240) Other assets ............................ (20,680) (21,738) 9,456 7,328 (43,615) Increase (decrease) in liabilities: Accounts payable ........................ (6,006,155) (4,840,628) (14,976) 670,093 1,800,524 Accrued interest ........................ (4,458,649) (4,380,345) (204,724) (656,211) (182,010) Deferred credits ........................ (1,504,988) (3,498,625) (3,638,491) (2,973,944) (1,829,112) Consumer deposits ....................... 224,087 109,726 264,536 66,061 (44,625) Other liabilities ....................... 1,223,545 1,034,264 3,213,198 524,833 (3,129,329) ------------- ------------- ------------- ------------- ------------- Net cash provided by operating activities 8,634,153 15,993,717 32,979,950 14,647,777 27,544,199 ------------- ------------- ------------- ------------- ------------- Cash flows from investing activities: Extension and replacement of plant ............... (30,139,816) (31,035,710) (46,736,359) (41,864,828) (20,269,038) Increase investments in associated organizations . (79,948) (42,567) (909,137) (590,276) (552,827) ------------- ------------- ------------- ------------- ------------- Net cash (used) in investing activities . (30,219,764) (31,078,277) (47,645,496) (42,455,104) (20,821,865) ------------- ------------- ------------- ------------- ------------- Cash flows from financing activities: Net change in bank overdraft ..................... -- 1,758,843 -- 0 0 Short-term borrowings, net ....................... (35,000,000) 33,966,659 40,000,000 0 0 Proceeds from long-term obligations .............. 150,000,000 -- -- 72,500,000 0 Repayments of long-term obligations ......... (88,930,350) (24,872,405) (24,872,405) (40,983,801) (5,913,512) Retirement of patronage capital .................. (232,849) (287,544) (4,090,006) (1,954,949) (3,907,500) Other ....................................... (103,735) 408,977 1,213,089 43,533 186,723 ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) financing activities .................... 25,733,066 10,974,530 12,250,678 29,604,783 (9,634,289) ------------- ------------- ------------- ------------- ------------- Net change in cash and cash equivalents . 4,147,455 (4,110,030) (2,414,868) 1,797,456 (2,911,955) Cash and cash equivalents at beginning of period . $ 1,695,162 $ 4,110,030 $ 4,110,030 $ 2,312,574 $ 5,224,529 - -------------------------------------------------- ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents at end of period ....... $ 5,842,617 $ 0 $ 1,695,162 $ 4,110,030 $ 2,312,574 - -------------------------------------------------- ============= ============= ============= ============= ============= Supplemental disclosure of cash flow information - interest expense paid, net of amounts capitalized .............................. $ 24,867,255 $ 22,714,043 $ 24,917,014 $ 24,791,592 $ 24,650,680 - -------------------------------------------------- ============= ============= ============= ============= ============= Non-Cash Transaction - Estimated settlement of rate lock agreement .............................. $ 15,684,930 $ 0 $ 0 $ 0 $ 0 ============= ============= ============= ============= =============
See accompanying notes to financial statements. F-5 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements December 31, 2000, 1999 and 1998 1. Description of Business and Summary of Significant Accounting Policies Description of Business Chugach Electric Association, Inc. (Association or Chugach) is the largest electric utility in Alaska. The Association is engaged in the generation, transmission and distribution of electricity to directly served retail customers in the Anchorage and upper Kenai Peninsula areas. Through an interconnected regional electrical system, Chugach's power flows throughout Alaska's Railbelt, a 400-mile-long area stretching from the coastline of the southern Kenai Peninsula to the interior of the state, including Alaska's largest cities, Anchorage and Fairbanks. Chugach also supplies much of the power requirements of three wholesale customers, Matanuska Electric Association (MEA), Homer Electric Association (Homer) and the City of Seward (Seward). The Association operates on a not-for-profit basis and, accordingly, seeks only to generate revenues sufficient to pay operating and maintenance costs, the cost of purchased power, capital expenditures, depreciation, and principal and interest on all indebtedness and to provide for reasonable margins and reserves. The Association is subject to the regulatory authority of the Regulatory Commission of Alaska (RCA), (formerly the Alaska Public Utilities Commission (APUC)). Management Estimates In preparing the financial statements, management of the Association is required to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet and revenues and expenses for the reporting period. Actual results could differ from those estimates. Regulation The accounting records of the Association conform to the Uniform System of Accounts as prescribed by the Federal Energy Regulatory Commission. The Association meets the criteria, and accordingly, follows the accounting and reporting requirements of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS 71). Revenues in excess of current period costs (net operating margins and nonoperating margins) in any year are designated on the Association's statement of revenues and expenses as assignable margins. Retained assignable margins are designated on the Association's balance sheet as patronage capital, which is assigned to each member on the basis of patronage. This patronage capital constitutes the principal equity of the Association. Reclassifications Certain reclassifications have been made to the 1998 and 1999 financial statements to conform to the 2000 presentation. Plant Additions and Retirements Additions to electric plant in service are recorded at original cost of contracted services, direct labor and materials, and indirect overhead charges. For property replaced or retired, the average unit cost of the property unit, plus removal cost, less salvage, is charged to accumulated provision for depreciation. The cost of replacement is added to electric plant. Operating Revenues Operating revenues are based on billing rates authorized by the RCA, which are applied to customers' usage of electricity. Included in operating revenue are billings rendered to customers adjusted for differences in meter read dates from year to year. The Association's tariffs include provisions for the flow through of gas costs pursuant to existing gas supply contracts. F-6 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) Chugach entered into a settlement agreement with MEA and Homer in 1996. The settlement agreement was designed to resolved a number of ratemaking disputes and assure MEA and Homer that their base rates would be no higher than those based on 1995 costs and would be reduced (and refunds given) if our 1996, 1997 or 1998 test year costs to serve their needs were significantly reduced. The RCA has required Chugach to make filings of Chugach's cost of service to facilitate determination of any refunds owed under the settlement agreement. Calculations based on 1996 costs indicated that a rate reduction was required and that a refund was owed for the previous periods. Chugach recorded provisions for wholesale rate refunds that totaled $2,651,361 as of December 31, 1999. Early in 2000, refunds of $86,132 were issued to Homer and $1,809,801 to MEA that represented uncontested amounts owed consistent with the 1996 test year filing. In June 2000, the RCA issued its final order approving the 1996 test year cost of service. As a result of this order, additional refunds were issued to MEA and Homer in the amounts of $332,157 and $503,272, respectively, on July 25, 2000. Consistent with the Settlement Agreement, these refunds were based on demand and energy purchases retroactive to January 1, 1997. The process for RCA, MEA and Homer review of 1997 test year costs is nearly complete. An order from the RCA was received February 27, 2001, and no rate reduction or refunds were required. Both MEA and Chugach have filed petitions for reconsideration of this order. The 1998 test year cost calculation is currently being reviewed by the RCA. Management believes that no rate reduction or refund will be required based on the 1998 test year. The RCA has required that Chugach file a general rate case based on the 2000 test year by June 30, 2001. This filing may request a modest increase in base rates. In 1998 a power sales agreement was negotiated between Chugach and Seward. The contract was approved by the RCA on June 14, 1999 for a three-year term, which expires on September 1, 2001. The parties have recently negotiated and executed an Amendment, extending the term of the contract to January 31, 2006, subject to approval by the RCA. In October 1998 Marathon Oil Company, one of Chugach's natural gas suppliers, notified Chugach that it had reached a settlement with the State of Alaska regarding additional excise and royalty taxes for the period 1989 through 1998. In accordance with the purchase contract, Chugach would be responsible for these additional taxes. The RCA approved Chugach's plan to recover this over 12 months through the Fuel Surcharge mechanism except for the retail portion in the amount of $436,778 that was written-off at December 31, 1998. Recovery of this expense in rates continued from April 1, 1999 through April 1, 2000. Despite RCA approval and subsequent re-confirmation by the RCA, MEA has refused to pay the portion of its monthly bill it considers to be recovery of the Marathon tax. Effective December 20, 2000, by the Superior Court for the State of Alaska, MEA was ordered to pay $298,004, representing the unpaid tax liability and associated litigation costs. MEA has appealed this order to the Alaska Supreme Court. Investments in Associated Organizations Investments in associated organizations represent capital requirements as part of financing arrangements. These investments are non-marketable and accounted for at cost. Deferred Charges and Credits Deferred charges, representing regulatory assets, are amortized to operating expense over the period allowed for rate-making purposes, generally five years. Nonrefundable contributions in aid of construction are credited to the associated cost of construction of property units. Refundable contributions in aid of construction are held in deferred credits pending their return or other disposition. F-7 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) Depreciation and Amortization Depreciation and amortization rates have been applied on a straight-line basis and at December 31, 2000 are as follows: Rate (%) Steam production plant 2.70 - 2.96 Hydraulic production plant 1.33 - 2.88 Other production plant 3.34 - 6.50 Transmission plant 1.85 - 5.37 Distribution plant 2.10 - 4.55 General plant 2.22 - 20.00 Other 1.88 - 2.75 In 1997 an update of the Depreciation Study was completed utilizing Electric Plant in Service balances as of December 31, 1995. Depreciation rates developed in that study were implemented in January, 1998. In 2000 another update of the study was completed. Depreciation rates determined in that study will be implemented upon approval by the RCA. Capitalized Interest Allowance for funds used during construction and interest charged to construction - credit are the estimated costs during the period of construction of equity and borrowed funds used for construction purposes. The Association capitalized such funds at the average rate (adjusted monthly) of 7.9% during 2000, 7.4% during 1999 and 8.3% during 1998. Cash and Cash Equivalents For purposes of the statement of cash flows, the Association considers all highly liquid debt instruments with a maturity of three months or less upon acquisition by the Association (excluding restricted cash and investments) to be cash equivalents. Materials and Supplies Materials and supplies are stated at the lower of cost or market and valued at average cost. Fair Value of Financial Instruments Statement of Financial Accounting Standards 107, Disclosures About the Fair Value of Financial Instruments, requires disclosure of the fair value of certain on and off balance sheet financial instruments for which it is practicable to estimate that value. The following methods are used to estimate the fair value of financial instruments: Cash and cash equivalents and restricted cash - the carrying amount approximates fair value because of the short maturity of those instruments. Investments in associated organizations - the carrying amount approximates fair value because of limited marketability and the nature of the investments. Consumer deposits - the carrying amount approximates fair value because of the short refunding term. Long-term obligations - the fair value is estimated based on the quoted market price for same or similar issues (note 7). Forward rate lock agreements - the fair value is estimated based on discounted cash flow using current rates. F-8 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) Financial Instruments and Hedging The Association uses U.S. Treasury forward rate lock agreements to hedge expected interest rates on probable debt refinancings. Under the guidance of SFAS No. 80, Accounting for Futures Contracts, the Association has accounted for the treasury rate lock agreement as a hedge. Accordingly, the unrealized gain or loss has not been recorded and will be treated as a regulatory asset or liability upon settlement (note 6). Income Taxes The Association is exempt from federal income taxes under the provisions of Section 501(c)(12) of the Internal Revenue Code, except for unrelated business income. For the years ended December 31, 2000, 1999 and 1998 the Association received no unrelated business income. Environmental Remediation Costs The Association accrues for losses associated with environmental remediation obligations when such losses are probable and can be reasonably estimated. Such accruals are adjusted as further information develops or circumstances change. Estimates of future costs for environmental remediation obligations are not discounted to their present value. 2. Utility Plant Summary Major classes of electric plant as of December 31 are as follows:
2000 1999 ------------ ----------- Electric plant in service: Steam production plant $ 60,392,869 $ 60,392,869 Hydraulic production plant 8,798,695 8,798,695 Other production plant 106,017,802 104,925,446 Transmission plant 211,860,829 211,881,174 Distribution plant 170,378,081 162,365,836 General plant 45,835,618 47,704,821 Unclassified electric plant in service 77,054,390 38,834,298 Equipment under capital lease 56,323 56,323 Other 6,732,523 6,667,866 ------------ ----------- Total electric plant in service 687,127,130 641,627,328 Construction work in progress 42,027,617 47,257,296 ------------ ----------- Total electric plant in service and construction work in progress $729,154,747 $688,884,624 ============ ============
Depreciation of unclassified electric plant in service has been included in functional plant depreciation accounts in accordance with the anticipated eventual classification of the plant investment. 3. Investments in Associated Organizations Investments in associated organizations include the following at December 31:
2000 1999 ---------- ---------- National Rural Utilities Cooperative Finance Corporation (NRUCFC) $6,095,980 $6,095,980 National Bank for Cooperatives (CoBank) 3,600,133 2,708,200 NRUCFC capital term certificates 33,733 32,300 Other 127,307 110,381 ---------- ---------- $9,857,153 $8,946,861 ========== ==========
F-9 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) The Farm Credit Administration, CoBank's federal regulators, requires minimum capital adequacy standards for all Farm Credit System institutions. CoBank's loan agreements require, as a condition of the extension of credit, that an equity ownership position be established by all borrowers. The Association's investment in NRUCFC similarly was required by its financing arrangements with NRUCFC. 4. Patronage Capital The Association has an approved Equity Management Plan, which establishes in general, a ten-year (for wholesale customers) and twenty-year (for retail customers) capital credit retirement of patronage capital, based on the members' proportionate contribution to Association assignable margins. On January 19, 2000, the Board of Directors passed a resolution putting all members on a 15-year rotation. At December 31, 2000, out of the total of $122,925,253 patronage capital, the Association had assigned $89,432,752 of such patronage capital (net of capital credit retirements). Approval of actual capital credit retirements is at the discretion of the Association's Board of Directors. In December 1998, the Board of Directors authorized the retirement of $2,208,997 of retail capital credits representing the balance of 1984 retail distribution patronage. The Board also authorized the retirement of $1,533,287 of wholesale patronage for 1988. In November 1999, the Board of Directors authorized the retirement of $1,766,000 of retail patronage for 1984. In November 2000, the Board of Directors authorized the retirement of $3,750,000 of retail patronage for 1984 and 1985. Following is a five-year summary of anticipated capital credit retirements:
Year ending Wholesale Retail Total ----------- --------------- -------------- ------------ 2001 $ - $3,500,000 $3,500,000 2002 - 3,500,000 3,500,000 2003 - 3,500,000 3,500,000 2004 1,359,000 3,500,000 4,859,000 2005 1,109,000 3,500,000 4,609,000
5. Other Equities A summary of other equities at December 31 follows:
2000 1999 ---------- ---------- Nonoperating margins, prior to 1967 $ 23,625 $ 23,625 Donated capital 183,907 183,907 Unredeemed capital credit retirement 4,672,892 4,020,824 --------- --------- $4,880,424 $4,228,356 ========== ==========
F-10 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) 6. Debt Long-term obligations at December 31 are as follows:
2000 1999 ---------------- ---------------- First mortgage bonds of 8.08% maturing in 2002 and 9.14% maturing in 2022 with interest payable semiannually March 15 and September 15: 8.08% $ 11,329,000 $ 17,396,000 9.14% 164,310,000 182,810,000 CoBank 8.95% bond maturing in 2002, with interest payable monthly and Principal due semi-annually 511,295 816,700 CoBank 7.76% bond maturing in 2005, with interest payable monthly 10,000,000 10,000,000 CoBank 5.60% bonds maturing in 2022, with interest payable monthly 45,000,000 45,000,000 CoBank 5.60% bonds maturing in 2002, 2007 and 2012 with interest payable monthly 15,000,000 15,000,000 CoBank, variable interest, with a rate of 8.20% at December 31, 2000, bonds maturing in 2002, with interest payable monthly 42,500,000 42,500,000 CoBank, variable interest, with a rate of 8.20% at December 31, 2000, bonds maturing in 2002, with interest payable monthly 30,000,000 30,000,000 ---------------- ---------------- Total long-term obligations 318,650,295 343,522,700 Less current installments 6,430,350 6,372,405 ---------------- ---------------- Long-term obligations, excluding current installments $ 312,219,945 $ 337,150,295 ================ ================
Substantially all assets are pledged as collateral for the long-term obligations. F-11 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) Maturities of Long-term Obligations Long-term obligations at December 31, 2000 mature as follows:
Sinking Fund Requirements Principal maturities ------------ -------------------- Year ending First mortgage CoBank December 31 bonds mortgage bonds Total ----------- ------------- -------------- ------------ 2001 $6,097,000 $333,350 $6,430,350 2002 5,232,000 77,677,944 82,909,944 2003 5,041,000 865,821 5,906,821 2004 5,502,000 945,000 6,447,000 2005 6,005,000 11,031,000 17,036,000 Thereafter 147,762,000 52,158,180 199,920,180 ------------- -------------- ------------ $175,639,000 $143,011,295 $318,650,295 ============= ============== ============
Lines of Credit The Association had an annual line of credit of $35,000,000 at December 31, 2000 and 1999 available with CoBank. The CoBank line of credit expires August 1, 2001 but carries an annual automatic renewal clause. At December 31, 2000 there was $35 million outstanding on the line of credit, which carried an interest rate of 8.2%. At December 31, 1999 there was no outstanding balance. In addition, the Association had an annual line of credit of $50,000,000 available at December 31, 2000 and 1999 with NRUCFC. At December 31, 2000 there was $5 million outstanding on this line of credit, which carried an interest rate of 8.55%. At December 31, 1999, there was no outstanding balance. The NRUCFC line of credit expires October 14, 2002. Refinancing 1991 Series A Bonds On September 19, 1991, Chugach issued $314,000,000 of First Mortgage Bonds, 1991 Series A (Bonds), for purposes of repaying existing debt to the Federal Financing Bank and the Rural Electrification Administration (now Rural Utilities Services). Pursuant to Section 311 of the Rural Electrification Act, Chugach was permitted to prepay the REA debt at a discounted rate of approximately 9%, resulting in a discount of approximately $45,000,000 (note 12). The bonds maturing in 2002 (Series A 2002 Bonds) are subject to annual sinking fund redemption at 100% of the principal amount thereof which commenced March 15, 1993. The bonds maturing in 2022 (Series A 2022 Bonds) are subject to annual sinking fund redemption at 100% of the principal amount thereof commencing March 15, 2003. The Series A 2002 Bonds are not subject to optional redemption. The Series A 2022 Bonds are redeemable at the option of Chugach on any interest payment date at an initial redemption price commencing in 2002 of 109.140 of the principal amount thereof declining ratably to par on March 15, 2012. The Bonds are secured by a first lien on substantially all of Chugach's assets. The Indenture prohibits outstanding short-term indebtedness (other than trade payables) in excess of 15% of Chugach's net utility plant and limits certain cash investments to specific securities. In April 1997, Chugach reacquired $5,000,000 of the Series A 2022 Bonds at a premium of 109.7500. Total transaction cost, including accrued interest and premium, was $5,510,350. In February 1999, Chugach reacquired $11,000,000 of the Series A 2022 Bonds at a premium of 117.05. Total transaction cost, including accrued interest and premium, was $13,322,344. In February 1999, Chugach reacquired $14,000,000 of the Series A 2022 Bonds at a premium of 116.25. Total transaction cost, including accrued interest and premium, was $16,868,592. In February 1999, Chugach reacquired $9,895,000 of the Series A 2022 Bonds at a premium of 116.75. Total transaction cost, including accrued interest and premium, was $11,974,467. F-12 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) In March 2000, Chugach reacquired $8,500,000 of the Series A 2022 Bonds at a premium of 104.00. Total transaction cost, including accrued interest and premium, was $9,215,502. In April 2000, Chugach reacquired $10,000,000 of the Series A 2022 Bonds at a premium of 108.875. Total transaction costs, including accrued interest and premium, was $10,953,511. On March 17, 1999, Chugach entered into a Treasury rate-lock transaction with Lehman Brothers Financial Products Inc. (Lehman Brothers) for the purpose of taking advantage of favorable market interest rates in anticipation of refinancing Chugach's Series A Bonds due 2022 on their call date (March 15, 2002). As of December 31, 2000, the aggregate principal amount of Series A Bonds due 2022 was $164,310,000. Under the treasury rate-lock contract, Chugach will receive a lump-sum payment from Lehman Brothers on March 15, 2002, if the yield on 10-year Treasury bonds as of mid-February 2002, exceeds a specified target level (5.653%). Conversely, Chugach will on the same date be required to make a payment to Lehman Brothers if the yield on the 10-year Treasury bonds falls below its stated target yield. The treasury rate lock agreement fair value on December 31, 2000 was $(8,600,000) and on December 31, 1999 was $13,000,000. Chugach adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, on January 1, 2001. This new standard requires all derivative financial instruments to be reflected on the balance sheet. As of January 1, 2001, Chugach established a regulatory asset for $8.6 million and a liability for the same amount. The regulatory asset and liability will be adjusted for changes in the fair value of the treasury rate lock agreement. Management believes it is probable the regulatory asset will be recovered through rates. 7. Fair Value of Long-Term Obligations The estimated fair values (in thousands) of the long-term obligations included in the financial statements at December 31 are as follows:
2000 1999 ---------------------- ------------------------- Carrying Fair Carrying Fair Value Value Value Value Long-term obligations (including current installments) $318,650 $335,155 $343,523 $354,534
Fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in variability in estimates with changes in assumptions. 8. Employee Benefits Employee benefits for substantially all employees are provided through the Alaska Electrical Trust and Alaska Hotel, Restaurant and Camp Employees Health and Welfare Trust Funds (union employees) and the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program (nonunion employees). The Association makes annual contributions to the plans equal to the amounts accrued for pension expense. For the union plans, the Association pays a contractual hourly amount per union employee which is based on total plan costs for all employees of all employers participating in the plan. In these master, multiple-employer plans, the accumulated benefits and plan assets are not determined or allocated separately to the individual employer. Costs for union plans were approximately $2,017,000 in 2000, $1,832,000 in 1999 and $1,805,000 in 1998. In 2000, 1999 and 1998, the Association contributed $1,057,000, $868,000 and $813,000, respectively, to the NRECA plan. 9. Deferred Charges Deferred charges consisted of the following at December 31: 2000 1999 ------------ ----------- Debt issuance and reacquisition costs $ 5,399,282 $ 6,196,555 Refurbishment of transmission equipment 253,087 262,346 Computer software and conversion 10,672,135 12,186,272 Studies 1,724,936 1,880,734 Business venture studies 562,435 273,660 Fuel supply negotiations 346,894 369,609 Major overhaul of steam generating unit 222,198 427,305 Environmental matters and other 261,892 470,756 ------------ ----------- $19,442,859 $22,067,237 ============ =========== F-13 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) 10. Employee Representation Approximately 72% of the Association's employees are represented by the International Brotherhood of Electrical Workers (IBEW). The various IBEW contracts expire on June 30, 2003. 11. Return of Capital Under provisions of its long-term debt agreements, the Association is not directly or indirectly permitted to declare or pay any dividend or make any payments, distributions or retirements of patronage capital to members if an event of default exists with respect to its bonds (event of default), if payment of such distribution would result in an event of default, or if the aggregate amount expended for all distributions on and after September 26, 1991 exceeds the sum of $7,000,000 plus 35% of the aggregate assignable margins (whether or not such assignable margins have since been allocated to members) of the Association earned after December 31, 1990 (or, in the case such aggregate shall be a deficit, minus 100% of such deficit). The Association may declare and make distributions at any time if, after giving effect thereto, the Association's aggregate margins and equities as of the end of the most recent fiscal quarter would be not less than 45% of the Association's total liabilities and equities as of the date of the distribution. The Association does not anticipate that this provision will limit the anticipated capital credit retirements described in note 4. 12. Deferred Credits Deferred credits at December 31 consisted of the following:
2000 1999 ----------- ------------ Regulatory liability - unamortized gain on reacquired debt $18,066,673 $21,271,412 Refundable consumer advances for construction 1,771,302 2,123,913 Estimated initial installation costs for transformers and meters 323,821 272,554 Post retirement benefit obligation 286,200 286,200 New business venture 20,254 46,185 Other 957,089 710,956 ----------- ------------ $21,425,339 $24,711,220 =========== ============
In conjunction with the refinancing described in note 6, the Association had recognized a gain of approximately $45,000,000. The APUC required the Association to flow through the gain to consumers in the form of reduced rates over a period equal to the life of the bonds using the effective interest method; consequently, the gain has been deferred for financial reporting purposes as required by SFAS 71. Approximately $1,553,000 of the deferred gain was amortized in 2000. Approximately $1,215,000 of the deferred gain was amortized in 1999. Approximately $1,700,000 of the deferred gain was amortized in 1998. F-14 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) 13. Bradley Lake Hydroelectric Project The Association is a participant in the Bradley Lake Hydroelectric Project (Bradley Lake). Bradley Lake was built and financed by the Alaska Energy Authority (AEA) through State of Alaska grants and $166,000,000 of revenue bonds. The Association and other participating utilities have entered into take-or-pay power sales agreements under which shares of the project capacity have been purchased and the participants have agreed to pay a like percentage of annual costs of the project (including ownership, operation and maintenance costs, debt service costs and amounts required to maintain established reserves). Under these take-or-pay power sales agreements, the participants have agreed to pay all project costs from the date of commercial operation even if no energy is produced. The Association has a 30.4% share of the project's capacity. The share of debt service exclusive of interest, for which the Association has guaranteed, is approximately $44,000,000. Under a worst case scenario, the Association could be faced with annual expenditures of approximately $4.1 million as a result of its Bradley Lake take-or-pay obligations. Management believes that such expenditures, if any, would be recoverable through the fuel surcharge ratemaking process. Upon the default of a Bradley Lake participant, and subject to certain other conditions, AEA, through Alaska Industrial Development and Export Authority, is entitled to increase each participant's share of costs pro rata, to the extent necessary to compensate for the failure of another participant to pay its share, provided that no participant's percentage share is increased by more than 25%. On April 6, 1999, AEA issued $59,485,000 of Power Revenue Refunding Bonds, Third Series, for the purpose of refunding $59,110,000 of the First Series Bonds. The refunded First Series Bonds were called on July 1, 1999. The refunding resulted in aggregate debt service payments over the next nineteen years in a total amount approximately $9,500,000 less than the debt service payments, which would be due on the refunded bonds. There was an economic gain of approximately $5,900,000. Economic gain is calculated as the net difference between the present value of the old debt service requirements and the present value of the new debt service requirements, discounted at the effective interest rate and adjusted for additional cash paid. On April 13, 1999, AEA issued $30,640,000 of Power Revenue Refunding Bonds, Fifth Series, for the purpose of refunding $28,910,000 of the First Series Bonds. The refunded First Series Bonds were called on July 1, 1999. The refunding resulted in aggregate debt service payments over the next twenty-three years in a total amount approximately $4,400,000 less than the debt service payments, which would be due on the refunded bonds. There was an economic gain of approximately $2,900,000. On April 4, 2000, AEA issued $47,710,000 of Power Revenue Refunding Bonds, Fourth Series, for the purpose of refunding $46,235,000 of the Second Series Bonds. The refunded Second Series Bonds were called on July 1, 2000. The refunding resulted in aggregate debt service payments over the next twenty-two years in a total amount approximately $6,400,000 less than the debt service payment, which would be due on the refunded bonds. There was an economic gain of approximately $3,500,000. The following represents information with respect to Bradley Lake at June 30, 2000 (the most recent date for which information is available). The Association's share of expenses were $3,696,829 in 2000, $3,902,737 in 1999 and $4,112,292 in 1998 and are included in purchased power in the accompanying financial statements. Total Proportionate Share ------ ------------------- (in thousands) Plant in service $ 306,872 $ 93,289 Accumulated depreciation (60,567) (18,170) Interest expense 9,938 2,981 Other electric plant in service represents the Association's share of a Bradley Lake transmission line financed internally and the Association's share of the Eklutna Hydroelectric Project, purchased in 1997 (note 14). F-15 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) 14. Eklutna Hydroelectric Project During October 1997, the ownership of the Eklutna Hydroelectric Project formally transferred from the Alaska Power Administration to the participating utilities. This group consists of the Association along with Matanuska Electric Association (MEA) and Municipal Light and Power (AML&P). Other electric plant in service includes $1,956,954 representing the Association's share of the Eklutna Hydroelectric Plant. This balance will be amortized over the estimated life of the facility. During the transition phase and after the transfer of ownership, Chugach, MEA and AML&P have jointly operated the facility. Each participant contributes their proportionate share for operations and maintenance costs. Under net billing arrangements, Chugach then reimburses MEA for their share of the costs. 15. Commitments and Contingencies Contingencies The Association is a participant in various legal actions, rate disputes, personnel matters and claims both for and against its interests. Management believes that the outcome of any such matters will not materially impact the Association's financial condition, results of operations or liquidity. Long-Term Fuel Supply Contracts The Association has entered into long-term fuel supply contracts from various producers at market terms. The current contracts will expire in 15 to 20 years. Significant Customers The Association is the principal supplier of power under long-term wholesale power contracts with MEA and HEA. These contracts represented $45.2 million or 28.5% of operating revenues in 2000, and will expire in 2014. Cooper Lake Hydroelectric Plant Chugach discovered polychlorinated biphenyls (PCBs) in paint, caulk and grease at the Cooper Lake Hydroelectric Plant during initial phases of a turbine overhaul. A Federal Energy Regulatory Commission, (FERC) approved plan, prepared in consultation with the Environmental Protection Agency, (EPA) was implemented to remediate the PCBs in the plant. As a condition of its approval of the license amendment for the overhaul project, FERC required Chugach to also investigate the presence of PCBs in Kenai Lake. A sampling plan was developed by Chugach in consultation with various agencies and approved by FERC. In 2000, Chugach sampled sediments and fish collected from Kenai Lake and other waters. While extremely low levels of PCBs were found in some sediment samples taken near the plant, no pathway from sediment to fish was established. Additional sediment sampling and analysis in this area is being performed. While the presence of PCBs in fish did not reveal amounts above background levels, Chugach is conducting additional sampling and analysis of fish in Kenai Lake and other waters. A report will be provided to FERC on the results of the additional fish and sediment sampling by December 31, 2001. Management believes the costs of this work will be recoverable through rates and therefore will have no material impact on the financial condition or results of operations. Regulatory Cost Charge In 1992 the State of Alaska Legislature passed legislation authorizing the Department of Revenue to collect a regulatory cost charge from utilities in order to fund the APUC. The tax is assessed on all retail consumers and is based on kilowatt hour (kWh) consumption. The Regulatory Cost Charge has decreased since its inception (November 1992) from an initial rate of $.000626 per kWh to the current rate of $.000318, effective October 1, 2000. F-16 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) 16. Segment Reporting The Association had divided its operations into two reportable segments: Energy and Internet service. The energy segment derives its revenues from sales of electricity to residential, commercial and wholesale customers, while the Internet segment derives its revenues from provision of residential and commercial internet services and products. The reporting segments follow the same accounting policies used for the Association's financial statements and described in the summary of significant accounting policies. Management evaluates a segment's performance based upon profit or loss from operations. Jointly used assets are allocated by percentage of reportable segment usage and centrally incurred costs are allocated using factors developed by the Association, which are patterned upon usage. The Internet segment began operations during 1998, the results of which are immaterial to the financial statements. The following is a tabulation of business segment information for the years ended December 31:
Operating Revenues 2000 1999 ------------------ ------------- ------------- Internet ................... $ 1,170,448 $ 374,296 Energy ..................... 157,370,666 142,270,031 ------------- ------------- Total operating revenues . 158,541,114 142,644,327 ============= ============= Assignable Margins Internet ................... (1,505,518) (1,293,388) Energy ..................... 11,185,296 10,960,822 ------------- ------------- Total assignable margins . 9,679,778 9,667,434 ============= ============= Assets Internet ................... 550,275 564,477 Energy ..................... 539,195,705 517,791,060 ------------- ------------- Total assets ............. 539,745,980 518,355,537 ============= ============= Capital Expenditures Internet ................... 163,565 508,082 Energy ..................... 46,572,794 41,356,746 ------------- ------------- Total capital expenditures $ 46,736,359 $ 41,864,828 ============= =============
17. Sale of Segment On March 6, 2001, the Association entered into an agreement to sell substantially all the assets and customers of the Internet business segment to an unrelated third party. The transaction is expected to result in a nominal gain. 18. Quarterly Results of Operations (unaudited)
2001 Quarter Ended --------------------------------------------------- Sept. 30 June 30 March 31 ----------- ----------- ----------- Operating Revenue $42,186,684 $39,018,695 $45,195,577 Operating Expense 35,591,202 32,788,603 35,372,545 Net Interest 6,680,125 7,037,810 6,690,671 ----------- ----------- ----------- Net Operating Margins (84,643) (807,718) 3,132,361 Non-Operating Margins 126,903 222,619 388,668 ----------- ----------- ----------- Assignable Margins $ 42,260 $ (585,099) $ 3,521,029 =========== =========== ===========
2000 Quarter Ended -------------------------------------------------------------------------- Dec. 31 Sept. 30 June 30 March 31 ----------- ------------ ----------- ------------ Operating Revenue $44,282,842 $37,201,515 $36,185,683 $40,871,074 Operating Expense 36,351,256 31,192,307 29,183,255 29,703,456 Net Interest 6,384,593 6,078,364 6,114,471 6,140,861 ----------- ------------ ----------- ------------ Net Operating Margins 1,546,993 (69,156) 887,957 5,026,757 Non-Operating Margins 1,450,456 220,261 267,174 349,336 ----------- ------------ ----------- ------------ Assignable Margins $ 2,997,449 $ 151,105 $ 1,155,131 $ 5,376,093 =========== ============ =========== ============
F-17 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.)
1999 Quarter Ended -------------------------------------------------------------------------- Dec. 31 Sept. 30 June 30 March 31 ----------- ------------ ----------- ------------ Operating Revenue $38,837,034 $32,075,076 $32,307,980 $39,424,237 Operating Expense 30,637,296 26,163,772 27,033,946 26,621,873 Net Interest 6,148,973 5,905,993 5,949,006 6,131,408 ----------- ------------ ----------- ------------ Net Operating Margins 2,050,765 5,311 (674,972) 6,670,956 Non-Operating Margins 1,090,556 199,106 170,377 155,335 ----------- ------------ ----------- ------------ Assignable Margins $ 3,141,321 $ 204,417 $ (504,595) $ 6,826,291 =========== ============ =========== ============
19. Presentation of Financial Information During interim periods, Chugach follows the accounting policies set forth in its audited financial statements included in Form 10-K filed with the Securities and Exchange Commission, unless otherwise noted. Users of interim financial information are encouraged to refer to the footnotes contained in Chugach's audited financial statements when reviewing interim financial results. The accompanying unaudited interim financial statements reflect all adjustments, which are, in the opinion of management necessary to a fair statement of the results for the interim periods presented. 20. Subsequent Events (unaudited) Patronage Capital In November 2001, the Board of Directors authorized the retirement of $3,000,000 of retail patronage for 1985, which will be distributed by the end of 2001. Lines of Credit The annual line of credit of $35,000,000 with CoBank was renewed by the Association and is schedule to expire August 1, 2002. At September 30, 2001 there was $5 million outstanding on this line of credit with an interest rate of 6.0%. Refinancing 2001 Series A Bonds On April 17, 2001, Chugach issued $150,000,000 of 2001 Series A Bonds, for the purpose of retiring indebtedness outstanding under existing lines of credit and outstanding bonds, for capital expenditures and for general working capital. The lines of credit had an aggregate outstanding principal balance of $55,000,000, as of April 17, 2001, are renewable annually and bore interest at variable rates ranging from 7.55% to 7.80% at April 17, 2001. The variable-rate bonds retired had an aggregate outstanding principal balance of $72,500,000, as of April 17, 2001, would have matured in 2002 and bore interest at a variable rate that was 7.55% on April 17, 2001. The 2001 Series A Bonds will mature on March 15, 2011, and bear interest at 6.55% per annum. Interest will be paid semi-annually on March 15 and September 15 of each year commencing with September 15, 2001. The 2001 Series A Bonds are secured by a first lien on substantially all of Chugach's assets. The first lien will be automatically released when all bonds issued by Chugach prior to April 1, 2001, cease to be outstanding or their holders consent to conversion to unsecured status. Thereafter, the 2001 Series A Bonds will be unsecured obligations, ranking equally with Chugach's other unsecured and unsubordinated obligations. In May 2001, Chugach reacquired $10,000,000 of its Series A 2022 Bonds at a price of 111%. Total transaction costs, including accrued interest and premium, was $11,242,178. The premium paid will be reflected as a regulatory asset and amortized over the life of the 2001 Series A Bonds. On December 10, 2001, Chugach reacquired $5,000,000 of its Series A 2022 Bonds at a price of 111%. Total transaction costs, including accrued interest and premium, was $5,661,711. F-18 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) On May 11, 2001, Chugach terminated the $18.7 million U. S. Treasury portion of the U. S. Treasury Rate Lock Agreement in receipt of payment of $10,000 by Lehman. The Series A bonds are callable at a 9.14% premium. As of September 30, 2001, the aggregate principal amount of Series A Bonds due 2022 was $154,310,000. The U.S. Treasury Rate Lock Agreement fair value on September 30, 2001 was $(15,684,930). As of September 30, 2001, Chugach established a regulatory asset of $15,684,930 and a liability for the same amount. On December 7, 2001, Chugach terminated 50% or $98.0 million of the 10-year U.S. Treasury portion of the U.S. Treasury Rate Lock Agreement for a settlement payment of $3,975,000 to Lehman. As of December 7, 2001, the fair value of the remaining $98.0 million was $(3,975,000). The settlement payment of $3,975,000 will be accounted for as a regulatory asset. Management believes it is probable the regulatory asset will be recovered through rates. On December 17, 2001, Chugach terminated the remaining 50% or $98.0 million of the 10-year U.S. Treasury portion of the U.S. Treasury Rate Lock Agreement for a settlement payment of $2,975,000 to Lehman. The settlement payment of $2,975,000 will be accounted for as a regulatory asset. Management believes it is probable the regulatory asset will be recovered through rates. MATANUSKA ELECTRIC ASSOCIATION, INC. V. CHUGACH ELECTRIC ASSOCIATION, INC. 3AN-99-8152 (OMNIBUS CASE) On July 7, 1999, MEA filed a complaint against us in Alaska Superior Court in Anchorage, asserting that we violated state statutes, our bylaws and its power supply agreement with us in failing to provide MEA with information about several different matters that MEA asserts could affect the cost of the power MEA purchases from us. MEA also asserted that we violated the power supply agreement in our management of our long-term bond indebtedness. On February 8, 2000, MEA added a claim requesting an order requiring us to present our general rate case filing to the Joint Committee (a review panel comprised of two representatives of our Board of Directors and one MEA director) prior to presenting it to the Regulatory Commission of Alaska (RCA). On July 10, 2001, in accordance with the power sales agreement, we filed our general rate case directly with the RCA requesting interim base rate relief without review by the joint committee. On September 10, 2001, MEA filed a motion for partial summary judgment based on this filing. On September 28, 2001, we filed a cross motion for summary judgment on this issue. Briefing is now complete on this issue and the parties are awaiting a decision from the court. In a decision dated November 16, 2001, the superior court granted our motion for partial summary judgment dismissing the fifth cause of action challenging our management of our long-term bond indebtedness. As a result of that decision, all of MEA's claims, except their request for an order requiring us to present our general rate case filing to the joint committee, have been dismissed either by a decision of the court or by stipulation of the parties. Should trial on the remaining issue be necessary, it is set for April 2002. MEA has indicated its intention to appeal the court's November 16, 2001, ruling. For additional information, refer to the discussion of this matter in Part I, Item 3 - Legal Proceedings, Matanuska Electric Association, Inc., v. Chugach Electric Association, Inc., 3AN 99-8152CI of the Form 10-K filed by Chugach with respect to the annual report period ended December 31, 2000. Chugach has certain additional litigation matters and pending claims that arise in the ordinary course of its business. In the opinion of management, no individual matter or the matters in the aggregate is likely to have a material adverse effect on our results of operations, financial condition or liquidity. Regulatory Cost Charge The Regulatory Cost Charge has decreased since its inception (November 1992) from an initial rate of $.000626 per kWh to the current rate of $.000360, effective October 1, 2001. F-19 CHUGACH ELECTRIC ASSOCIATION, INC. Notes to Financial Statements (cont.) Sale of Segment As of March 20, 2001, we sold the bulk of our internet service provider assets related to dial-up services (excluding DSL services) to GCI Communication Corporation. The aggregate purchase price was $759,049 at closing, plus an additional amount of $70,075, which was based on the number of subscriber accounts retained during the ninety-day transition period following closing. F-20 CHUGACH ELECTRIC ASSOCIATION, INC. Valuation and Qualifying Accounts Nine-Months ended September 30, 2001 Years ended December 31, 2000, 1999 and 1998
Balance at Charged Balance beginning to costs at end of year and expenses Deductions of period ------------- ---------------- ---------------- ------------ Allowance for doubtful accounts: Activity for period ended: September 30, 2001 (unaudited) (441,933) (175,418) 40,649 (576,702) December 31, 2000 (389,223) (373,666) (320,956) (441,933) December 31, 1999 (447,908) (331,895) (390,580) (389,223) December 31, 1998 (368,029) (407,825) (327,946) (447,908)
F-21 APPENDIX A INSURANCE POLICY STATEMENT OF INSURANCE MBIA Insurance Corporation (the "Insurer") has issued a policy containing the following provisions, such policy being on file at U.S. Bank National Association, Seattle, Washington. The Insurer, in consideration of the payment of the premium and subject to the terms of this policy, hereby unconditionally and irrevocably guarantees to any owner, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by or on behalf of Chugach Electric Association, In c. ("Chugach") to U.S. Bank National Association or its successor (the "Paying Agent") of an amount equal to (i) the principal of (either at the stated maturity or by any advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Obligations (as that term is defined below) as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii) of the preceding sentence shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean: $120,000,000 % 2002 Series A Bonds Due 2012 $60,000,000 2002 Series B Bonds Due 2012 CHUGACH ELECTRIC ASSOCIATION, INC. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Paying Agent or any owner of an Obligation the payment of an Insured Amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such Insured Amounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the Insured Amounts due on the Obligations as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Obligations in any legal proceeding related to payment of Insured Amounts on the Obligations, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners or the Paying Agent payment of the Insured Amounts due on such Obligations, less any amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Obligation. As used herein, the term "owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, Chugach, or any designee of Chugach for such purpose. The term owner shall not include Chugach or any party whose agreement with Chugach constitutes the underlying security for the Obligations. Any service of process on the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding. A-1 This policy is non-cancellable for any reason. The premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations. MBIA INSURANCE CORPORATION A-2 APPENDIX B AUCTION PROCEDURES 1. DEFINITIONS In addition to the words and terms elsewhere defined in that Indenture of Trust dated September 15, 1991, between Chugach Electric Association, Inc. and Security Pacific Bank Washington, N.A., as Trustee (predecessor to U.S. Bank Trust National Association, the current Trustee thereunder), as amended and supplemented from time to time (the "Indenture"), the following words and terms as used in this Auction Procedures Description have the following meanings with respect to 2002 Series B Bonds in the Auction Mode Rate unless the context or use indicates another or different meaning or intent: "Agent Member" means a member of, or participant in, the Securities Depository who will act on behalf of a Bidder. "Auction" means each periodic implementation of the Auction Procedures. "Auction Agent" means the auctioneer appointed in accordance with the provisions of the Supplemental Indenture and will initially be Bankers Trust Company. "Auction Agreement" means an agreement between the Auction Agent and the Trustee pursuant to which the Auction Agent agrees to follow the procedures specified in the provisions of the Supplemental Indenture with respect to the 2002 Series B Bonds while bearing interest at Auction Mode Rates, as such agreement may from time to time be amended or supplemented with the consent of the Bond Insurer. "Auction Date" means with respect to any 2002 Series B Bonds during any period in which the Auction Procedures are not suspended in accordance with the provisions of the Supplemental Indenture, (i) if the 2002 Series B Bonds are in a daily Auction Period, each Business Day, (ii) if the 2002 Series B Bonds are in a Flexible Auction Period, the last Business Day of the Flexible Auction Period, and (iii) if the 2002 Series B Bonds are in any other Auction Period, the Business Day next preceding each Interest Payment Date for such 2002 Series B Bonds (whether or not an Auction will be conducted on such date); provided, however, that the last Auction Date with respect to the 2002 Series B Bonds in an Auction Period other than a daily Auction Period or Flexible Auction Period will be the earlier of (a) the Business Day next preceding the Interest Payment Date next preceding any Mode Adjustment Date and (b) the Business Day next preceding the Interest Payment Date next preceding the final maturity date of the 2002 Series B Bonds; and provided, further, that if the 2002 Series B Bonds are in a daily Auction Period, the last Auction Date will be the earlier of (x) the Business Day next preceding a Mode Adjustment Date and (y) the Business Day next preceding the final maturity date of the 2002 Series B Bonds. The last Business Day of a Flexible Auction Period will be the Auction Date for the Auction Period which begins on the next succeeding Business Day, if any. On the Business Day preceding the conversion from a daily Auction Period to another Auction Period, there will be two Auctions, one for the last daily Auction Period and one for the first Auction Period following the conversion. The first Auction Date for the 2002 Series B Bonds is , 2002. B-1 "Auction Mode Multiple" means, as of any Auction Date, the Percentage of the Index (in effect on such Auction Date) determined as set forth below, based on the Prevailing Rating of the 2002 Series B Bonds in effect at the close of business on the Business Day immediately preceding such Auction Date: Percentage Prevailing Rate of Index --------------- -------- AAA/Aaa/AAA 150% AA/Aa/AA 200 A/A/A 250 BBB/Baa/BBB 275 Below BBB/Baa/BBB 300 "Auction Mode Rate" means the rate of interest to be borne by the 2002 Series B Bonds during each Auction Period determined in accordance with the Supplemental Indenture, as summarized under "Determination of Auction Mode Rate" of this Auction Procedures Description; provided, however, in no event may the Auction Mode Rate exceed the Maximum Rate. "Auction Period" means with respect to 2002 Series B Bonds (i) in a Flexible Auction Period, the Flexible Auction Period, (ii) in a daily Auction Period, a period beginning on each Business Day and extending to but not including the next succeeding Business Day, (iii) in a seven-day Auction Period, a period of generally seven days beginning on a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on the Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day), (iv) in a 28-day Auction Period, a period of generally 28 days beginning on a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on the fourth Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day), (v) in a 35-day Auction Period, a period of generally 35 days beginning on a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on the fifth Tuesday thereafter (unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day), (vi) in a three-month Auction Period, a period of generally three months (or shorter period upon a conversion from another Auction Period) beginning on the day following the last day of the prior Auction Period and ending on the first day of the month that is the third calendar month following the beginning date of such Auction Period, and (vii) in a semiannual Auction Period, a period of generally six months (or shorter period upon a conversion from another Auction Period) beginning on the day following the last day of the prior Auction Period and ending on the next succeeding June 30 or December 31; provided, however, that if there is a conversion of 2002 Series B Bonds from a daily Auction Period to a seven-day Auction Period, the next Auction Period will begin on the date of the conversion (i.e., the Interest Payment Date for the prior Auction Period) and will end on the next succeeding Tuesday (unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day), if there is a conversion from a daily Auction Period to a 28-day Auction Period, the next Auction Period will begin on the date of the B-2 conversion (i.e., the Interest Payment Date for the prior Auction Period) and will end on the Tuesday (unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day) which is more than 21 days but not more than 28 days from such date of conversion, and, if there is a conversion from a daily Auction Period to a 35-day Auction Period, the next Auction Period will begin on the date of the conversion (i.e., the Interest Payment Date for the prior Auction Period) and will end on the Tuesday (unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day) which is more than 28 days but not more than 35 days from such date of conversion. "Auction Procedures" means the procedures for conducting Auctions for 2002 Series B Bonds during an Auction Rate Period set forth in the Supplemental Indenture to the Indenture and summarized in this Auction Procedures Description. "Auction Procedures Description" means this Exhibit A, as amended from time to time. "Auction Rate" means for 2002 Series B Bonds for each Auction Period, (i) if Sufficient Clearing Bids exist, the Winning Bid Rate, provided, however, if all 2002 Series B Bonds are the subject of Submitted Hold Orders, the Minimum Auction Rate and (ii) if Sufficient Clearing Bids do not exist, the Maximum Auction Rate. "Auction Rate Period" means after the Initial Period any period of time commencing on the day following the Initial Period and ending on a Mode Adjustment Date. "Available Bonds" means for 2002 Series B Bonds on each Auction Date, the aggregate principal amount of 2002 Series B Bonds that are not the subject of Submitted Hold Orders. "Bid" has the meaning specified in subsection (a) under the heading "Orders by Existing Owners and Potential Owners" of this Auction Procedures Description. "Bidder" means each Existing Owner and Potential Owner who places an Order. "Broker-Dealer" means any entity that is permitted by law to perform the function required of a Broker-Dealer described in the Eleventh Supplemental Indenture, that is a member of, or a direct participant in, the Securities Depository, that has been selected by the Company and that is a party to a Broker-Dealer Agreement with the Company and the Auction Agent. "Broker-Dealer Agreement" means an agreement among the Auction Agent, the Company and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures described in the Supplemental Indenture, as such agreement may from to time be amended or supplemented with the consent of the Bond Insurer. "Default Rate" means, in respect of any Auction Period other than a daily Auction Period, a per annum rate equal to three hundred percent (300%) of the Index determined on the Auction Date next preceding the first day of such Auction Period or in the case of 2002 Series B Bonds in a daily Auction Period, three hundred percent (300%) of the Index determined on the Auction Date which was the first day of such Auction Period, provided, however, the Default Rate will not exceed the Maximum Rate. B-3 "Existing Owner" means a Person who is listed as the beneficial owner of 2002 Series B Bonds in the records of the Auction Agent. "Flexible Auction Period" means any period of not less than seven nor more than 364 days which begins on an Interest Payment Date and ends on a Tuesday unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day. "Hold Order" has the meaning specified in subsection (a) of "Orders by Existing Owners and Potential Owners" of this Auction Procedures Description. "Index" will have the meaning specified in "Index" of this Auction Procedures Description. "Initial Period" means the period from the Delivery Date to but not including ____________, 2002. "Interest Payment Date" means, with respect to 2002 Series B Bonds in the Auction Mode, ___________________, 2002, and thereafter (a) when used with respect to any Auction Period other than a daily Auction Period or a Flexible Auction Period, the Business Day immediately following such Auction Period, (b) when used with respect to a daily Auction Period, the first Business Day of the month immediately succeeding such Auction Period, (c) when used with respect to a Flexible Auction Period of (i) seven or more but fewer than 92 days, the Business Day immediately following such Flexible Auction Period, or (ii) 92 or more days, each thirteenth Wednesday after the first day of such Flexible Auction Period or the next Business Day if such Wednesday is not a Business Day and on the Business Day immediately following such Flexible Auction Period, (d) any Mode Adjustment Date and (e) the maturity or redemption date thereof. "LIBOR," on any date of determination for any Auction Period, means (i) for any Auction Period of fewer than 40 days, the offered rate for deposits in U.S. dollars for a one-month period which appears on the Telerate Page 3750 at approximately 11:00 A.M., London time, on such date, or if such date is not a date on which dealings in U.S. dollars are transacted in the London interbank market, then on the next preceding day on which such dealings were transacted in such market and (ii) for any Auction Period of 40 or more but fewer than 95 days, such rates for deposits in U.S. dollars for a three-month period. "Maximum Auction Rate" means, as of any Auction Date, the product of the Index multiplied by the Auction Mode Multiple, provided, however, the Maximum Auction Rate will not exceed the Maximum Rate. "Minimum Auction Rate" means, as of any Auction Date, ninety percent (90%) of the Index in effect on such Auction Date. "No Auction Rate" means, as of any Auction Date, the rate determined by multiplying the Percentage of Index set forth below, based on the Prevailing Rating of the 2002 Series B Bonds in effect at the close of business on the Business Day immediately preceding such Auction Date, by the Index: B-4 Percentage Prevailing Rate of Index --------------- -------- AAA/Aaa/AAA 100% AA/Aa/AA 110 A/A/A 125 BBB/Baa/BBB 150 Below BBB/Baa/BBB 300 Below BBB/Baa/BBB 200 provided, however that in no event will the No Auction Rate exceed the Maximum Auction Rate. "Order" means a Hold Order, Bid or Sell Order. "Potential Owner" means any Person, including any Existing Owner, who may be interested in acquiring a beneficial interest in the 2002 Series B Bonds in addition to the 2002 Series B Bonds currently owned by such Person, if any. "Prevailing Rating" means (a) AAA/Aaa/AAA, if the 2002 Series B Bonds will have a rating of AAA or better by S&P, a rating of Aaa or better by Moody's and a rating of AAA or better by Fitch, (b) if not AAA/Aaa/AAA, AA/Aa/AA if the 2002 Series B Bonds will have a rating of AA- or better by S&P, a rating of Aa3 or better by Moody's and a rating of AA- or better by Fitch, (c) if not AAA/Aaa/AAA or AA/Aa/AA, A/A/A if the 2002 Series B Bonds will have a rating of A- or better by S&P, a rating of A3 or better by Moody's and a rating of A- or better by Fitch, (d) if not AAA/Aaa/AAA, AA/Aa/AA or A/A/A, BBB/Baa/BBB if the 2002 Series B Bonds will have a rating of BBB- or better by S&P, a rating of Baa3 or better by Moody's and a rating of BBB- or better by Fitch, and (e) if not AAA/Aaa/AAA, AA/Aa/AA, A/A/A or BBB/Baa/BBB, then below BBB/Baa/BBB whether or not the 2002 Series B Bonds are rated by any securities rating agency. For purposes of this definition, S&P's rating categories of "AAA," "AA," and "A-," Moody's rating categories of "Aaa," "Aa3" and "A3" and Fitch's rating categories of "AAA," "AA," and "A-," will be deemed to refer to and include the respective rating categories correlative thereto in the event that any such Rating Agencies will have changed or modified their generic rating categories or if any successor thereto appointed in accordance with the definitions thereof will use different rating categories. If the 2002 Series B Bonds are not rated by a Rating Agency, the requirement of a rating by such Rating Agency will be disregarded. If the ratings for the 2002 Series B Bonds are split between two or more of the foregoing categories, the lower rating will determine the Prevailing Rating. If there is no rating, then the Auction Mode Rate will be the Maximum Auction Rate. "Principal Office" means, with respect to the Auction Agent, the office thereof designated in writing to the Company, the Trustee and each Broker-Dealer. "Sell Order" has the meaning specified in subsection (a) under the heading "Orders by Existing Owners and Potential Owners" of this Auction Procedures Description. "Submission Deadline" means 1:00 p.m., New York City time, on each Auction Date for 2002 Series B Bonds not in a daily Auction Period and 11:00 a.m., New York City time, on each Auction Date for 2002 Series B Bonds in a daily Auction Period, or such other time on such date as will be specified from time to time by the Auction Agent pursuant to the Auction Agreement as the time by which Broker-Dealers are required to submit Orders to the Auction Agent. B-5 "Submitted Bid" has the meaning specified in subsection (b) under the heading "Determination of Auction Mode Rate" of this Auction Procedures Description. "Submitted Hold Order" has the meaning specified in subsection (b) under the heading "Determination of Auction Mode Rate" of this Auction Procedures Description. "Submitted Order" has the meaning specified in subsection (b) under the heading "Determination of Auction Mode Rate" of this Auction Procedures Description. "Submitted Sell Order" has the meaning specified in subsection (b) under the heading "Determination of Auction Mode Rate" of this Auction Procedures Description. "Sufficient Clearing Bids" means with respect to 2002 Series B Bonds, an Auction for which (a) the aggregate principal amount of 2002 Series B Bonds that are the subject of Submitted Bids by Potential Owners specifying one or more rates not higher than the Maximum Auction Rate is not less than (b) the aggregate principal amount of 2002 Series B Bonds that are the subject of Submitted Sell Orders and of Submitted Bids by Existing Owners specifying rates higher than the Maximum Auction Rate. "Supplemental Indenture" means the Eleventh Supplemental Indenture dated _____________, 2002 (which is amendatory and supplemental to the Indenture), as the same may be amended and supplemented from time to time. "Winning Bid Rate" means with respect to 2002 Series B Bonds, the lowest rate specified in any Submitted Bid which if selected by the Auction Agent as the Auction Mode Rate would cause the aggregate principal amount of 2002 Series B Bonds that are the subject of Submitted Bids specifying a rate not greater than such rate to be not less than the aggregate principal amount of Available Bonds. 2. AUCTION PROCEDURES 2.01. Orders by Existing Owners and Potential Owners. (a) Prior to the Submission Deadline on each Auction Date: (i) each Existing Owner may submit to a Broker-Dealer, in writing or by such other method as will be reasonably acceptable to such Broker-Dealer, information as to: (A) the principal amount of 2002 Series B Bonds, if any, held by such Existing Owner which such Existing Owner irrevocably commits to continue to hold for the next succeeding Auction Period without regard to the rate determined by the Auction Procedures for such Auction Period, B-6 (B) the principal amount of 2002 Series B Bonds, if any, held by such Existing Owner which such Existing Owner irrevocably commits to continue to hold for the next succeeding Auction Period if the rate determined by the Auction Procedures for such Auction Period will not be less than the rate per annum then specified by such Existing Owner (and which such Existing Owner irrevocably offers to sell on the next succeeding Interest Payment Date (or the same day in the case of a daily Auction Period) if the rate determined by the Auction Procedures for the next succeeding Auction Period will be less than the rate per annum then specified by such Existing Owner), and/or (C) the principal amount of 2002 Series B Bonds, if any, held by such Existing Owner which such Existing Owner irrevocably offers to sell on the next succeeding Interest Payment Date (or on the same day in the case of a daily Auction Period) without regard to the rate determined by the Auction Procedures for the next succeeding Auction Period; and (ii) for the purpose of implementing the Auctions and thereby to achieve the lowest possible interest rate on the 2002 Series B Bonds, the Broker-Dealers will contact Potential Owners, including Persons that are Existing Owners, to determine the principal amount of 2002 Series B Bonds, if any, which each such Potential Owner irrevocably offers to purchase if the rate determined by the Auction Procedures for the next succeeding Auction Period is not less than the rate per annum then specified by such Potential Owner. For the purposes hereof, an Order containing the information referred to in clause (i)(A) above is herein referred to as a "Hold Order", an Order containing the information referred to in clause (i)(B) or (ii) above is herein referred to as a "Bid", and an Order containing the information referred to in clause (i)(C) above is herein referred to as a "Sell Order." (b) A Bid by an Existing Owner will constitute an irrevocable offer to sell: (i) (A) the principal amount of 2002 Series B Bonds specified in such Bid if the rate determined by the Auction Procedures on such Auction Date will be less than the rate specified therein; or (B) such principal amount or a lesser principal amount of 2002 Series B Bonds to be determined as described in subsection (a)(v) of the section below entitled "Allocation of 2002 Series B Bonds" if the rate determined by the Auction Procedures on such Auction Date will be equal to such specified rate; or (C) a lesser principal amount of 2002 Series B Bonds to be determined as described in subsection (b)(iv) of the section below entitled "Allocation of 2002 Series B Bonds" if such specified rate will be higher than the Maximum Auction Rate and Sufficient Clearing Bids do not exist. (ii) A Sell Order by an Existing Owner will constitute an irrevocable offer to sell: B-7 (A) the principal amount of 2002 Series B Bonds specified in such Sell Order; or (B) such principal amount or a lesser principal amount of 2002 Series B Bonds as described in subsection (b)(iv) of the section below entitled "Allocation of 2002 Series B Bonds" if Sufficient Clearing Bids do not exist. (iii) A Bid by a Potential Owner will constitute an irrevocable offer to purchase: (A) the principal amount of 2002 Series B Bonds specified in such Bid if the rate determined by the Auction Procedures on such Auction Date will be higher than the rate specified therein; or (B) such principal amount or a lesser principal amount of 2002 Series B Bonds as described in subsection (a)(vi) of the section below entitled "Allocation of 2002 Series B Bonds" if the rate determined by the Auction Procedures on such Auction Date will be equal to such specified rate. (c) Anything herein to the contrary notwithstanding: (i) for purposes of any Auction, any Order which specifies 2002 Series B Bonds to be held, purchased or sold in a principal amount which is not $50,000 or an integral multiple thereof will be rounded down to the nearest $50,000, and the Auction Agent will conduct the Auction Procedures as if such Order had been submitted in such lower amount; (ii) for purposes of any Auction other than during a daily Auction Period, any portion of an Order of an Existing Owner which relates to a 2002 Series B Bond which has been called for redemption on or prior to the Interest Payment Date next succeeding such Auction will be invalid with respect to such portion and the Auction Agent will conduct the Auction Procedures as if such portion of such Order had not been submitted; (iii) for purposes of any Auction other than during a daily Auction Period, no portion of a 2002 Series B Bond which has been called for redemption on or prior to the Interest Payment Date next succeeding such Auction will be included in the calculation of Available Bonds for such Auction; and (iv) the Auction Procedures will be suspended during the period commencing on the date of the Auction Agent's receipt of notice from the Trustee or the Company of the occurrence of an Event of Default resulting from a failure to pay principal, premium or interest on any 2002 Series B Bond when due (provided, however, that for purposes of this provision only payment by the Bond Insurer will be deemed to cure such Event of Default and no suspension of the Auction Procedures will occur) but will resume two Business Days after the date on which the Auction Agent receives notice from the Trustee that such Event of Default has been waived or cured, with the next Auction to occur on the next regularly scheduled Auction Date occurring thereafter. B-8 2.02. Submission of Orders by Broker-Dealers to Auction Agent. (a) Each Broker-Dealer will submit to the Auction Agent in writing or by such other method as will be reasonably acceptable to the Auction Agent, including such electronic communication acceptable to the parties, prior to the Submission Deadline on each Auction Date, all Orders obtained by such Broker-Dealer and specifying, if requested, with respect to each Order: (i) the name of the Bidder placing such Order; (ii) the aggregate principal amount of 2002 Series B Bonds, if any, that are the subject of such Order; (iii) to the extent that such Bidder is an Existing Owner: (A) the principal amount of 2002 Series B Bonds, if any, subject to any Hold Order placed by such Existing Owner; (B) the principal amount of 2002 Series B Bonds, if any, subject to any Bid placed by such Existing Owner and the rate specified in such Bid; and (C) the principal amount of 2002 Series B Bonds, if any, subject to any Sell Order placed by such Existing Owner; and (iv) to the extent such Bidder is a Potential Owner, the rate specified in such Bid. (b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Agent will round such rate up to the next highest one thousandth of one percent (0.001%). (c) If an Order or Orders covering all of the 2002 Series B Bonds held by an Existing Owner is not submitted to the Auction Agent prior to the Submission Deadline, the Auction Agent will deem a Hold Order to have been submitted on behalf of such Existing Owner covering the principal amount of 2002 Series B Bonds held by such Existing Owner and not subject to Orders submitted to the Auction Agent; provided, however, that if there is a conversion from one Auction Period to another Auction Period and Orders have not been submitted to the Auction Agent prior to the Submission Deadline covering the aggregate principal amount of 2002 Series B Bonds held by such Existing Owner, the Auction Agent will deem a Sell Order to have been submitted on behalf of such Existing Owner covering the principal amount of 2002 Series B Bonds held by such Existing Owner not subject to Orders submitted to the Auction Agent. (d) If one or more Orders covering in the aggregate more than the principal amount of Outstanding 2002 Series B Bonds held by any Existing Owner are submitted to the Auction Agent, such Orders will be considered valid as follows: B-9 (i) all Hold Orders will be considered Hold Orders, but only up to and including in the aggregate the principal amount of 2002 Series B Bonds held by such Existing Owner; (ii) (A) any Bid of an Existing Owner will be considered valid as a Bid of an Existing Owner up to and including the excess of the principal amount of 2002 Series B Bonds held by such Existing Owner over the principal amount of the 2002 Series B Bonds subject to Hold Orders referred to in paragraph (i) above; (B) subject to clause (A) above, all Bids of an Existing Owner with the same rate will be aggregated and considered a single Bid of an Existing Owner up to and including the excess of the principal amount of 2002 Series B Bonds held by such Existing Owner over the principal amount of 2002 Series B Bonds held by such Existing Owner subject to Hold Orders referred to in paragraph (i) above; (C) subject to clause (A) above, if more than one Bid with different rates is submitted on behalf of such Existing Owner, such Bids will be considered Bids of an Existing Owner in the ascending order of their respective rates up to the amount of the excess of the principal amount of 2002 Series B Bonds held by such Existing Owner over the principal amount of 2002 Series B Bonds held by such Existing Owner subject to Hold Orders referred to in paragraph (i) above; and (D) the principal amount, if any, of such 2002 Series B Bonds subject to Bids not considered to be Bids of an Existing Owner under this paragraph (ii) will be treated as the subject of a Bid by a Potential Owner; (iii) all Sell Orders will be considered Sell Orders, but only up to and including a principal amount of 2002 Series B Bonds equal to the excess of the principal amount of 2002 Series B Bonds held by such Existing Owner over the sum of the principal amount of the 2002 Series B Bonds considered to be subject to Hold Orders pursuant to paragraph (i) above and the principal amount of 2002 Series B Bonds considered to be subject to Bids of such Existing Owner pursuant to paragraph (ii) above. (e) If more than one Bid is submitted on behalf of any Potential Owner, each Bid submitted with the same rate will be aggregated and considered a single Bid and each Bid submitted with a different rate will be considered a separate Bid with the rate and the principal amount of 2002 Series B Bonds specified therein. (f) Any Bid submitted by an Existing Owner or a Potential Owner specifying a rate lower than the Minimum Auction Rate will be treated as a Bid specifying the Minimum Auction Rate. (g) Neither the Company, the Trustee nor the Auction Agent will be responsible for the failure of any Broker-Dealer to submit an Order to the Auction Agent on behalf of any Existing Owner or Potential Owner. B-10 2.03. Determination of Auction Mode Rate. (a) Not later than 9:30 a.m., New York City time, on each Auction Date for 2002 Series B Bonds, the Auction Agent will advise the Broker-Dealers and the Trustee by telephone or other electronic communication acceptable to the parties of the Minimum Auction Rate, the Maximum Auction Rate and the Index. (b) Promptly after the Submission Deadline on each Auction Date for 2002 Series B Bonds, the Auction Agent will assemble all Orders submitted or deemed submitted to it by the Broker-Dealers (each such Order as submitted or deemed submitted by a Broker-Dealer being hereinafter referred to as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, and collectively as a "Submitted Order") and will determine (i) the Available Bonds, (ii) whether there are Sufficient Clearing Bids, and (iii) the Auction Rate. (c) Promptly after the Auction Agent has made the determinations pursuant to subsection (b) above, the Auction Agent will advise the Trustee by telephone (promptly confirmed in writing), telex or facsimile transmission or other electronic communication acceptable to the parties of the Auction Rate for the next succeeding Auction Period and the Trustee will promptly notify DTC of such Auction Rate. (d) In the event the Auction Agent fails to calculate, or for any reason fails to timely provide, the Auction Rate for any Auction Period, the Auction Mode Rate for such Auction Period will be the No Auction Rate; provided, however, that if the Auction Procedures are suspended due to the failure to pay principal of, premium or interest on any 2002 Series B Bond, the Auction Mode Rate for the next succeeding Auction Period will be the Default Rate. (e) In the event of a failed conversion to an Interest Mode other than the Auction Mode or in the event of a failure to change the length of the current Auction Period due to the lack of Sufficient Clearing Bids at the Auction on the Auction Date for the first new Auction Period, the Auction Mode Rate for the next Auction Period will be the Maximum Auction Rate and the Auction Period will be a seven-day Auction Period. (f) If the 2002 Series B Bonds are not rated or are not registered in the name of the Securities Depository, then the Auction Mode Rate will be the Maximum Auction Rate. 2.04. Allocation of 2002 Series B Bonds. (a) In the event of Sufficient Clearing Bids for 2002 Series B Bonds, subject to the further provisions of subsections (c) and (d) below, Submitted Orders will be accepted or rejected as follows in the following order of priority: (i) the Submitted Hold Order of each Existing Owner will be accepted, thus requiring each such Existing Owner to continue to hold the 2002 Series B Bonds that are the subject of such Submitted Hold Order; (ii) the Submitted Sell Order of each Existing Owner will be accepted and the Submitted Bid of each Existing Owner specifying any rate that is higher than the Winning Bid Rate will be rejected, thus requiring each such Existing Owner to sell the 2002 Series B Bonds that are the subject of such Submitted Sell Order or Submitted Bid; B-11 (iii) the Submitted Bid of each Existing Owner specifying any rate that is lower than the Winning Bid Rate will be accepted, thus requiring each such Existing Owner to continue to hold the 2002 Series B Bonds that are the subject of such Submitted Bid; (iv) the Submitted Bid of each Potential Owner specifying any rate that is lower than the Winning Bid Rate will be accepted, thus requiring each such Potential Owner to purchase the 2002 Series B Bonds that are the subject of such Submitted Bid; (v) the Submitted Bid of each Existing Owner specifying a rate that is equal to the Winning Bid Rate will be accepted, thus requiring each such Existing Owner to continue to hold the 2002 Series B Bonds that are the subject of such Submitted Bid, but only up to and including the principal amount of 2002 Series B Bonds obtained by multiplying (A) the aggregate principal amount of Outstanding 2002 Series B Bonds which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii) or (iv) above by (B) a fraction the numerator of which will be the principal amount of Outstanding 2002 Series B Bonds held by such Existing Owner subject to such Submitted Bid and the denominator of which will be the aggregate principal amount of Outstanding 2002 Series B Bonds subject to such Submitted Bids made by all such Existing Owners that specified a rate equal to the Winning Bid Rate, and the remainder, if any, of such Submitted Bid will be rejected, thus requiring each such Existing Owner to sell any excess amount of 2002 Series B Bonds; (vi) the Submitted Bid of each Potential Owner specifying a rate that is equal to the Winning Bid Rate will be accepted, thus requiring each such Potential Owner to purchase the 2002 Series B Bonds that are the subject of such Submitted Bid, but only in an amount equal to the principal amount of 2002 Series B Bonds obtained by multiplying (A) the aggregate principal amount of Outstanding 2002 Series B Bonds which are not the subject of Submitted Hold Orders described in paragraph (i) above or of Submitted Bids described in paragraphs (iii), (iv) or (v) above by (B) a fraction the numerator of which will be the principal amount of Outstanding 2002 Series B Bonds subject to such Submitted Bid and the denominator of which will be the sum of the aggregate principal amount of Outstanding 2002 Series B Bonds subject to such Submitted Bids made by all such Potential Owners that specified a rate equal to the Winning Bid Rate, and the remainder of such Submitted Bid will be rejected; and (vii) the Submitted Bid of each Potential Owner specifying any rate that is higher than the Winning Bid Rate will be rejected. (b) In the event there are not Sufficient Clearing Bids for 2002 Series B Bonds, subject to the further provisions of subsections (c) and (d) below, Submitted Orders for 2002 Series B Bonds will be accepted or rejected as follows in the following order of priority: B-12 (i) the Submitted Hold Order of each Existing Owner will be accepted, thus requiring each such Existing Owner to continue to hold the 2002 Series B Bonds that are the subject of such Submitted Hold Order; (ii) the Submitted Bid of each Existing Owner specifying any rate that is not higher than the Maximum Auction Rate will be accepted, thus requiring each such Existing Owner to continue to hold the 2002 Series B Bonds that are the subject of such Submitted Bid; (iii) the Submitted Bid of each Potential Owner specifying any rate that is not higher than the Maximum Auction Rate will be accepted, thus requiring each such Potential Owner to purchase the 2002 Series B Bonds that are the subject of such Submitted Bid; (iv) the Submitted Sell Orders of each Existing Owner will be accepted as Submitted Sell Orders and the Submitted Bids of each Existing Owner specifying any rate that is higher than the Maximum Auction Rate will be deemed to be and will be accepted as Submitted Sell Orders, in both cases only up to and including the principal amount of 2002 Series B Bonds obtained by multiplying (A) the aggregate principal amount of 2002 Series B Bonds subject to Submitted Bids described in paragraph (iii) of this subsection (b) by (B) a fraction the numerator of which will be the principal amount of Outstanding 2002 Series B Bonds held by such Existing Owner subject to such Submitted Sell Order or such Submitted Bid deemed to be a Submitted Sell Order and the denominator of which will be the principal amount of Outstanding 2002 Series B Bonds subject to all such Submitted Sell Orders and such Submitted Bids deemed to be Submitted Sell Orders, and the remainder of each such Submitted Sell Order or Submitted Bid will be deemed to be and will be accepted as a Hold Order and each such Existing Owner will be required to continue to hold such excess amount of 2002 Series B Bonds; and (v) the Submitted Bid of each Potential Owner specifying any rate that is higher than the Maximum Auction Rate will be rejected. (c) If, as a result of the procedures described in subsection (a) or (b) above, any Existing Owner or Potential Owner would be required to purchase or sell an aggregate principal amount of 2002 Series B Bonds which is not an integral multiple of $50,000 on any Auction Date, the Auction Agent will by lot, in such manner as it will determine in its sole discretion, round up or down the principal amount of 2002 Series B Bonds to be purchased or sold by any Existing Owner or Potential Owner on such Auction Date so that the aggregate principal amount of 2002 Series B Bonds purchased or sold by each Existing Owner or Potential Owner on such Auction Date will be an integral multiple of $50,000, even if such allocation results in one or more of such Existing Owners or Potential Owners not purchasing or selling any 2002 Series B Bonds on such Auction Date. (d) If, as a result of the procedures described in subsection (a) above, any Potential Owner would be required to purchase less than $50,000 in principal amount of 2002 Series B Bonds on any Auction Date, the Auction Agent will by lot, in such manner as it will determine in its sole discretion, allocate 2002 Series B Bonds for purchase among Potential Owners so that the principal amount of 2002 Series B Bonds purchased on such Auction Date by any Potential Owner will be an integral multiple of $50,000, even if such allocation results in one or more of such Potential Owners not purchasing 2002 Series B Bonds on such Auction Date. B-13 2.05 Notice of Auction Mode Rate. (a) On each Auction Date, the Auction Agent will notify by telephone or other telecommunication device or other electronic communication acceptable to the parties or in writing each Broker-Dealer that participated in the Auction held on such Auction Date of the following with respect to 2002 Series B Bonds for which an Auction was held on such Auction Date: (i) the Auction Mode Rate determined on such Auction Date for the succeeding Auction Period; (ii) whether Sufficient Clearing Bids existed for the determination of the Winning Bid Rate; (iii) if such Broker-Dealer submitted a Bid or a Sell Order on behalf of an Existing Owner, whether such Bid or Sell Order was accepted or rejected and the principal amount of 2002 Series B Bonds, if any, to be sold by such Existing Owner; (iv) if such Broker-Dealer submitted a Bid on behalf of a Potential Owner, whether such Bid was accepted or rejected and the principal amount of 2002 Series B Bonds, if any, to be purchased by such Potential Owner; (v) if the aggregate principal amount of the 2002 Series B Bonds to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted Bids or Sell Orders is different from the aggregate principal amount of 2002 Series B Bonds to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Broker-Dealers (and the Agent Member, if any, of each such other Broker-Dealer) and the principal amount of 2002 Series B Bonds to be (A) purchased from one or more Existing Owners on whose behalf such other Broker-Dealers submitted Bids or Sell Orders or (B) sold to one or more Potential Owners on whose behalf such Broker-Dealer submitted Bids; and (vi) the immediately succeeding Auction Date. (b) On each Auction Date, with respect to 2002 Series B Bonds for which an Auction was held on such Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Owner or Potential Owner will: (i) advise each Existing Owner and Potential Owner on whose behalf such Broker-Dealer submitted an Order as to (A) the Auction Mode Rate determined on such Auction Date, (B) whether any Bid or Sell Order submitted on behalf of each such Owner was accepted or rejected and (C) the immediately succeeding Auction Date; (ii) instruct each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Existing Owner's Agent Member to pay to such Broker-Dealer (or its Agent Member) through the Securities B-14 Depository the amount necessary to purchase the principal amount of 2002 Series B Bonds to be purchased pursuant to such Bid (including, with respect to the 2002 Series B Bonds in a daily Auction Period, accrued interest if the purchase date is not an Interest Payment Date for such Bond) against receipt of such 2002 Series B Bonds; and (iii) instruct each Existing Owner on whose behalf such Broker-Dealer submitted a Sell Order that was accepted or a Bid that was rejected in whole or in part, to instruct such Existing Owner's Agent Member to deliver to such Broker-Dealer (or its Agent Member) through the Securities Depository the principal amount of 2002 Series B Bonds to be sold pursuant to such Bid or Sell Order against payment therefor. 2.06 Index. (a) The Index on any Auction Date with respect to 2002 Series B Bonds in any Auction Period of less than 95 days will be LIBOR on such date. The Index with respect to 2002 Series B Bonds in any Auction Period of 95 days or more will be the rate on United States Treasury securities having a maturity which most closely approximates the length of the Auction Period as last published in The Wall Street Journal. If either rate is unavailable, the Index will be an index or rate agreed to by all Broker-Dealers and consented to by the Company. (b) If for any reason on any Auction Date the Index will not be determined as hereinabove provided in this Section, the Index will be the Index for the Auction Period ending on such Auction Date. (c) The determination of the Index as provided herein will be conclusive and binding upon the Company, the Trustee, the Broker-Dealers, the Auction Agent and the Holders of the 2002 Series B Bonds. 2.07. Miscellaneous Provisions Regarding Auctions. (a) In this Auction Procedures Description, each reference to the purchase, sale or holding of 2002 Series B Bonds will refer to beneficial interests in 2002 Series B Bonds, unless the context clearly requires otherwise. (b) During an Auction Rate Period, the provisions of the Supplemental Indenture and the definitions contained therein and described in this Auction Procedures Description, including without limitation the definitions of Default Rate, Maximum Auction Rate, Minimum Auction Rate, No Auction Rate, Index, Auction Mode Multiple and Auction Rate, may be amended pursuant to the Indenture by obtaining the consent of the owners of all Outstanding 2002 Series B Bonds bearing interest at the Auction Mode Rate as follows. If on the first Auction Date occurring at least 20 days after the date on which the Trustee mailed notice of such proposed amendment to the registered owners of the Outstanding 2002 Series B Bonds as required by the Indenture, (i) the Auction Mode Rate which is determined on such date is the Winning Bid Rate and (ii) there is delivered to the Company, Trustee and Bond Insurer an Opinion of Counsel to the effect that such amendment will not adversely affect the validity of the 2002 Series B Bonds, the proposed amendment will be deemed to have been consented to by the Holders of all affected Outstanding 2002 Series B Bonds. (c) If the Securities Depository notifies the Company that it is unwilling or unable to continue as owner of the 2002 Series B Bonds or if at any B-15 time the Securities Depository will no longer be registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation and a successor to the Securities Depository is not appointed by the Company within 90 days after the Company receives notice or becomes aware of such condition, as the case may be, the Company will execute and the Trustee will authenticate and deliver certificates representing the 2002 Series B Bonds. Such 2002 Series B Bonds will be registered in such names and authorized denominations as the Securities Depository, pursuant to instructions from the Agent Members or otherwise, will instruct the Company and the Trustee. During an Auction Rate Period, so long as the ownership of the 2002 Series B Bonds is maintained in book-entry form by the Securities Depository, an Existing Owner or a beneficial owner may sell, transfer or otherwise dispose of a 2002 Series B Bond only pursuant to a Bid or Sell Order in accordance with the Auction Procedures or to or through a Broker-Dealer, provided, however, that (i) in the case of all transfers other than pursuant to Auctions, such Existing Owner or its Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and (ii) a sale, transfer or other disposition of 2002 Series B Bonds from a customer of a Broker-Dealer who is listed on the records of that Broker-Dealer as the holder of such 2002 Series B Bonds to that Broker-Dealer or another customer of that Broker-Dealer will not be deemed to be a sale, transfer or other disposition for purposes of this paragraph if such Broker-Dealer remains the Existing Owner of the 2002 Series B Bonds so sold, transferred or disposed of immediately after such sale, transfer or disposition. 2.08 Changes in Auction Period or Auction Date. (a) Changes in Auction Period. (i) During any Auction Rate Period, the Company may, from time to time on any Interest Payment Date, change the length of the Auction Period with respect to all of the 2002 Series B Bonds among daily, seven-days, 28-days, 35-days, three months, six months and a Flexible Auction Period in order to accommodate economic and financial factors that may affect or be relevant to the length of the Auction Period and the interest rate borne by the 2002 Series B Bonds; provided, however, that the prior consent of the Bond Insurer shall be required prior to a change to an Auction Period in excess of 35 days. The Company will initiate the change in the length of the Auction Period by giving written notice to the Trustee, the Bond Insurer, the Auction Agent, the Broker-Dealers and the Securities Depository that the Auction Period will change if the conditions described herein are satisfied and the proposed effective date of the change, which will be at least 10 Business Days prior to the Auction Date for such Auction Period. (ii) Any such changed Auction Period will be for a period of one day, seven-days, 28-days, 35-days, three months, six months or a Flexible Auction Period and will apply to all of the 2002 Series B Bonds. B-16 (iii) The change in the length of the Auction Period will not be allowed unless Sufficient Clearing Bids existed at both the Auction before the date on which the notice of the proposed change was given as provided in this subsection (a) and the Auction immediately preceding the proposed change. If the condition referred to in the preceding sentence is not met, the Auction Rate for the next Auction Period will be the Maximum Auction Rate, and the Auction Period will be a seven-day Auction Period. (iv) On the conversion date for 2002 Series B Bonds selected for conversion from one Auction Period to another, any 2002 Series B Bonds which are not the subject of a specific Hold Order or Bid will be deemed to be subject to a Sell Order. (b) Changes in Auction Date.During any Auction Rate Period, the Auction Agent, with the written consent of the Company, may specify an earlier Auction Date (but in no event more than five Business Days earlier) than the Auction Date that would otherwise be determined in accordance with the definition of "Auction Date" in order to conform with then current market practice with respect to similar securities or to accommodate economic and financial factors that may affect or be relevant to the day of the week constituting an Auction Date and the interest rate borne on the 2002 Series B Bonds. The Auction Agent will provide notice of its determination to specify an earlier Auction Date for an Auction Period by means of a written notice delivered at least 45 days prior to the proposed changed Auction Date to the Trustee, the Company, the Broker-Dealers and the Securities Depository. 2.09. Conversions from an Auction Rate Period. At the option of the Company, all or any portion of the 2002 Series B Bonds may be converted from an Auction Rate Period to a Daily Rate, a Weekly Rate, a Flexible Rate or a Term Rate, as follows: (i) If the 2002 Series B Bonds are in an Auction Period other than a daily Auction Period, the Mode Adjustment Date will be the second regularly scheduled Interest Payment Date following the final Auction Date. If the 2002 Series B Bonds are in a daily Auction Period, the Mode Adjustment Date will be the next regularly scheduled Interest Payment Date. (ii) The Company will give written notice by an Officer's Certificate of any such conversion to the Bond Insurer, the Trustee, the Auction Agent and the Broker-Dealer not less than seven (7) Business Days prior to the date on which the Trustee is required to notify the Bondholders of the conversion pursuant to subparagraph (iii) below. Such Officer's Certificate will specify the proposed Mode Adjustment Date and the Interest Mode to which the conversion will be made (and the length of any Term Rate Period). Together with such Officer's Certificate, the Company will file with the Bond Insurer, and the Trustee, a Favorable Opinion of Bond Counsel to the effect that the proposed conversion of 2002 Series B Bonds to a Daily Rate, a Weekly Rate, a Flexible Rate or a Term Rate, including the assignment of maturity dates and sinking fund payment dates, will not adversely affect the validity of the 2002 Series B Bonds. No change to a Daily Rate, a Weekly Rate, a Flexible Rate or a Term Rate will become effective unless the Company will also file with the Bond Insurer and the Trustee, such an opinion dated the Mode Adjustment Date. (iii) Not less than twenty (20) days prior to the Mode Adjustment Date, the Trustee will mail a written notice of the conversion to the holders of all 2002 Series B Bonds to be converted, specifying the Mode Adjustment Date and setting forth the matters required to be stated pursuant to the Supplemental Indenture with respect to purchases of 2002 Series B Bonds. B-17 (iv) If on a Mode Adjustment Date any condition precedent to such conversion required under the Supplemental Indenture is not satisfied, the Trustee will give written notice by first class mail postage prepaid as soon as practicable and in any event not later than the next succeeding Business Day to the Bondholders, the Company and the Bond Insurer that such conversion has not occurred, that the 2002 Series B Bonds will not be purchased on the failed Mode Adjustment Date, that the Auction Agent will continue to implement the Auction Procedures on the Auction Dates with respect to the 2002 Series B Bonds which otherwise would have been converted excluding however, the Auction Date falling on the Business Day next preceding the failed Mode Adjustment Date, and that the interest rate will continue to be the Auction Mode Rate; provided, however, that the interest rate borne by the 2002 Series B Bonds during the Auction Period commencing on such failed Mode Adjustment Date will be the Maximum Auction Rate, and the Auction Period will be the seven-day Auction Period. (v) A Liquidity Facility meeting the requirements of the Supplemental Indenture. In addition, all or a portion of the 2002 Series B Bonds may be converted to a Fixed Rate pursuant to the terms of the Supplemental Indenture. 3. AUCTION AGENT 3.01. Auction Agent. The Auction Agent will be appointed by the Trustee at the written direction of the Company, to perform the functions specified herein and will be approved by the Bond Insurer. The Auction Agent will designate its Principal Office and signify its acceptance of the duties and obligations imposed upon it hereunder by a written instrument delivered to the Trustee, the Company and each Broker-Dealer which will set forth such procedural and other matters relating to the implementation of the Auction Procedures as will be satisfactory to the Company, Trustee and Bond Insurer. 3.02 Qualifications of Auction Agent; Resignation; Removal. The Auction Agent will be (a) a bank or trust company organized under the laws of the United States or any state or territory thereof having a combined capital stock, surplus and undivided profits of at least $30,000,000, or (b) a member of the National Association of Securities Dealers, Inc. having a capitalization of at least $30,000,000 and, in either case, authorized by law to perform all the duties imposed upon it by the Supplemental Indenture and a member of or a participant in, the Securities Depository. The Auction Agent may at any time resign and be discharged of the duties and obligations created by the Supplemental Indenture by giving at least ninety (90) days' notice to the Company, the Bond Insurer and the Trustee. The Auction Agent may be removed at any time by the Company by written notice, delivered to the Auction Agent, the Company, the Bond Insurer and the Trustee. Upon any such resignation or removal, the Trustee, upon written direction of the Company, will appoint a successor Auction Agent meeting the requirements of this section. In the event of the resignation or removal of the Auction Agent, the Auction Agent will pay over, assign and deliver any moneys and 2002 Series B Bonds held by it in such capacity to its successor. The Auction Agent will continue to perform its duties until its successor has been appointed by the Trustee. In the event that the Auction Agent has not been compensated for its services, the Auction Agent may resign by giving thirty (30) days notice to the Company and the Trustee even if a successor Auction Agent has not been appointed. B-18 CHUGACH ELECTRIC ASSOCIATION, INC. $120,000,000 % 2002 Series A Bonds Due 2012 $60,000,000 2002 Series B Bonds Due 2012 ------------------------- PROSPECTUS ------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions to be paid by Chugach, in connection with this offering. All amounts shown are estimates except for the registration fee. SEC registration fee........................... $ 43,020 Blue sky fees and expenses..................... 11,500 Printing fees and expenses..................... 10,000 Legal fees..................................... 150,000 Accounting fees................................ 60,000 Trustee fees................................... 10,000 Rating agency fees............................. 75,000 Insurance expenses............................. 1,249,000 Miscellaneous.................................. 41,480 ------------- Total........................................ $1,650,000 ============= Item 14. Indemnification of Officers and Directors The Alaska Electric and Telephone Cooperative Act (the "AETCA") provides that officers and directors of a cooperative organized under this statute will not be personally liable for conduct performed within the scope of the officer's or director's duties. However, an officer or director may be held personally liable if it was unreasonable for such officer or director to believe that his or her conduct was in, and not contrary to, the best interests of the cooperative. The AETCA also provides that a cooperative may indemnify an officer or director who is a party, or may be made a party, to a criminal, civil, administrative, or investigative proceeding. A cooperative is prohibited from indemnifying an officer or director who did not reasonably believe his or her actions were in the best interests of the cooperative. In a criminal action or proceeding, a cooperative must indemnify the officer or director unless the person had reasonable cause to believe that the conduct was unlawful. Article XVI of the Chugach Bylaws requires that Chugach indemnify and defend an officer or director who is a party, or threatened to be made a party, to a civil, criminal or administrative proceeding, including for expenses, including attorneys' fees, judgments, fines and settlements, actually and reasonably incurred. An officer or director will only receive such indemnification if the acts complained of were in the scope of such officer's or director's duties, and he or she acted in good faith and in a manner he or she reasonably believed to be in, and not opposed to, the best interests of Chugach. For an officer or director to be indemnified for a criminal action, an officer or director should have no reasonable cause to believe his or her conduct was unlawful. The Chugach Bylaws specifically grant Chugach the ability to purchase and maintain insurance for such indemnification. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit Number Description 1.1 Form of Underwriting Agreement. 3.1 Articles of Incorporation of the Registrant. (13) 3.2 Bylaws of the Registrant. (12) 4.1 Trust Indenture between the Registrant and Security Pacific Bank Washington, N.A. dated as of September 15, 1991 (including forms of bonds). (1) II-1 4.2 First Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated March 17, 1993. (1) 4.3 Second Supplemental Indenture of Trust between the Registrant and Seattle First National Bank dated May 19, 1994. (1) 4.4 Third Supplemental Indenture of Trust between the Registrant and Seattle First National Bank dated June 29, 1994. (1) 4.5 Fourth Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated March 1, 1995. (1) 4.6 Fifth Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated September 6, 1995. (1) 4.7 Sixth Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated April 3, 1996. (1) 4.8 Seventh Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated June 1, 1997. (2) 4.9 Eighth Supplemental Indenture of Trust between the Registrant and Security Pacific Bank Washington, N.A. dated February 4, 1998. (4) 4.10 Ninth Supplemental Indenture of Trust between the Registrant and U.S. Bank Trust National Association dated April 25, 2000. (9) 4.11* Tenth Supplemental Indenture of Trust between the Registrant and U.S. Bank Trust National Association dated April 1, 2001. 4.12** Form of Eleventh Supplemental Indenture of Trust between the Registrant and U.S. Bank Trust National Association. 4.13* Amended and Restated Indenture between the Registrant and U.S. Bank Trust National Association dated April 1, 2001. 4.14* Form of 2002 Series A Bond due 2012. 4.15 Form of Auction Agreement. 4.16** Form of Remarketing Agreement. 4.17 Form of Broker-Dealer Agreement. 4.18** Form of 2002 Series B Bond due 2012. 5.1* Opinion of Heller Ehrman White & McAuliffe LLP. 10.1 Wholesale Power Agreement between the Registrant and the City of Seward. (1) 10.2 Joint Use Agreement between the Registrant and the City of Seward dated effective as of September 11, 1998. (1) 10.3 Net Billing Agreement among the Registrant and the City of Seward dated effective as of September 11, 1998. (1) 10.4 Agreement for the Sale and Purchase of Electric Power and Energy between the Registrant and the City of Seward dated effective as of September 11, 1998. (8) 10.4.1 Amendment No. 1 to Agreement for the Sale and Purchase of Electric Power and Energy between the Registrant and the City of Seward dated effective as of July 9, 2001. (13) 10.5 Agreement for Sale of Electric Power and Energy by and among the Registrant, Homer Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated September 27, 1985. (1) 10.6 Modified Agreement for the Sale and Purchase of Electric Power and Energy by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated effective as of January 30, 1989. (1) 10.6.1 First Amendment to Modified Agreement for the Sale and Purchase of Electric Power and Energy by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated effective as of February 10, 1995. (1) II-2 10.6.2 Net Billing Agreement by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 16, 1987. (1) 10.7 Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc. dated May 18, 1988. (1) 10.7.1 Amendatory Agreement No. 1 to Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc., dated December 14, 1989. (11) 10.7.2 Letter Agreement dated January 18, 1996 between the Registrant and Golden Valley Electric Association, Inc., amending the Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc. (11) 10.7.3 Amendatory Agreement No. 2 to Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc., dated February 8, 1999. (11) 10.7.4 Settlement Agreement by and among the Registrant, Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Anchorage Municipal Light and Power dated May 6, 1999. 10.8 Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. dated April 21, 1989. (1) 10.8.1 Amendment No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc., dated August 1, 1990. (1) 10.8.2 Letter Agreement dated April 23, 1999, re: the Registrant's consent to the assignment to ARCO Beluga, Inc. of the Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. (11) 10.8.3 Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Beluga, Inc., dated May 6, 1999. (8) 10.9 Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and ARCO Alaska, Inc. dated October 3, 1991. (1) 10.10 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company dated September 26, 1988. (1) 10.10.1 Letter Agreement dated September 26, 1988 between the Registrant and Marathon Oil Company, amending the Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company. (1) 10.10.2 Amendatory Agreement No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated effective as of February 21, 1990. (1) 10.10.3 Amendatory Agreement No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated effective as of February 21, 1990. (1) 10.10.4 Amendatory Agreement No. 3 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated January 28, 1991. (1) 10.10.5 Amendatory Agreement No. 4 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated October 6, 1993. (11) 10.10.6 Letter Agreement dated January 18, 1996 between the Registrant and Marathon Oil Company, amending the Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company. (11) 10.10.7 Amendatory Agreement No. 5 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated May 24, 1999. (8) 10.11 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Shell Western E&P Inc. dated April 25, 1989. (1) II-3 10.11.1 Amendatory Agreement No. 1 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc., dated October 1, 1989. (1) 10.11.2 Amendment No. 2 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc., dated June 20, 1990. (1) 10.11.3 Amendatory Agreement No. 3 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. re: the Registrant's consent to the assignment to Anchorage Municipal Light and Power of the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc., dated October 14, 1996. (1) 10.12 Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and Shell Western E&P Inc. dated November 2, 1990. (1) 10.13 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc. dated April 27, 1989 (including Attachment #1 thereto dated December 20, 1989). (1) 10.13.2 Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc., dated June 7, 1990. (1) 10.13.3 Amendment No. 3 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron U.S.A. Inc., dated May 26, 1999. (8) 10.14 Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and Chevron USA, Inc. dated September 25, 1990. (1) 10.15 Alaska Intertie Agreement between Alaska Power Authority, Municipality of Anchorage, the Registrant, City of Fairbanks, Alaska Municipal Utilities System, Golden Valley Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 23, 1985. (1) 10.16 Addendum No. 1 to the Alaska Intertie Agreement-Reserve Capacity and Operating Reserve Responsibility dated December 23, 1985. (1) 10.17 Memorandum of Understanding Regarding Intertie Upgrades among Alaska Energy Authority, the Registrant, Golden Valley Electric Association, Inc., Homer Electric Association, Inc., Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power, and the City of Seward d/b/a Seward Electric System dated March 21, 1990. (1) 10.18 Amendment No. 1 to the Alaska Intertie Agreement-Insurance and Liability dated March 28, 1991. (11) 10.19 Intertie Grant Agreement between the Registrant, Golden Valley Electric Association, Inc., Fairbanks Municipal Utility System, Anchorage Municipal Light and Power, Alaska Electric Generation and Transmission Cooperative, Inc. (on behalf of Matanuska Electric Association, Inc. and Homer Electric Association, Inc.), City of Seward, the State of Alaska, Department of Administration and Alaska Industrial Development and Export Authority dated August 17, 1993. (1) 10.20 Grant Transfer and Delegation Agreement between the Registrant and Golden Valley Electric Association, Inc., Fairbanks Municipal Utility System, Anchorage Municipal Light and Power, Alaska Electric Generation and Transmission Cooperative, Inc., Matanuska Electric Association, Inc., Homer Electric Association, Inc., Seward, the State of Alaska, Department of Administration, and AMEA dated November 5, 1993. (1) 10.21 1993 Alaska Intertie Project Participants Agreement by and among Alaska Power Authority, Municipality of Anchorage, the Registrant, City of Fairbanks, Alaska Municipal Utilities System, Golden Valley Electric Association, Inc., Alaska Electric Generation and Transmission Cooperative, Inc., City of Seward d/b/a Seward Electric System, Homer Electric Association, Inc. and Matanuska Electric Association, Inc. dated January 24, 1994. (11) II-4 10.22 Amendment No. 1 to the 1993 Alaska Intertie Project Participants Agreement dated December 10, 1999. (11) 10.23 Grant Administration Agreement by and among the Registrant, Alaska Industrial Development and Export Authority, Golden Valley Electric Association, Inc., Fairbanks Municipal Utilities System, Anchorage Municipal Light & Power, Alaska Electric Generation and Transmission Cooperative, Inc. (on behalf of Homer Electric Association, Inc. and Matanuska Electric Association, Inc.) and City of Seward dated August 30, 1994. (11) 10.24 Bradley Lake Agreement for the Sale and Purchase of Electric Power by and among the Registrant, the Alaska Power Authority, Golden Valley Electric Association, Inc., the Municipality of Anchorage, the City of Seward, the Alaska Electric Generation and Transmission Cooperative, Inc., Homer Electric Association, Inc. and Matanuska Electric Association Inc. dated December 8, 1987. (1) 10.25 Agreement for the Wheeling of Electric Power and for Related Services by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc., Matanuska Electric Association, Inc., the Municipality of Anchorage, Inc. d/b/a Municipal Light and Power, the City of Seward d/b/a Seward Electric System and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 8, 1987. (1) 10.26 Transmission Sharing Agreement by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Municipal Light and Power. (1) 10.27 Amendment to Agreement for Sale of Transmission Capability by and among the Registrant, Homer Electric Association, Inc., Alaska Electric Generation and Transmission Cooperative, Inc., Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Municipal Light and Power dated March 7, 1989. (1) 10.28 Bradley Lake Hydroelectric Agreement for the Dispatch of Electric Power and for Related Services between the Registrant and the Alaska Energy Authority dated February 19, 1992. (1) 10.29 Agreement for Bradley Lake Resource Scheduling by and among the Registrant, Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated September 29, 1992. (1) 10.30 Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated December 2, 1983. (1) 10.30.1 Addendum No. 1 to Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated August 8, 1984. (1) 10.30.2 Amendment No. 1 to Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated November 28, 1984. (1) 10.31 Gas Transportation Agreement by and among the Registrant, Alaska Pipeline Company and ENSTAR Natural Gas Company dated December 7, 1992. (1) 10.32 Eklutna Purchase Agreement by and among the Registrant, Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power and Alaska Power Administration. (1) 10.33 Eklutna Hydroelectric Project Closing Documents dated October 2, 1997. (3) 10.34 Settlement Agreement by and among the Registrant, Homer Electric Association, Inc., Matanuska Electric Association, Inc., the City of Seward and Alaska Electric Generation and Transmission Cooperative, Inc., resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan and Loan Covenant Disputes, dated effective as of February 3, 1993. (1) 10.35 First Amendment to "Settlement Agreement Resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan and Loan Covenant Disputes" in APUC Docket U-92-10 between the Registrant, Matanuska Electric Association, Inc., Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated March 1993. (1) II-5 10.36 Agreement by and among the Registrant, Municipality of Anchorage d/b/a Anchorage Municipal Light and Power, Matanuska Electric Association, Inc., U.S. Fish and Wildlife Service, National Marine Fisheries Service, Alaska Energy Authority and the State of Alaska re: the Eklutna and Snettisham Hydroelectric Projects. (1) 10.37 Daves Creek Substation Agreement between the Registrant and the Alaska Energy Authority dated March 13, 1992. (1) 10.38 Settlement Agreement between the Registrant and Intervenor Wholesale Customers in APUC Docket U-93-15 dated September 1993 regarding depreciation of submarine cables. (1) 10.39 Nikiski Cogeneration Plant System Use and Dispatch Agreement between the Registrant and Alaska Electric Generation and Transmission Cooperative, Inc. dated February 12, 1999. (8) 10.39.1 Second Amendment to the Nikiski Cogeneration Plant System Use and Dispatch Agreement between the Registrant and Alaska Electric Generation and Transmission Cooperative, Inc. dated June 1, 2001. (13) 10.40 Lease Amendment between the Registrant and Standard Oil Company of California dated June 1, 1975. (1) 10.41 Lease Amendment between the Registrant and Chevron USA, Inc. dated September 1, 1985. (1) 10.42 Loan Agreement between the Registrant and the National Bank for Cooperatives (formerly Spokane Bank for Cooperatives), as amended. (1) 10.43 Amendment to Loan Agreement between the Registrant and the National Bank for Cooperatives dated September 13, 1991. (1) 10.44 Twenty Five Million Dollar Line of Credit Agreement and Promissory Note between the Registrant and the National Bank for Cooperatives. (1) 10.44.1 Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives dated March 11, 1994. (1) 10.44.2 Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives and amended and restated Promissory Note (thirty-five million dollars) dated April 18, 1994. (1) 10.44.3 Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives (thirty-five million dollars) dated May 1, 1995. (1) 10.44.4 Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives (thirty-five million dollars) dated May 15, 1995. (1) 10.44.5 Amendment to Line of Credit Agreement between the Registrant and CoBank, ACB dated September 30, 2000. (10) 10.45 National Bank for Cooperatives (CoBank) Credit Agreement dated June 22, 1994. (2) 10.46 Amendment No. 1 to National Bank for Cooperatives (CoBank) Credit Agreement, dated June 1, 1997. (2) 10.47 Fifty Million Dollar Line of Credit Agreement between the Registrant and the National Rural Utilities Cooperative Finance Corporation dated October 22, 1997. (3) 10.48 International Swap Dealers Association, Inc. Master Agreement between the Registrant and Lehman Brothers Financial Products Inc. dated March 17, 1999. (6) 10.49 Confirmation for U.S. dollar treasury rate-lock transaction to be subject to 1992 Master Agreement between the Registrant and Lehman Brothers Financial Products Inc. dated March 17, 1999. (7) II-6 10.50* Employment Agreement between the Registrant and Eugene N. Bjornstad dated August 22, 2001. 10.51 Settlement Agreement by and among the Registrant, Nationwide Mutual Insurance Company, Alaska National Insurance Company, Providence Washington Insurance Company and Admiral Insurance Company dated May 15, 1998. (5) 12.1* Statement re: computation of ratios. 23.1* Consent of KPMG LLP. 23.2* Consent of Heller Ehrman White & McAuliffe LLP (included in Exhibit 5.1) 24.1* Powers of Attorney (included on the signature page of this Registration Statement). 25.1* Statement of Eligibility of Trustee by U.S. Bank Trust National Association. - --------------- * Previously filed. ** Previously filed and filed herewith. (1) Previously referred to in the Registrant's Annual Report on Form 10-K dated December 31, 1996. (2) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated September 30, 1997. (3) Previously filed as an exhibit to the Registrant's Annual Report on Form 10-K dated December 31, 1997. (4) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 1998. (5) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated June 30, 1998. (6) Previously filed as an exhibit to the Registrant's Annual Report on Form 10-K dated December 31, 1998. (7) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 1999. (8) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated June 30, 1999. (9) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 2000. (10) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated September 30, 2000. (11) Previously filed as an exhibit to the Registrant's Registration Statement on Form S-1 (File No. 332-57400). (12) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 2001. (13) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated June 30, 2001.
II-7 (b) Financial Statement Schedule All financial statement schedules not listed are omitted because they are inapplicable or the requested information is shown in the financial statements of the Registrant or the related notes to the financial statements. Item 17. Undertakings Chugach hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification by Chugach for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers and controlling persons of Chugach pursuant to the provisions described in Item 14 above or otherwise, Chugach has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Chugach of expenses incurred or paid by a director, officer, or controlling person of Chugach in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Chugach will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. Chugach hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by Chugach pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-8 SIGNATURES In accordance with the requirements of the Securities Act of 1933, as amended, Chugach Electric Association, Inc. has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Anchorage, State of Alaska, on the 16th day of January, 2002. CHUGACH ELECTRIC ASSOCIATION, INC. By: * ------------------------------ Bruce Davison, President Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date * President and Director January 16, 2002 --------------------------------- Bruce Davison (Principal Executive Officer) /s/ Evan J. Griffith, Jr. Executive Manager, Finance & Energy Supply January 16, 2002 --------------------------------- Evan J. Griffith, Jr. (Principal Financial Officer) /s/ Michael R. Cunningham Controller (Principal Accounting Officer) January 16, 2002 --------------------------------- Michael R. Cunningham * Director and Vice President January 16, 2002 --------------------------------- H. A. Boucher * Director and Secretary January 16, 2002 --------------------------------- Christopher Birch * Director and Treasurer January 16, 2002 --------------------------------- Jeffrey W. Lipscomb II-9 * Director January 16, 2002 ---------------------------------- Elizabeth P. Kennedy * Director January 16, 2002 --------------------------------- Patricia B. Jasper * Director January 16, 2002 --------------------------------- Dave Cottrell * By: /s/ Eugene N. Bjornstad ------------------------------ Eugene N. Bjornstad Attorney-in-Fact
II-10 EXHIBIT INDEX
Exhibit Number Description 1.1 Form of Underwriting Agreement. 3.1 Articles of Incorporation of the Registrant. (13) 3.2 Bylaws of the Registrant. (12) 4.1 Trust Indenture between the Registrant and Security Pacific Bank Washington, N.A. dated as of September 15, 1991 (including forms of bonds). (1) 4.2 First Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated March 17, 1993. (1) 4.3 Second Supplemental Indenture of Trust between the Registrant and Seattle First National Bank dated May 19, 1994. (1) 4.4 Third Supplemental Indenture of Trust between the Registrant and Seattle First National Bank dated June 29, 1994. (1) 4.5 Fourth Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated March 1, 1995. (1) 4.6 Fifth Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated September 6, 1995. (1) 4.7 Sixth Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated April 3, 1996. (1) 4.8 Seventh Supplemental Indenture of Trust between the Registrant and Seattle-First National Bank dated June 1, 1997. (2) 4.9 Eighth Supplemental Indenture of Trust between the Registrant and Security Pacific Bank Washington, N.A. dated February 4, 1998. (4) 4.10 Ninth Supplemental Indenture of Trust between the Registrant and U.S. Bank Trust National Association dated April 25, 2000. (9) 4.11* Tenth Supplemental Indenture of Trust between the Registrant and U.S. Bank Trust National Association dated April 1, 2001. 4.12** Form of Eleventh Supplemental Indenture of Trust between the Registrant and U.S. Bank Trust National Association. 4.13* Amended and Restated Indenture between the Registrant and U.S. Bank Trust National Association dated April 1, 2001. 4.14* Form of 2002 Series A Bond due 2012. 4.15 Form of Auction Agreement. 4.16** Form of Remarketing Agreement. 4.17 Form of Broker-Dealer Agreement. 4.18** Form of 2002 Series B Bond due 2012. 5.1* Opinion of Heller Ehrman White & McAuliffe LLP. 10.1 Wholesale Power Agreement between the Registrant and the City of Seward. (1) 10.2 Joint Use Agreement between the Registrant and the City of Seward dated effective as of September 11, 1998. (1) 10.3 Net Billing Agreement among the Registrant and the City of Seward dated effective as of September 11, 1998. (1) 10.4 Agreement for the Sale and Purchase of Electric Power and Energy between the Registrant and the City of Seward dated effective as of September 11, 1998. (8) 10.4.1 Amendment No. 1 to Agreement for the Sale and Purchase of Electric Power and Energy between the Registrant and the City of Seward dated effective as of July 9, 2001. (13) 10.5 Agreement for Sale of Electric Power and Energy by and among the Registrant, Homer Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated September 27, 1985. (1) 10.6 Modified Agreement for the Sale and Purchase of Electric Power and Energy by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated effective as of January 30, 1989. (1) 10.6.1 First Amendment to Modified Agreement for the Sale and Purchase of Electric Power and Energy by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated effective as of February 10, 1995. (1) 10.6.2 Net Billing Agreement by and among the Registrant, Matanuska Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 16, 1987. (1) 10.7 Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc. dated May 18, 1988. (1) 10.7.1 Amendatory Agreement No. 1 to Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc., dated December 14, 1989. (11) 10.7.2 Letter Agreement dated January 18, 1996 between the Registrant and Golden Valley Electric Association, Inc., amending the Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc. (11) 10.7.3 Amendatory Agreement No. 2 to Nonfirm Energy Agreement between the Registrant and Golden Valley Electric Association, Inc., dated February 8, 1999. (11) 10.7.4 Settlement Agreement by and among the Registrant, Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Anchorage Municipal Light and Power dated May 6, 1999. 10.8 Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. dated April 21, 1989. (1) 10.8.1 Amendment No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc., dated August 1, 1990. (1) 10.8.2 Letter Agreement dated April 23, 1999, re: the Registrant's consent to the assignment to ARCO Beluga, Inc. of the Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Alaska, Inc. (11) 10.8.3 Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and ARCO Beluga, Inc., dated May 6, 1999. (8) 10.9 Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and ARCO Alaska, Inc. dated October 3, 1991. (1) 10.10 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company dated September 26, 1988. (1) 10.10.1 Letter Agreement dated September 26, 1988 between the Registrant and Marathon Oil Company, amending the Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company. (1) 10.10.2 Amendatory Agreement No. 1 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated effective as of February 21, 1990. (1) 10.10.3 Amendatory Agreement No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated effective as of February 21, 1990. (1) 10.10.4 Amendatory Agreement No. 3 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated January 28, 1991. (1) 10.10.5 Amendatory Agreement No. 4 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated October 6, 1993. (11) 10.10.6 Letter Agreement dated January 18, 1996 between the Registrant and Marathon Oil Company, amending the Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company. (11) 10.10.7 Amendatory Agreement No. 5 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Marathon Oil Company, dated May 24, 1999. (8) 10.11 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Shell Western E&P Inc. dated April 25, 1989. (1) 10.11.1 Amendatory Agreement No. 1 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc., dated October 1, 1989. (1) 10.11.2 Amendment No. 2 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc., dated June 20, 1990. (1) 10.11.3 Amendatory Agreement No. 3 to the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc. re: the Registrant's consent to the assignment to Anchorage Municipal Light and Power of the Agreement for the Sale of Natural Gas between the Registrant and Shell Western E&P Inc., dated October 14, 1996. (1) 10.12 Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and Shell Western E&P Inc. dated November 2, 1990. (1) 10.13 Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc. dated April 27, 1989 (including Attachment #1 thereto dated December 20, 1989). (1) 10.13.2 Amendment No. 2 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron USA Inc., dated June 7, 1990. (1) 10.13.3 Amendment No. 3 to Agreement for the Sale and Purchase of Natural Gas between the Registrant and Chevron U.S.A. Inc., dated May 26, 1999. (8) 10.14 Agreement for the Sale and Purchase of Supplemental Natural Gas between the Registrant and Chevron USA, Inc. dated September 25, 1990. (1) 10.15 Alaska Intertie Agreement between Alaska Power Authority, Municipality of Anchorage, the Registrant, City of Fairbanks, Alaska Municipal Utilities System, Golden Valley Electric Association, Inc. and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 23, 1985. (1) 10.16 Addendum No. 1 to the Alaska Intertie Agreement-Reserve Capacity and Operating Reserve Responsibility dated December 23, 1985. (1) 10.17 Memorandum of Understanding Regarding Intertie Upgrades among Alaska Energy Authority, the Registrant, Golden Valley Electric Association, Inc., Homer Electric Association, Inc., Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power, and the City of Seward d/b/a Seward Electric System dated March 21, 1990. (1) 10.18 Amendment No. 1 to the Alaska Intertie Agreement-Insurance and Liability dated March 28, 1991. (11) 10.19 Intertie Grant Agreement between the Registrant, Golden Valley Electric Association, Inc., Fairbanks Municipal Utility System, Anchorage Municipal Light and Power, Alaska Electric Generation and Transmission Cooperative, Inc. (on behalf of Matanuska Electric Association, Inc. and Homer Electric Association, Inc.), City of Seward, the State of Alaska, Department of Administration and Alaska Industrial Development and Export Authority dated August 17, 1993. (1) 10.20 Grant Transfer and Delegation Agreement between the Registrant and Golden Valley Electric Association, Inc., Fairbanks Municipal Utility System, Anchorage Municipal Light and Power, Alaska Electric Generation and Transmission Cooperative, Inc., Matanuska Electric Association, Inc., Homer Electric Association, Inc., Seward, the State of Alaska, Department of Administration, and AMEA dated November 5, 1993. (1) 10.21 1993 Alaska Intertie Project Participants Agreement by and among Alaska Power Authority, Municipality of Anchorage, the Registrant, City of Fairbanks, Alaska Municipal Utilities System, Golden Valley Electric Association, Inc., Alaska Electric Generation and Transmission Cooperative, Inc., City of Seward d/b/a Seward Electric System, Homer Electric Association, Inc. and Matanuska Electric Association, Inc. dated January 24, 1994. (11) 10.22 Amendment No. 1 to the 1993 Alaska Intertie Project Participants Agreement dated December 10, 1999. (11) 10.23 Grant Administration Agreement by and among the Registrant, Alaska Industrial Development and Export Authority, Golden Valley Electric Association, Inc., Fairbanks Municipal Utilities System, Anchorage Municipal Light & Power, Alaska Electric Generation and Transmission Cooperative, Inc. (on behalf of Homer Electric Association, Inc. and Matanuska Electric Association, Inc.) and City of Seward dated August 30, 1994. (11) 10.24 Bradley Lake Agreement for the Sale and Purchase of Electric Power by and among the Registrant, the Alaska Power Authority, Golden Valley Electric Association, Inc., the Municipality of Anchorage, the City of Seward, the Alaska Electric Generation and Transmission Cooperative, Inc., Homer Electric Association, Inc. and Matanuska Electric Association Inc. dated December 8, 1987. (1) 10.25 Agreement for the Wheeling of Electric Power and for Related Services by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc., Matanuska Electric Association, Inc., the Municipality of Anchorage, Inc. d/b/a Municipal Light and Power, the City of Seward d/b/a Seward Electric System and Alaska Electric Generation and Transmission Cooperative, Inc. dated December 8, 1987. (1) 10.26 Transmission Sharing Agreement by and among the Registrant, Homer Electric Association, Inc., Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Municipal Light and Power. (1) 10.27 Amendment to Agreement for Sale of Transmission Capability by and among the Registrant, Homer Electric Association, Inc., Alaska Electric Generation and Transmission Cooperative, Inc., Golden Valley Electric Association, Inc. and the Municipality of Anchorage d/b/a Municipal Light and Power dated March 7, 1989. (1) 10.28 Bradley Lake Hydroelectric Agreement for the Dispatch of Electric Power and for Related Services between the Registrant and the Alaska Energy Authority dated February 19, 1992. (1) 10.29 Agreement for Bradley Lake Resource Scheduling by and among the Registrant, Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated September 29, 1992. (1) 10.30 Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated December 2, 1983. (1) 10.30.1 Addendum No. 1 to Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated August 8, 1984. (1) 10.30.2 Amendment No. 1 to Interconnection Agreement between the Registrant and Municipality of Anchorage Municipal Light and Power dated November 28, 1984. (1) 10.31 Gas Transportation Agreement by and among the Registrant, Alaska Pipeline Company and ENSTAR Natural Gas Company dated December 7, 1992. (1) 10.32 Eklutna Purchase Agreement by and among the Registrant, Matanuska Electric Association, Inc., Municipality of Anchorage d/b/a Municipal Light and Power and Alaska Power Administration. (1) 10.33 Eklutna Hydroelectric Project Closing Documents dated October 2, 1997. (3) 10.34 Settlement Agreement by and among the Registrant, Homer Electric Association, Inc., Matanuska Electric Association, Inc., the City of Seward and Alaska Electric Generation and Transmission Cooperative, Inc., resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan and Loan Covenant Disputes, dated effective as of February 3, 1993. (1) 10.35 First Amendment to "Settlement Agreement Resolving G&T TIER Level, Equity Level, Capital Credits, Equity Management Plan and Loan Covenant Disputes" in APUC Docket U-92-10 between the Registrant, Matanuska Electric Association, Inc., Homer Electric Association, Inc. and the Alaska Electric Generation and Transmission Cooperative, Inc. dated March 1993. (1) 10.36 Agreement by and among the Registrant, Municipality of Anchorage d/b/a Anchorage Municipal Light and Power, Matanuska Electric Association, Inc., U.S. Fish and Wildlife Service, National Marine Fisheries Service, Alaska Energy Authority and the State of Alaska re: the Eklutna and Snettisham Hydroelectric Projects. (1) 10.37 Daves Creek Substation Agreement between the Registrant and the Alaska Energy Authority dated March 13, 1992. (1) 10.38 Settlement Agreement between the Registrant and Intervenor Wholesale Customers in APUC Docket U-93-15 dated September 1993 regarding depreciation of submarine cables. (1) 10.39 Nikiski Cogeneration Plant System Use and Dispatch Agreement between the Registrant and Alaska Electric Generation and Transmission Cooperative, Inc. dated February 12, 1999. (8) 10.39.1 Second Amendment to the Nikiski Cogeneration Plant System Use and Dispatch Agreement between the Registrant and Alaska Electric Generation and Transmission Cooperative, Inc. dated June 1, 2001. (13) 10.40 Lease Amendment between the Registrant and Standard Oil Company of California dated June 1, 1975. (1) 10.41 Lease Amendment between the Registrant and Chevron USA, Inc. dated September 1, 1985. (1) 10.42 Loan Agreement between the Registrant and the National Bank for Cooperatives (formerly Spokane Bank for Cooperatives), as amended. (1) 10.43 Amendment to Loan Agreement between the Registrant and the National Bank for Cooperatives dated September 13, 1991. (1) 10.44 Twenty Five Million Dollar Line of Credit Agreement and Promissory Note between the Registrant and the National Bank for Cooperatives. (1) 10.44.1 Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives dated March 11, 1994. (1) 10.44.2 Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives and amended and restated Promissory Note (thirty-five million dollars) dated April 18, 1994. (1) 10.44.3 Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives (thirty-five million dollars) dated May 1, 1995. (1) 10.44.4 Amendment to Line of Credit Agreement between the Registrant and the National Bank for Cooperatives (thirty-five million dollars) dated May 15, 1995. (1) 10.44.5 Amendment to Line of Credit Agreement between the Registrant and CoBank, ACB dated September 30, 2000. (10) 10.45 National Bank for Cooperatives (CoBank) Credit Agreement dated June 22, 1994. (2) 10.46 Amendment No. 1 to National Bank for Cooperatives (CoBank) Credit Agreement, dated June 1, 1997. (2) 10.47 Fifty Million Dollar Line of Credit Agreement between the Registrant and the National Rural Utilities Cooperative Finance Corporation dated October 22, 1997. (3) 10.48 International Swap Dealers Association, Inc. Master Agreement between the Registrant and Lehman Brothers Financial Products Inc. dated March 17, 1999. (6) 10.49 Confirmation for U.S. dollar treasury rate-lock transaction to be subject to 1992 Master Agreement between the Registrant and Lehman Brothers Financial Products Inc. dated March 17, 1999. (7) 10.50* Employment Agreement between the Registrant and Eugene N. Bjornstad dated August 22, 2001. 10.51 Settlement Agreement by and among the Registrant, Nationwide Mutual Insurance Company, Alaska National Insurance Company, Providence Washington Insurance Company and Admiral Insurance Company dated May 15, 1998. (5) 12.1* Statement re: computation of ratios. 23.1* Consent of KPMG LLP. 23.2* Consent of Heller Ehrman White & McAuliffe LLP (included in Exhibit 5.1) 24.1* Powers of Attorney (included on the signature page of this Registration Statement). 25.1* Statement of Eligibility of Trustee by U.S. Bank Trust National Association. - --------------- * Previously filed. ** Previously filed and filed herewith. (1) Previously referred to in the Registrant's Annual Report on Form 10-K dated December 31, 1996. (2) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated September 30, 1997. (3) Previously filed as an exhibit to the Registrant's Annual Report on Form 10-K dated December 31, 1997. (4) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 1998. (5) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated June 30, 1998. (6) Previously filed as an exhibit to the Registrant's Annual Report on Form 10-K dated December 31, 1998. (7) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 1999. (8) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated June 30, 1999. (9) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 2000. (10) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated September 30, 2000. (11) Previously filed as an exhibit to the Registrant's Registration Statement on Form S-1 (File No. 332-57400). (12) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated March 31, 2001. (13) Previously filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q dated June 30, 2001.
EX-1 4 exh11.txt EXHIBIT 1.1 $180,000,000 Chugach Electric Association, Inc. $120,000,000 ____% New Bonds, 2002 Series A Due 2012 $60,000,000 New Bonds, 2002 Series B Due 2012 Underwriting Agreement _______ __, 2002 J.P. Morgan Securities Inc. 60 Wall Street New York, New York 10260-0060 Ladies and Gentlemen: Chugach Electric Association, Inc., an Alaska electric cooperative (the "Company"), proposes to issue and sell to you (the "Underwriter"), $120,000,000 aggregate principal amount of its ___% New Bonds, 2002 Series A Due 2012 (the "Series A Bonds") and $60,000,000 aggregate principal amount of its New Bonds, 2002 Series B Due 2012 (the "Series B Bonds" and, collectively with the Series A Bonds, the "Securities"). The Securities will be issued pursuant to the provisions of the Eleventh Supplemental Indenture of Trust, dated as of ______ __, 2002, to the Indenture of Trust, dated as of September 15, 1991, between the Company and Security Pacific Bank Washington, N.A., as Trustee (the "Trustee"), as amended (collectively, the "Indenture"). The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Securities Act"), a registration statement, including a prospectus, relating to the Securities. The registration statement as amended at the time when it shall become effective, or, if a post-effective amendment is filed with respect thereto, as amended by such post-effective amendment at the time of its effectiveness, including in each case information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act, is referred to in this Agreement as the "Registration Statement," and the prospectus in the form first used to confirm sales of Securities is referred to in this Agreement as the "Prospectus." If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. The Company hereby agrees with the Underwriter as follows: 1. The Company agrees to issue and sell the Securities to the Underwriter as hereinafter provided, and the Underwriter, upon the basis of the representations and warranties, herein contained, but subject to the conditions hereinafter stated, agrees to purchase (i) the Series A Bonds at a price equal to ___% of their aggregate principal amount, and (ii) the Series B Bonds at a price equal to ___% of their aggregate principal amount, in each case, plus accrued interest, if any, from ____ ___, 2002 to the date of payment and delivery. 2. The Company understands that the Underwriter intends (i) to make a public offering of the Securities as soon after (A) the Registration Statement has become effective and (B) the parties hereto have executed and delivered this Agreement, as in the judgment of the Underwriter is advisable, and (ii) initially to offer the Securities upon the terms set forth in the Prospectus. 3. Payment for the Securities shall be made by the Underwriter by wire transfer in immediately available funds to the account specified by the Company to the Underwriter on ______ ___, 2002, or at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Underwriter and the Company may agree upon in writing. The time and date of such payment is referred to herein as the "Closing Date." As used herein, the term "Business Day" means any day other than a day on which banks are permitted or required to be closed in New York City. Payment for the Securities shall be made against delivery to the nominee of The Depository Trust Company for the account of the Underwriter of one or more global notes representing the 2002 Series A Bonds and the 2002 Series B Bonds (collectively, the "Global Notes"), with any transfer taxes payable in connection with the transfer to the Underwriter duly paid by the Company. The Global Notes will be made available for inspection by the Underwriter at its address set forth above not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date. 4. The Company represents and warrants to the Underwriter that: (a) no order preventing or suspending the use of any preliminary prospectus has been issued by the Commission, and each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information relating to the Underwriter furnished to the Company in writing by the Underwriter expressly for use therein; (b) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of the Company, threatened by the Commission; and the Registration Statement and Prospectus (as 2 amended or supplemented if the Company shall have furnished any amendments or supplements thereto) comply, or will comply, as the case may be, in all material respects with the Securities Act and the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Trust Indenture Act"), and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the date of the Prospectus and any amendment or supplement thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as amended or supplemented, if applicable, at the Closing Date will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing representations and warranties shall not apply to statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information relating to the Underwriter furnished to the Company in writing by the Underwriter expressly for use therein or information contained in the Form T-1 of the Trustee under the Trust Indenture Act; (c) the financial statements, and the related notes thereto, included in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Company as of the dates indicated and the results of its operations and the changes in its consolidated cash flows for the periods specified; and said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein; (d) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the equities, margins or long-term debt of the Company, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, business, prospects, management, financial position, equities, margins or results of operations of the Company, otherwise than as set forth or contemplated in the Prospectus; and except as set forth or contemplated in the Prospectus the Company has not entered into any transaction or agreement (whether or not in the ordinary course of business) material to the Company; (e) the Company has been duly organized and is validly existing as an electric cooperative in good standing under the laws of the State of Alaska, with power and authority (corporate and other) to enter into and perform its obligation under this Agreement, the Indenture and the Securities, to own its properties and conduct its business as described in the Prospectus, and is not required to be licensed or qualified for the transaction of business under the laws of any other jurisdiction; (f) the Company has no subsidiaries; (g) this Agreement has been duly authorized, executed and delivered by the Company; 3 (h) the Securities have been duly authorized, and, when issued and delivered pursuant to this Agreement, will have been duly executed, authenticated, issued and delivered and will constitute valid and binding obligations of the Company entitled to the benefits provided by the Indenture; the Indenture has been duly authorized, executed and delivered and upon effectiveness of the Registration Statement will have been duly qualified under the Trust Indenture Act and constitutes a valid and binding instrument enforceable against the Company in accordance with its terms; and the Securities and the Indenture will conform to the descriptions thereof in the Prospectus; (i) the execution, delivery and performance by the Company of the Auction Agreement between the Trustee and Bankers Trust Company, as auction agent (the "Auction Agent"), and acknowledged by the Company (the "Auction Agreement"), the Broker-Dealer Agreement among the Auction Agent, the Underwriter and the Company (the "Broker-Dealer Agreement"), and the Remarketing Agreement between the Company and the Underwriter (the "Remarketing Agreement") each have been duly authorized by all necessary corporate action. The Auction Agreement, the Broker-Dealer Agreement and the Remarketing Agreement at the time of delivery thereof by the Company each will be duly executed and delivered by it and will constitute its valid and binding obligation enforceable against the Company in accordance with its terms subject, as to enforcement, to (i) bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws of general applicability relating to creditors' rights, and (ii) to general principles of equity, whether such enforceability is considered in a proceeding in equity or at law; (j) the Company is not, or with the giving of notice or lapse of time or both would not be, in violation of or in default under, its Articles of Incorporation or Bylaws or any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which it or any of its properties is bound, except for violations and defaults which individually and in the aggregate are not material to the Company or to the holders of the Securities; the issue and sale of the Securities and the performance by the Company of all of the provisions of its obligations under the Securities, the Indenture, this Agreement, the Auction Agreement, the Broker-Dealer Agreement and the Remarketing Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company is a party or by which the Company is bound or to which any of the property or assets of the Company is subject, nor will any such action result in any violation of the provisions of the Articles of Incorporation or the Bylaws of the Company or any applicable law or statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties or result in the creation or imposition of any lien upon any of its properties; and no consent, approval, authorization, order, license, filing, registration or qualification of or with any such court or federal, state or local governmental agency or body or the members of the Company or any trustee or holder of any indebtedness or other obligation is now or under existing law in the future will be required for the issue and sale of the Securities or the execution, delivery and performance of, or the consummation by the Company of the 4 transactions contemplated by, this Agreement or the Indenture, except such consents, approvals, authorizations, orders, licenses, filings, registrations or qualifications as have been made or obtained under the Securities Act and as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Securities by the Underwriter; (k) other than as set forth or contemplated in the Prospectus, there are no legal or governmental investigations, actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its properties or to which the Company is or may be a party or to which any property of the Company is or may be the subject which, if determined adversely to the Company, could individually or in the aggregate have, or reasonably be expected to have, a material adverse effect on the general affairs, business, prospects, management, financial position, equities, margins or results of operations of the Company, and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; and there are no statutes, regulations, contracts or other documents that are required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement or the Prospectus which are not filed or described as required; (l) KPMG Peat Marwick LLP, which has certified certain financial statements of the Company, is an independent public accountant as required by the Securities Act; (m) the Company has good and marketable title in fee simple to all items of real property and good and marketable title to all personal property owned by it, in each case free and clear of all liens, encumbrances and defects except such as are described or referred to in the Prospectus or such as do not materially affect the value of such property and do not interfere with the use made or proposed to be made of such property by the Company; and any real property and buildings held under lease by the Company are held by it under valid, existing and enforceable leases with such exceptions as are not material and do not interfere with the use made or proposed to be made of such property and buildings by the Company; (n) no relationship, direct or indirect, exists between or among the Company on the one hand, and the directors, officers, members or suppliers of the Company, which is required by the Securities Act to be described in the Registration Statement and the Prospectus which is not so described; (o) the Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (p) the Company is not a "holding company" or a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; 5 (q) the Company has filed all federal, state, local and foreign tax returns which have been required to be filed and have paid all taxes shown thereon and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith; and, except as disclosed in the Prospectus there is no tax deficiency which has been or might reasonably be expected to be asserted or threatened against the Company; (r) the Company owns, possesses or has obtained all licenses, permits, certificates, consents, orders, approvals and other authorizations (collectively, the "Authorizations") from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof, and the Company has not received any actual notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Registration Statement and the Prospectus or where the failure to own, possess or obtain such Authorizations or make such filings could not reasonably be expected to have a material adverse effect on the Company; and the Company is in substantial compliance with all laws and regulations relating to the conduct of its business as conducted as of the date hereof; (s) there are no existing or, to the best knowledge of the Company, threatened labor disputes with the employees of the Company which are likely to have a material adverse effect on the Company; (t) the Company (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) has received all permits, licenses or other approvals required under applicable Environmental Laws to conduct its businesses, and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company; (u) during the period beginning from the date hereof and continuing until the date three months after the Closing Date, the Company will not offer, sell, contract to sell or otherwise dispose of any securities to any Person (as defined in the Indenture), other than CoBank, ACB, that are substantially similar to the Securities, except as provided hereunder; (v) each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees of the Company and its affiliates has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and 6 regulations, including but not limited to ERISA and the Internal Revenue Code of 1986, as amended ("Code"). No prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption. For each such plan which is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA no "accumulated funding deficiency" as defined in Section 412 of the Code has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceeded the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions; and (w) the Indenture constitutes a direct and valid first lien upon all of the properties and assets of the Company specifically or generally described or referred to in the Indenture as being subject to the lien thereof, subject only to the exceptions referred to in the Indenture and except as set forth under "Description of the Bonds" in the Prospectus, and will create a similar lien upon all properties and assets acquired by the Company after the date hereof (until the Release Date (as defined in the Indenture)) which are required to be subjected to the lien of the Indenture, when acquired by the Company, subject only to the exceptions referred to in the Indenture and free from all other prior liens, charges and encumbrances; the descriptions of all such properties and assets contained in the granting clauses of the Indenture are correct and adequate for the purposes of the Indenture; and the Indenture has been duly recorded as a mortgage of real estate, and any required filings with respect to personal property and fixtures subject to the lien of the Indenture have been duly made in each place in which such recording or filing is required to protect, preserve and perfect the lien of the Indenture; and all taxes and recording and filing fees required to be paid with respect to the execution, recording or filing of the Indenture, the filing of financing statements related thereto and similar documents and the issuance of the Securities have been paid. 5. The Company covenants and agrees with the Underwriter as follows: (a) to use its best efforts to cause the Registration Statement to become effective at the earliest possible time and, if required, to file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act; and to furnish copies of the Prospectus to the Underwriter in New York City prior to 10:00 a.m., New York City time, on the Business Day next succeeding the date of this Agreement in such quantities as the Underwriter reasonably may request; (b) to deliver, at the expense of the Company, to the Underwriter, two signed copies of the Registration Statement (as originally filed) and each amendment thereto, in each case including exhibits and, during the period mentioned in paragraph (e) below, to the Underwriter as many copies of the Prospectus (including all amendments and supplements thereto) as it reasonably may request; (c) before filing any amendment or supplement to the Registration Statement or the Prospectus, whether before or after the time the Registration Statement becomes effective, to furnish to the Underwriter a copy of the proposed amendment or supplement for review 7 and not to file any such proposed amendment or supplement to which the Underwriter reasonably objects; (d) to advise the Underwriter promptly, and to confirm such advice in writing, (i) when the Registration Statement has become effective, (ii) when any amendment to the Registration Statement has been filed or becomes effective, (iii) when any supplement to the Prospectus or any amendment to the Prospectus is necessary or has been filed and to furnish the Underwriter with copies thereof, (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or any preliminary prospectus or for any additional information, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus or the initiation or threatening of any proceeding for that purpose, (vi) of the occurrence of any event, within the period referenced in paragraph (e) below, as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, and (vii) of the receipt by the Company of any notification with respect to any suspension of the qualification of the Securities for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use its best efforts to prevent the issuance of any such stop order, or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of any order suspending any such qualification of the Securities, or notification of any such order thereof and, if issued, to obtain as soon as possible the withdrawal thereof; (e) if, during such period of time after the first date of the public offering of the Securities as in the opinion of counsel for the Underwriter a prospectus relating to the Securities is required by law to be delivered in connection with sales by the Underwriter or a dealer, any event shall occur as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare and furnish, at the expense of the Company, to the Underwriter and to the dealers (whose names and addresses the Underwriter will furnish to the Company) to which Securities may have been sold by the Underwriter and to any other dealers upon request, such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law; (f) to endeavor to qualify the Securities for offer and sale under the securities or blue sky laws of such jurisdictions as the Underwriter reasonably shall request and to continue such qualification in effect so long as reasonably required for distribution of the Securities including filing a general consent to service of process in any jurisdiction; provided that the Company shall not be required to qualify to do business in any jurisdiction or take any action 8 which would subject it to service of process other than service of process arising out of the offer or sale of Securities in any jurisdiction where it is not now subject; (g) to make generally available to its security holders and to the Underwriter as soon as practicable an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the "effective date" (as defined in Rule 158) of the Registration Statement; (h) so long as the Securities are outstanding, to furnish to the Underwriter (i) copies of all reports or other communications (financial or other) furnished to holders of the Securities, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange and (ii) such other information concerning the Company as the Underwriter reasonably may request; (i) during the period beginning on the date hereof and continuing to and including the Business Day following the Closing Date, not to offer, sell, contract to sell, or otherwise dispose of any debt securities of or guaranteed by the Company which are substantially similar to the Securities; (j) to use the net proceeds received by the Company from the sale of the Securities pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; and (k) whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limiting the generality of the foregoing, all costs and expenses (i) incident to the preparation, issuance, execution, authentication and delivery of the Securities, including any expenses of the Trustee, (ii) incident to the preparation, printing, reproduction and filing under the Securities Act of the Registration Statement, the Prospectus and any preliminary prospectus (including in each case all exhibits, amendments and supplements thereto), (iii) incurred in connection with the registration or qualification and determination of eligibility for investment of the Securities under the laws of such jurisdictions as the Underwriter may designate (including fees of counsel for the Underwriter and their disbursements), (iv) related to any filing with National Association of Securities Dealers, Inc., (v) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, the Form T-1, the Indenture, the preliminary and supplemental blue sky memoranda and any legal investment survey and the furnishing to the Underwriter and dealers of copies of the Registration Statement and the Prospectus, including mailing and shipping, as herein provided, (vi) payable to rating agencies in connection with the rating of the Securities, (vii) any expenses incurred by the Company in connection with a "road show" presentation to potential investors, (viii) the cost and charges of any transfer agent, (ix) the fees and expenses of KPMG Peat Marwick, and (x) the costs of any credit enhancement for the Securities. 9 6. The obligation of the Underwriter hereunder to purchase the Securities on the Closing Date is subject to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) the Registration Statement shall have become effective (or if a post-effective amendment is required to be filed under the Securities Act, such post-effective amendment shall have become effective) not later than 5:00 P.M., New York City time, on the date hereof; and no stop order suspending the effectiveness of the Registration Statement or any post-affective amendment shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the Commission; the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Securities Act and in accordance with Section 5(a) hereof; and all requests for additional information shall have been complied with to the satisfaction of the Underwriter; (b) the representations and warranties of the Company contained herein are true and correct on and as of the Closing Date as if made on and as of the Closing Date and the Company shall have complied with all agreements and all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; (c) subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred any downgrading, nor shall any notice have been given of (i) any downgrading, (ii) any intended or potential downgrading or (iii) any review or possible change that does not indicate an improvement, in the rating accorded any securities of or guaranteed by the Company by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; (d) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the equities, margins or long-term debt of the Company or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, business, properties, prospects, management, financial position, equities, margins or results of operations of the Company otherwise than as set forth or contemplated in the Prospectus, the effect of which in the judgment of the Underwriter makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the Closing Date on the terms and in the manner contemplated in the Prospectus; and the Company has not sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order to decree, otherwise than as set forth or contemplated in the Prospectus; (e) the Underwriter shall have received on and as of the Closing Date a certificate of the General Manager and the Executive Manager, Finance and Energy Supply of the Company, each with specific knowledge about the Company's financial matters, satisfactory to the Underwriter to the effect set forth in subsections (a) through (c) (with respect to the 10 respective representations, warranties, agreements and conditions of the Company) of this section and to the further effect that there has not occurred any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, business, prospects, management, financial position, equities, margins or results of operations of the Company from that set forth or contemplated in the Registration Statement; (f) the Underwriter shall have received counterparts to the Auction Agreement, the Broker-Dealer Agreement and the Remarketing Agreement duly executed and delivered by all other parties thereto; (g) Heller, Ehrman, White and McAuliffe LLP, counsel for the Company, shall have furnished to the Underwriter their written opinion, dated the Closing Date, in form and substance satisfactory to the Underwriter; (h) Donald W. Edwards, Esq., general counsel for the Company, shall have furnished to the Underwriter his written opinion, dated the Closing Date, in form and substance satisfactory to the Underwriter; (i) on the effective date of the Registration Statement and the effective date of the most recently filed post-effective amendment to the Registration Statement and also on the Closing Date, KPMG Peat Marwick LLP shall have furnished to the Underwriter letters, dated the respective dates of delivery thereof, in form and substance satisfactory to the Underwriter, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; (j) the Underwriter shall have received on and as of the Closing Date an opinion of Orrick, Herrington & Sutcliffe LLP, counsel to the Underwriter, with respect to the validity of the Indenture and the Securities, the Registration Statement, the Prospectus and other related matters as the Underwriter may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; and (k) on or prior to the Closing Date the Company shall have furnished to the Underwriter such further certificates and documents as the Underwriter shall reasonably request and shall have obtained such consents and approvals as may be required in connection with the issuance and sale of the Securities and the execution, delivery and performance of this Agreement and the Indenture. 7. The Company agrees to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material 11 fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made (i) in reliance upon and in conformity with information relating to the Underwriter furnished to the Company in writing by the Underwriter expressly for use therein or (ii) in the preliminary prospectus (or any amendment or supplement thereto) but not in the Prospectus in the case of losses, claims, damages or liabilities of the Underwriter to a purchaser of the Securities to whom the Underwriter failed to confirm the purchase and sale of the Securities by delivery of a Prospectus. The Underwriter agrees to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person who controls the Company within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to the Underwriter, but only with reference to information relating to the Underwriter furnished to the Company in writing by the Underwriter expressly for use in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Underwriter and such control persons of the Underwriter shall be designated in writing by the Underwriter and any such separate firm for the Company, its directors, its officers who sign the Registration Statement and such control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not 12 be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first and second paragraphs of this Section 7 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriter on the other hand from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriter on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriter on the other shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Company and the total underwriting discounts and the commissions received by the Underwriter, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate public offering price of the Securities. The relative fault of the Company on the one hand and the Underwriter on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or 13 other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall the Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that the Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law of in equity. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Underwriter or the person controlling the Underwriter or by or on behalf of the Company, its officers or directors or any other person controlling the Company and (iii) acceptance of and payment for any of the Securities. 8. Notwithstanding anything herein contained, this Agreement may be terminated in the absolute discretion of the Underwriter, by notice given to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities shall have been declared by either federal authorities or state authorities of New York or the state where the paying office of the Trustee with respect to the Securities is located, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Underwriter, is material and adverse and which, in the judgment of the Underwriter, makes it impracticable to market the Securities on the terms and in the manner contemplated in the Prospectus. 9. This Agreement shall become effective upon the later of (i) execution and delivery hereof by the parties hereto and (ii) release of notification of the effectiveness of the Registration Statement (or, if applicable, any post-effective amendment) by the Commission. Either the Underwriter or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. 14 10. If this Agreement shall be terminated by the Underwriter because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement or any condition of the Underwriter's obligations cannot be fulfilled, the Company agrees to reimburse the Underwriter or for all out-of-pocket expenses (including the fees and expenses of their counsel) reasonably incurred by the Underwriter in connection with this Agreement or the offering contemplated hereunder. 11. This Agreement shall inure to the benefit of and be binding upon the Company, the Underwriter, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Securities from the Underwriter shall be deemed to be a successor by reason merely of such purchase. 12. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriter shall be given to J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260-0060 (telefax: (212) 648-5237); Attention: Syndicate Department. Notices to the Company shall be given to it at 5601 Minnesota Drive, Anchorage, Alaska (telefax: (907) 762-4514); Attention: Evan J. Griffith. 13. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 14. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of laws provisions thereof. If the foregoing is in accordance with your understanding, please sign and return four counterparts hereof. Very truly yours, CHUGACH ELECTRIC ASSOCIATION, INC. By:_____________________________ Name: Title: Accepted: _____ __, 2002 J.P. Morgan Securities Inc. By:___________________________ Name: Title: 15 EX-4 5 exh412b.txt 4.12 Exhibit 4.12 ELEVENTH SUPPLEMENTAL INDENTURE OF TRUST (Establishing New Bonds, 2002 Series A and 2002 Series B) THIS ELEVENTH SUPPLEMENTAL INDENTURE OF TRUST, dated as of _______________, 2002, is amendatory and supplemental to that certain Indenture of Trust dated September 15, 1991 (the "Original Indenture"), by and between CHUGACH ELECTRIC ASSOCIATION, INC., an Alaska electric cooperative (the "Company"), and SECURITY PACIFIC BANK WASHINGTON, N.A., a national banking association, recorded September 25, 1991, under the following recording numbers: Recording District Recording Number, Book and Page ------------------ ------------------------------- Anchorage 91-040327 (Book 2195, Page 178) Kenai 91-7151 (Book 389, Page 637) Palmer 91-011276 (Book 663, Page 167) Seward 91-1051 (Book 62, Page 251) Valdez 91-0738 (Book 114, Page 233) The Original Indenture was amended by those First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth and Ninth and Tenth Supplemental Indentures, dated as of March 17, 1993, May 19, 1994, June 29, 1994, March 1, 1995, September 6, 1995, April 3, 1996, June 1, 1997, February 4, 1998, April 25, 2000, and April 1, 2001, respectively, and recorded as follows:
- -------------------- --------------------- ----------------------------------------------- --------------------------- SUPPLEMENTAL RECORDING DISTRICT INDENTURE RECORDING NUMBER, BOOK AND PAGE RECORDING DATE - -------------------- --------------------- ----------------------------------------------- --------------------------- Anchorage First 93-014587 (Book 2394, Page 638) March 30, 1993 Second 94-036094 (Book 2656, Page 313) May 23, 1994 Third 94-046579 (Book 2678, Page 629) July 11, 1994 Fourth 95-015010 (Book 2772, Page 604) March 31, 1995 Fifth 96-006182 (Book 2886, Page 853) February 12, 1996 Sixth 96-028052 (Book 2936, Page 602) June 10, 1996 Seventh 97-044282 (Book 3117, Page 356) September 2, 1997 Eighth 98-021693 (Book 3232, Page 498) April 20, 1998 Ninth 00-022696 (Book 3632, Page 459) May 12, 2000 Tenth 01-024176 (Book 3808, Page 645) April 10, 2001 - -------------------- --------------------- ----------------------------------------------- --------------------------- Kenai First 94-3630 (Book 441, Page 841) April 27, 1994 Second 94-4844 (Book 444, Page 348) May 31, 1994 Third 94-6354 (Book 447, Page 238) July 11, 1994 Fourth 95-0383 (Book 461, Page 299) April 10, 1995 Fifth 96-1826 (Book 480, Page 485) March 12, 1996 Sixth 96-4713 (Book 486, Page 796) June 18, 1996 Seventh 97-7086 (Book 513, Page 807) September 4, 1997 Eighth 98-3320 (Book 528, Page 037) April 28, 1998 Ninth 00-4307 (Book 583, Page 768) June 15, 2000 Tenth 01-2777 (Book 603, Page 323) April 10, 2001 - -------------------- --------------------- ----------------------------------------------- --------------------------- Palmer First 94-6629 (Book 763, Page 279) April 26, 1994 Second 94-008794 (Book 768, Page 219) May 27, 1994 Third 94-011249 (Book 773, Page 460) July 11, 1994 Fourth 95-003739 (Book 800, Page 693) April 4, 1995 Fifth 96-003374 (Book 840, Page 390) March 12, 1996 Sixth 96-008674 (Book 852, Page 453) June 18, 1996 Seventh 97-014700 (Book 0911, Page 038) September 4, 1997 Eighth 98-007176 (Book 0946, Page 137) April 28, 1998 Ninth 00-009719 (Book 1073, Page 010) June 13, 2000 Tenth 01-007587 (Book 1125, Page 830) April 10, 2001 - -------------------- --------------------- ----------------------------------------------- --------------------------- Seward First 94-562 (Book 72, Page 239) April 29, 1994 Second 94-0832 (Book 72, Page 786) June 2, 1994 Third 94-1091 (Book 73, Page 283) July 12, 1994 Fourth 95-0392 (Book 76, Page 575) April 4, 1995 Fifth 96-0301 (Book 80, Page 589) February 29, 1996 Sixth 96-0853 (Book 81, Page 859) June 19, 1996 Seventh 97-1278 (Book 87, Page 352) September 10, 1997 Eighth 98-0632 (Book 90, Page 707) April 29, 1998 Ninth 00-0808 (Book 101, Page 096) June 13, 2000 Tenth 01-0625 (Book 105, page 001) April 11, 2001 - -------------------- --------------------- ----------------------------------------------- --------------------------- Valdez First 94-0604 (Book 122, Page 677) April 27, 1994 Second 94-0767 (Book 122, Page 967) May 31, 1994 Third 94-0971 (Book 123, Page 269) July 11, 1994 Fourth 95-0383 (Book 126, Page 214) April 10, 1995 Fifth 96-0158 (Book 128, Page 435) February 28, 1996 Sixth 96-0550 (Book 129, Page 361) June 19, 1996 Seventh 97-0972 (Book 133, Page 332) September 22, 1997 Eighth 98-0408 (Book 135, Page 186) April 29, 1998 Ninth 00-0592 (Book 142, Page 010) June 14, 2000 Tenth 01-0373 (Book 144, Page 525) April 10, 2001 - -------------------- --------------------- ----------------------------------------------- ---------------------------
2 The Original Indenture, as amended by the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth and Tenth Supplemental Indentures, is referred to herein as the "Indenture." All capitalized terms used and not otherwise defined in this Eleventh Supplemental Indenture shall have the meanings assigned to those terms in the Indenture, except where the context clearly indicates otherwise. U.S. BANK NATIONAL ASSOCIATION, a national banking association (successor in interest to U.S. Bank Trust National Association), currently acts as the Trustee under the Indenture. Pursuant to the Indenture, the Company did grant, bargain, sell, alien, remise, release, convey, assign, transfer, mortgage, hypothecate, pledge, set over and confirm to the Trustee all rights, privileges and franchises of the Company of every kind and description, real, personal or mixed, tangible and intangible, whether then owned or thereafter acquired by the Company, except any Excepted Property (as defined in the Indenture), and granted a security interest therein for the purposes therein expressed. The Indenture secures payment of the principal of (and premium, if any) and interest on the Outstanding Secured Bonds (as defined in the Indenture) and the performance of the covenants contained in such Outstanding Secured Bonds and the Indenture. The purpose of the First, Second, Fourth, Sixth, Eighth and Ninth Supplemental Indentures was to confirm the Company's intention that certain real property (described in the respective Supplemental Indentures) acquired by the Company after the date of the Original Indenture be subjected to the lien of the Indenture, and to confirm the substitution of Seattle-First National Bank (successor by merger to the original Trustee, Security Pacific Bank Washington, N.A.) as Trustee under the Indenture. The purposes of the Third and Seventh Supplemental Indentures were to establish and modify, respectively, a series of bonds designated First Mortgage Bonds, CoBank Series, to be issued to CoBank, ACB. The purpose of the Fifth Supplemental Indenture was to establish a series of bonds designated First Mortgage Bonds, Series CFC, to be issued to the National Rural Utilities Cooperative Finance Corporation. 3 The purposes of the Tenth Supplemental Indenture were to (i) provide for the creation of two new series of Bonds, designated New Bonds, 2001 Series A, and New Bonds, CoBank Series B, and specify the form and provisions of the Bonds of each such new series, and (ii) amend and restate the Indenture in its entirety, effective as of and after the Release Date (as defined below), such that, from and after the Release Date, (A) all Outstanding Secured Bonds issued on or after the date of the Tenth Supplemental Indenture shall constitute Obligations as defined in, and be entitled to the benefits of, the Amended and Restated Indenture (as defined below), and (B) the lien and security interests arising under the Indenture on the Trust Estate shall terminate and the entire Trust Estate (as defined in the Indenture) shall be reconveyed and re-assigned to the Company. U.S. Bank National Association, a national banking association (successor in interest to U.S. Bank Trust National Association, formerly known as First Trust National Association), has succeeded to the interest of the Trustee under the Indenture. The purpose of this Eleventh Supplemental Indenture are to establish two new series of Bonds, designated New Bonds, 2002 Series A, and New Bonds, 2002 Series B and specify the form and provisions of the Bonds of each such new series. This Eleventh Supplemental Indenture is amendatory and supplemental to the Indenture, and, from and after the Release Date (as defined in the Amended and Restated Indenture attached as Exhibit A to the Tenth Supplemental Indenture referenced above, upon which Release Date the Amended and Restated Indenture shall according to its terms amend and restate the Indenture in its entirety), shall be amendatory and supplemental to such Amended and Restated Indenture and the series of Bonds established hereunder shall be considered Obligations within the meaning of such Amended and Restated Indenture. A. New Bonds, 2002 Series A. There is hereby established under the Indenture, as further amended by this Eleventh Supplemental Indenture, a new series of Bonds entitled to the benefits, protection and security of the Indenture, as follows: (1) The new series of Bonds is entitled "New Bonds, 2002 Series A." (2) The New Bonds, 2002 Series A shall be governed by the provisions of Appendix 1 attached to this Eleventh Supplemental Indenture. B. New Bonds, 2002 Series B. There is hereby established under the Indenture, as modified by this Eleventh Supplemental Indenture, a new series of Bonds entitled to the benefits, protection and security of the Indenture, as follows: (1) The new series of Bonds is entitled "New Bonds, 2002 Series B." (2) The New Bonds, 2002 Series B shall be governed by the provisions of Appendix 2 attached to this Eleventh Supplemental Indenture. 4 C. Ratification. Except as expressly amended by this Eleventh Supplemental Indenture, the Indenture is in all respects ratified and confirmed and all the terms, provisions and conditions of the Indenture shall remain in full force and effect, and this Eleventh Supplemental Indenture shall be deemed to be a part of the Indenture. D. Counterparts. This Eleventh Supplemental Indenture may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. E. Execution Date. Although this Eleventh Supplemental Indenture is dated for convenience and for the purpose of reference as of the date set forth in the first paragraph hereof, the actual date or dates of execution by the Company and by the Trustee are as indicated by their respective acknowledgments hereto annexed. CHUGACH ELECTRIC ASSOCIATION, INC., an Alaska electric cooperative By ________________________________ Title: ________________________ U.S. BANK NATIONAL ASSOCIATION, a national banking association, as Trustee By ________________________________ Title: ________________________ 5 STATE OF ALASKA ) ) ss. THIRD JUDICIAL DISTRICT ) The foregoing instrument was acknowledged before me this _____ day of _____________, 2002, by _______________________, the ____________________ of CHUGACH ELECTRIC ASSOCIATION, INC., an Alaska electric cooperative, on behalf of the cooperative. ------------------------------------------ (Signature of person taking the acknowledgment), Notary Public in and for Alaska. My commission expires ____________. STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) I certify that I know or have satisfactory evidence that ___________________, is the person who appeared before me, and said person acknowledged that (s)he signed this instrument, on oath stated that (s)he was authorized to execute the instrument and acknowledged it as the ___________________ of U.S. BANK NATIONAL ASSOCIATION, to be the free and voluntary act and deed of said national banking association, acting in its capacity as trustee, for the uses and purposes therein mentioned. Given under my hand and official seal this _____ day of __________, 2002. ______________________________________________ Print name: __________________________________ NOTARY PUBLIC in and for the State of Washington, residing at __________________________________ My appointment expires _______________________ My commission expires ________________________. 6 APPENDIX 1 TO ELEVENTH SUPPLEMENTAL INDENTURE OF TRUST (New Bonds, 2002 Series A) This Appendix 1 to Eleventh Supplemental Indenture is attached to and incorporated into that Eleventh Supplemental Indenture dated as of __________________, 2002, between Chugach Electric Association, Inc. and U.S. Bank National Association, which Eleventh Supplemental Indenture amends and supplements that Indenture of Trust dated as of September 15, 1991 (as previously or hereafter supplemented, modified or amended from time to time, the "Indenture"). A. General Provisions and Definitions All capitalized terms used but not otherwise defined herein shall have the meanings assigned to those terms in the Indenture, except in cases where the context clearly indicates otherwise. B. New Bonds of 2002 Series A and Certain Provisions Relating Thereto (1) Specific Title, Terms and Forms. (a) The new series of Bonds is entitled "New Bonds, 2002 Series A" (herein called the "2002 Series A Bonds"). The forms thereof shall be substantially as set forth in Article Two of the Indenture with such insertions, omissions, substitutions and variations as may be determined by the Officers executing the same as evidenced by their execution thereof to reflect the applicable terms of the 2002 Series A Bonds. (b) The aggregate principal amount of the 2002 Series A Bonds which may be authenticated and delivered and Outstanding is limited to [One Hundred Twenty Million Dollars ($120,000,000)]. The 2002 Series A Bonds shall be issued in denominations of $1,000 or any multiple thereof. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. (c) The 2002 Series A Bonds shall bear interest from their date payable on [_____________], 2002, and semiannually thereafter on the [____________ (___)] day of [______] and the [____________ (___)] day of [______] of each year at the rate of ______________ percent (____%) per annum and shall mature on [______________], 2012. 1 (d) The principal of, and interest on, the 2002 Series A Bonds shall be payable at the office or agency of the Trustee at 180 East Fifth Street, 3rd Floor, St. Paul, MN 55101. Such location is herein called a Place of Payment. (e) The Regular Record Date for the payment of the interest on the 2002 Series A Bonds payable, and punctually paid or duly provided for, on any Interest Payment Date shall be the last day (whether or not a business day) of the calendar month next preceding such Interest Payment Date. (2) Exchangeability. When the 2002 Series A Bonds are held in a Book-Entry System, the delivery of 2002 Series A Bonds, exchanges, transfers and assignment of the 2002 Series A Bonds and issuance of the 2002 Series A Bonds shall be determined by the provisions of the DTC Letter of Representation executed by the Company in connection with such series (as the same may amended from time to time). Subject to Section 3.07 of the Indenture, all 2002 Series A Bonds not held in the Book-Entry System shall be fully interchangeable, and, upon surrender at the office or agency of the Trustee in a Place of Payment therefor, shall be exchangeable for other 2002 Series A Bonds of the same maturity but of a different authorized denomination or denominations, as requested by the Holder surrendering the same. The Company will execute, and the Trustee shall authenticate and deliver, 2002 Series A Bonds whenever the same are required for any such exchange. (3) No Redemption. The 2002 Series A Bonds are not redeemable at any time prior to maturity. (4) Book-Entry System, Certificates, Registration and Payment. (a) The 2002 Series A Bonds initially shall be held in a Book-Entry System and shall (except to the extent otherwise required by the DTC Letter of Representation with respect to the 2002 Series A Bonds) be evidenced by one certificate for each maturity, in an amount equal to the aggregate principal amount of such maturity. (b) The principal of, premium, if any, and interest on the 2002 Series A Bonds shall be payable in lawful money of the United States of America. While the 2002 Series A Bonds are held in the Book-Entry System, payment of the principal of, premium, if any, and interest on the 2002 Series A Bonds shall be made by wire transfer of Federal funds or equivalent same-day funds, or in such other manner as permitted by the DTC Letter of Representation executed by the Company in connection with such series (as the same may be amended from time to time), to the account of Cede & Co. In the event the 2002 Series A Bonds are no longer held in the Book-Entry System, interest on the 2002 Series A Bonds shall be payable on each Interest Payment Date by check payable to the Holder (except that if so instructed in writing by a Holder of $1,000,000 or more of the 2002 Series A Bonds, such payments shall be made by wire transfer of Federal Reserve funds on the Interest Payment Date), mailed to the Holder at his or her address as it appears on the Bond Register on the last day of the calendar month prior to the Interest Payment Date, or in such other manner as such Holder and the Trustee may determine. Except as may be provided in the DTC Letter of Representation with respect to 2002 Series A Bonds, payment of principal (other than through operation of a sinking fund, if any) shall be made only upon presentation and surrender of each 2002 Series A Bond, as the same becomes due, at the office from which the Trustee performs the payment function for 2002 Series A Bonds. 2 (c) The Trustee shall act as Bond Registrar and shall maintain registration books for the registration and the registration of transfer of the 2002 Series A Bonds. (d) So long as the 2002 Series A Bonds are held in the Book-Entry System, the registered Holder of all of the 2002 Series A Bonds shall be DTC, and the 2002 Series A Bonds shall be registered in the name of Cede & Co., as nominee for DTC pursuant to the DTC Letter of Representation with respect to 2002 Series A Bonds, as amended from time to time, and the provisions of such Letter of Representation shall be incorporated herein by this reference. (e) Upon initial issuance, the ownership of the 2002 Series A Bonds shall be registered by the Trustee on the Bond Register in the name of Cede & Co., as nominee of DTC. The Trustee and the Company may treat DTC (or its nominee) as the sole and exclusive registered Holder of the 2002 Series A Bonds registered in its name for the purposes of payment of the principal of or interest on the 2002 Series A Bonds, giving notice as required under the Indenture, registering the transfer of 2002 Series A Bonds, obtaining any consent or other action to be taken by the Holders and for all other purposes whatsoever; and neither the Trustee nor the Company shall be affected by any notice to the contrary. Neither the Trustee nor the Company shall have any responsibility or obligation to any person claiming a beneficial ownership interest in the 2002 Series A Bonds under or through DTC or any DTC Participant, or any other person which is not shown on the Bond Register as being a registered Holder, with respect to the accuracy of any records maintained by DTC or any DTC Participant; the payment by DTC or any DTC Participant of any amount in respect of the principal of or interest on the 2002 Series A Bonds; any notice or direction which is permitted or required to be given to or received 3 from Holders under the Indenture; or any consent given or other action taken by DTC as Holder; nor shall any DTC Participant or any such Person be deemed to be a third party beneficiary of any Holders' rights under the Indenture. The Trustee shall pay from moneys available hereunder all principal of and premium, if any, and interest on the 2002 Series A Bonds only to or upon the order of DTC or its designee, and all such payments shall be valid and effective to fully satisfy and discharge the Company's obligations with respect to the principal of and premium, if any, and interest on the 2002 Series A Bonds to the extent of the sum or sums so paid. So long as the 2002 Series A Bonds are held in the Book-Entry System, no person other than DTC shall receive an authenticated Bond for each separate stated maturity evidencing the obligation of the Company to make payments of principal of and premium, if any, and interest with respect to the 2002 Series A Bonds pursuant to the Indenture. Upon delivery by DTC to the Trustee of DTC's written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions of the Indenture with respect to transfers of 2002 Series A Bonds, the term "Cede & Co." in the Indenture shall refer to such new nominee of DTC. (5) Availability of Bond Certificates. At any time it determines that it is in the best interests of the Holders, the Company may notify DTC and the Trustee, whereupon DTC will, if consistent with DTC's then-current policies, notify the DTC Participants, of the availability through DTC of 2002 Series A Bond certificates. In such event, the Company shall prepare and execute and the Trustee shall issue, transfer and exchange, at the expense of the Company, 2002 Series A Bond certificates as requested in writing by DTC in appropriate amounts. DTC may determine to discontinue providing its services with respect to the 2002 Series A Bonds at any time by giving written notice to the Company and the Trustee and discharging its responsibilities with respect thereto under applicable law. If DTC resigns as securities depository for the 2002 Series A Bonds, 2002 Series A Bond certificates shall be delivered pursuant to this Section. Under such circumstances (if there is no successor securities depository), the Company and the Trustee shall be obligated to deliver 2002 Series A Bonds as described in the Indenture, provided that the expense in connection therewith shall be paid by the Company. In the event that certificates for 2002 Series A Bonds are issued, the provisions of the Indenture shall apply to, among other things, the 4 transfer and exchange of such certificates and the method of payment of principal of, premium, if any, and interest on such 2002 Series A Bonds. Whenever DTC requests the Company to do so, the Company will cooperate with DTC in taking appropriate action after written notice (a) to make available one or more separate certificates evidencing the 2002 Series A Bonds to any DTC Participant having 2002 Series A Bonds credited to its DTC account, or (B) to arrange for another securities depository to maintain custody of certificates evidencing the 2002 Series A Bonds. (6) Use of Proceeds. The Company shall use the proceeds from the sale of the 2002 Series A Bonds: (a) to pay amounts owing by the Company with respect to the Company's 1991 Series A Bonds due 2002; (b) to redeem any Outstanding Bonds (and pay the redemption premium thereon); (c) to pay the settlement amount owing by the Company to its counterparty upon termination or expiration of a Treasury rate-lock contract to which the Company is a party; and (d) for such other purposes as the Company may determine. (7) Credit Enhancer. __________________________ (the "Bond Insurer") is a Credit Enhancer with respect to the 2002 Series A Bonds. Any notices given to the Bond Insurer pursuant to the Indenture or otherwise in connection with the 2002 Series A Bonds shall be given to --------------------------------------------, - -----------------------------, Attention: ____________________. [If the Bond Insurer, in its capacity as Credit Enhancer with respect to the 2002 Series A Bonds, approves any Supplemental Indenture, the Company shall promptly provide a copy of such Supplemental Indenture to Standard & Poor's Ratings Services Group, a division of the McGraw Hill Companies, Inc.] 5 APPENDIX 2 TO ELEVENTH SUPPLEMENTAL INDENTURE OF TRUST (New Bonds, 2002 Series B) Table of Contents
1. DEFINITIONS AND STATUTORY AUTHORITY......................................................................1 1.01 Supplemental Indenture..........................................................................1 1.02 Definitions.....................................................................................1 2. GENERAL PROVISIONS RELATING TO 2002 SERIES B BONDS......................................................10 2.01 Principal Amount...............................................................................10 2.02 Purpose........................................................................................10 2.03 Maturity and Interest..........................................................................10 2.04 Denominations, Dates, Numbers and Letters......................................................11 2.05 Designation of the 2002 Series B Bonds as Bonds to Be Held in Book-Entry System; Appointment of Securities Depository for 2002 Series B Bonds...................................11 2.06 Optional Redemption -- Prices and Terms........................................................13 2.07 Mandatory Redemption of 2002 Series B Bonds Through Sinking Fund...............................14 2.08 [Reserved].....................................................................................15 2.09 [Reserved].....................................................................................15 2.10 Place of Payment and Paying Agents.............................................................15 2.11 Registration of Transfers and Exchanges........................................................16 2.12 Application of Proceeds of 2002 Series B Bonds.................................................16 2.13 [Reserved].....................................................................................16 2.14 Issuance of 2002 Series B Bonds in Lieu of Those Deemed Purchased..............................16 2.15 Forms of 2002 Series B Bonds and Authentication Certificate....................................16 3. INTEREST MODES; DETERMINATION OF INTEREST RATES FOR 2002 Series B BONDS; TENDER AND PURCHASE OF 2002 Series B BONDS.....................................................................................17 3.01 Determination of Interest Modes................................................................17 3.02 Duration of Interest Modes and Interest Periods................................................19 3.03 Determination of Interest Rates; Effectiveness Thereof.........................................20 3.04 Notice of Interest Rates and Interest Modes....................................................22 3.05 Effect of Determinations.......................................................................23 3.06 Purchase of 2002 Series B Bonds................................................................24 3.07 Optional Tender of 2002 Series B Bonds for Purchase............................................26 3.08 Mandatory Tender of 2002 Series B Bonds for Purchase...........................................26 3.09 Remarketing of 2002 Series B Bonds.............................................................28 3.10 Purchase of Tendered 2002 Series B Bonds.......................................................28 3.11 Disposition of Tendered 2002 Series B Bonds....................................................29 3.12 Untendered 2002 Series B Bonds; Book-Entry Only 2002 Series B Bonds............................30 i 4. LIQUIDITY FACILITY; DRAWINGS THEREUNDER; SUBSTITUTE LIQUIDITY FACILITIES; SUBSTITUTE BOND INSURANCE POLICIES......................................................................................32 4.01 Drawings to Make Payments of Purchase Price....................................................32 4.02 Initial Liquidity Facility; Extension of Term of Liquidity Facility; Substitution of Liquidity Facilities; Surrender of Liquidity Facility..........................................32 4.03 Substitution of Bond Insurance Policy..........................................................34 5. 2002 Series B BANK BONDS................................................................................35 5.01 Remarketing of 2002 Series B Bank Bonds........................................................35 5.02 Interest on 2002 Series B Bank Bonds...........................................................37 5.03 Principal Repayment of 2002 Series B Bank Bonds................................................37 6. ESTABLISHMENT OF 2002 SERIES B SUBORDINATED BOND PURCHASE FUND..........................................38 6.01 2002 Series B Bond Purchase Fund...............................................................38 6.02 Moneys Held in Trust...........................................................................38 6.03 No Investment..................................................................................39 6.04 No Lien for Trustee or Tender Agent............................................................39 7. ADDITIONAL COVENANTS; OTHER PROVISIONS..................................................................39 7.01 [Reserved].....................................................................................39 7.02 The Tender Agent...............................................................................39 7.03 The Remarketing Agent..........................................................................42 7.04 Dealings in 2002 Series B Bonds................................................................43 7.05 Notices........................................................................................43 7.06 Amendments to Eleventh Supplemental Indenture or the Indenture.................................44 8. BOND INSURANCE PROVISIONS...............................................................................45 8.01 Bond Insurer as Credit Enhancer................................................................45 8.02 Notice to the Bond Insurer of Non-Payment......................................................45 8.03 Notice of Voidable Preference..................................................................45 8.04 Trustee as Attorney-in-Fact....................................................................46 8.05 Bond Insurer as Bondowner......................................................................46 8.06 Subrogation Rights.............................................................................46 8.07 Disclosure as to Additional Bonds..............................................................47 8.08 Furnishing of Amendments.......................................................................47 8.09 Notices to the Bond Insurer....................................................................47 8.10 [Bond Insurer's Rights Upon an Event of Default................................................47
EXHIBIT A - Auction Procedures Description EXHIBIT B - Form of 2002 Series B Bonds ii APPENDIX 2 TO ELEVENTH SUPPLEMENTAL INDENTURE of trust (New Bonds, 2002 Series B) 1. DEFINITIONS AND STATUTORY AUTHORITY 1.01 Supplemental Indenture This Appendix 2 to Eleventh Supplemental Indenture ("Appendix 2") is attached to and incorporated into the Eleventh Supplemental Indenture that is supplemental to, and adopted in accordance with Article Thirteen of, the Indenture of Trust dated September 15, 1991, between Chugach Electric Association, Inc. and Security Pacific Bank Washington, N.A., as Trustee, as amended and supplemented (the "Indenture"), under which U.S. Bank National Association currently serves as Trustee. 1.02 Definitions 1. All terms which are defined in Article One of the Indenture and not otherwise defined in this Appendix 2 shall have the same meanings, respectively, in this Appendix 2 as such terms are given in said Article One of the Indenture. Unless the context indicates otherwise, references in this Appendix 2 to specific Sections, subsections, clauses or paragraphs are references to the indicated Sections, subsections, clauses or paragraphs of this Appendix 2. 2. In this Appendix 2: "Agent Bank" shall mean (a) in the case of any Liquidity Facility to which only one Bank is a party, such Bank and (b) in the case of any Liquidity Facility to which more than one Bank is a party, the agent appointed to act thereunder on behalf of the Banks that are parties thereto. "Auction Mode" shall mean the Interest Mode during which the 2002 Series B Bonds bear interest at Auction Mode Rates. "Auction Mode Rate" shall mean the interest rate applicable to the 2002 Series B Bonds during the Auction Mode, determined as provided in clause (a) of Section 3.03 and in Exhibit A. "Authorized Denominations" shall mean (i) for the 2002 Series B Bonds bearing interest at a Daily Rate, a Weekly Rate or a Flexible Rate, $100,000 or any integral multiple of $5,000 in excess thereof; (ii) for the 2002 Series B Bonds bearing interest at an Auction Mode Rate, $50,000 or any integral multiple thereof; and (iii) for the 2002 Series B Bonds bearing interest at a Term Rate or a Fixed Rate, $5,000 or any integral multiple thereof. 1 "Bank" or "Banks" shall mean, as the context may require, the Person(s) that is (or are) the issuer(s) or provider(s) of a particular Liquidity Facility. "Bank Purchase Date" shall mean, with respect to each 2002 Series B Bond purchased by the Bank(s) (or any nominee or nominees thereof) pursuant to clause (b) of subsection 1 of Section 3.11, the date of such purchase. "Bank Rate" shall have the meaning ascribed to such term in the Liquidity Facility. "Bond Insurance Policy" shall mean (a) the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on the 2002 Series B Bonds as provided therein and (b) upon the effectiveness thereof as provided in Section 4.03, any Substitute Bond Insurance Policy. "Bond Insurer" shall mean (a) [_____________________________________] and (b) upon the effectiveness of any Substitute Bond Insurance Policy as provided in Section 4.03, the issuer of such Substitute Bond Insurance Policy. "Book-Entry Only 2002 Series B Bond" shall mean any 2002 Series B Bond that is held in the Book-Entry System. "Business Day" shall mean any day, other than a Saturday or Sunday, on which (a) the principal office of the Company is open for business during its normal business hours, (b) the principal corporate trust office of the Trustee is open for business during its normal business hours, (c) the principal office of the Bond Insurer is open for business during its normal business hours, (d) if the 2002 Series B Bonds are in an Interest Mode other than the Auction Mode or the Fixed Mode, the principal corporate trust office of the Tender Agent, the principal office of the Remarketing Agent and the lending office of the Agent Bank under the Liquidity Facility are open for business during their respective normal business hours and (e) if the 2002 Series B Bonds are in the Auction Mode, the principal corporate trust office of the Auction Agent and the principal office of each Broker-Dealer are open for business during their respective normal business hours. "Daily Mode" shall mean the Interest Mode during which the 2002 Series B Bonds bear interest at Daily Rates. "Daily Rate" shall mean the interest rate applicable to the 2002 Series B Bonds during the Daily Mode, determined as provided in clause (b) of Section 3.03. 2 "Delivery Date" shall mean the date of the initial issuance and delivery of the 2002 Series B Bonds. "Differential Interest Amount" shall have the meaning given to that term in Section 5.01(3). "Eleventh Supplemental Indenture" shall mean the Eleventh Supplemental Indenture (to which this Appendix 2 is attached and which includes this Appendix 2), supplemental to the Indenture, as from time to time amended or supplemented in accordance with the terms of the Indenture. "Exhibit A" shall mean Exhibit A attached hereto, as amended from time to time pursuant to Section 2.07(b) of Exhibit A. Exhibit A shall constitute a part of this Appendix 2 and the Eleventh Supplemental Indenture for all purposes hereof and of the Indenture. "Favorable Opinion of Bond Counsel" shall mean, with respect to any action to be taken hereunder with respect to the 2002 Series B Bonds, an Opinion of Counsel to the effect that such action is permitted by the terms of the Indenture and the Alaska Electric and Telephone Cooperative Act. "Fitch" shall mean Fitch, Inc. and its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company. "Fixed Mode" shall mean the Interest Mode during which the 2002 Series B Bonds bear interest at the Fixed Rate. "Fixed Rate" shall mean the interest rate applicable to the 2002 Series B Bonds during the Fixed Mode, determined as provided in clause (e) of Section 3.03. "Flexible Mode" shall mean the Interest Mode during which the 2002 Series B Bonds bear interest at Flexible Rates. "Flexible Rate" shall mean the interest rate applicable to the 2002 Series B Bonds during the Flexible Mode, determined as provided in clause (d) of Section 3.03. "Indenture" shall mean the Indenture of Trust dated September 15, 1991, between the Company and Security Pacific Bank Washington, N.A., as from time to time amended or supplemented in accordance with the terms thereof, and, after the Release Date, the Amended and Restated Indenture dated as of April 1, 2001, between the Company and U.S. Bank Trust National Association, as from time to time amended or supplemented in accordance with the terms thereof. 3 "Interest Accrual Period" shall mean the period from and including each Interest Payment Date to but excluding the next Interest Payment Date. The initial Interest Accrual Period for the 2002 Series B Bonds shall begin on (and include) the Delivery Date. The final Interest Accrual Period for any 2002 Series B Bond shall end on the day next preceding the maturity or redemption date of such 2002 Series B Bond. "Interest Mode" shall mean a period of time relating to the frequency with which the interest rate on the 2002 Series B Bonds is determined pursuant to Section 3.03. An Interest Mode may be the Auction Mode, the Daily Mode, the Weekly Mode, the Flexible Mode, the Term Mode or the Fixed Mode. "Interest Payment Date" shall mean, with respect to each 2002 Series B Bond, (a) each date on which the 2002 Series B Bonds shall be subject to mandatory tender for purchase pursuant to clause (c) of Section 3.06; (b) except as to any 2002 Series B Bank Bond, (i) as to 2002 Series B Bonds in the Auction Mode, the various dates set forth in the definition of "Interest Payment Date" in Exhibit A hereto; (ii) as to 2002 Series B Bonds in the Daily Mode or the Weekly Mode, the first Business Day of each calendar month; (iii) as to 2002 Series B Bonds in the Flexible Mode, the first Business Day following the end of each Interest Period with respect thereto; and (iv) as to 2002 Series B Bonds in the Term Mode or the Fixed Mode, semi-annually on each January 1 and July 1 commencing on the first January 1 or July 1 occurring after the conversion to such Interest Mode; provided, however, that if such first date occurs less than three (3) months after such conversion, said first Interest Payment Date shall be on the second such date following such conversion; (c) as to any 2002 Series B Bank Bond, unless otherwise provided in the Liquidity Facility, each date determined pursuant to subsection 2 of Section 5.02; and (d) the maturity date thereof. "Interest Period" shall mean the period from and including a Rate Adjustment Date to but excluding the next succeeding Rate Adjustment Date (if any); provided, however, that (a) the first Interest Period for the 2002 Series B Bonds shall be the period from and including the Delivery Date to but excluding the first Rate Adjustment Date and (b) the final Interest Period for any 2002 Series B Bond shall be the period from and including the last Rate Adjustment Date preceding the maturity or redemption date of such 2002 Series B Bond to but excluding such maturity or redemption date. "Liquidity Facility" shall mean the standby bond purchase agreement, revolving credit agreement, letter of credit, surety bond or other agreement or instrument entered into by the Company or delivered to the Tender Agent, as the case may be, pursuant to subsection 1 of Section 4.02 and consented to in writing by the Bond Insurer and (b) upon the effectiveness thereof as provided in subsection 3 of Section 4.02, each Substitute Liquidity Facility. 4 "Liquidity Facility Expiration Date" shall mean the date upon which the Liquidity Facility is stated to expire or terminate, as such date may be extended from time to time, either by extension or renewal of the then existing Liquidity Facility or the issuance or entry into of a Substitute Liquidity Facility. "Liquidity Facility Requirement" shall mean, at such times (if any) as the 2002 Series B Bonds are in an Interest Mode other than the Auction Mode or the Fixed Mode, an amount equal to the principal amount of the Outstanding 2002 Series B Bonds (other than 2002 Series B Bank Bonds) plus, (a) if the 2002 Series B Bonds shall be in a Daily Mode or a Weekly Mode, 31 days' interest thereon computed at a rate per annum equal to the Maximum Rate and on the basis of a 365-day year and (b) if the 2002 Series B Bonds shall be in a Flexible Mode, 270 days' interest thereon computed at a rate per annum equal to the Maximum Rate and on the basis of a 365-day year. "Market Rate" shall mean any interest rate determined in accordance with the procedures set forth in clause (f) of Section 3.03. "Maximum Bank Rate" shall mean twenty-five percent (25%) per annum, or such higher rate as shall be approved by the Company if (1) a Favorable Opinion of Bond Counsel shall have been delivered to the Notice Parties and (2) such higher rate shall have been consented to in writing by the Bond Insurer. "Maximum Rate" shall mean fifteen percent (15%) per annum, or such higher rate as shall be approved by the Company if (1) a Favorable Opinion of Bond Counsel shall have been delivered to the Notice Parties, (2) such higher rate shall have been consented to in writing by the Bond Insurer and (3) if the 2002 Series B Bonds shall be in a Daily Mode or a Weekly Mode, the Liquidity Facility is modified (if necessary) so that its stated amount or the aggregate commitment of the Bank(s) thereunder, as the case may be, is increased to give effect to the increased Maximum Rate. "Mode Adjustment Date" shall mean any date on which the Interest Mode or Interest Period to which the 2002 Series B Bonds are subject is to be changed to another Interest Mode or Interest Period, as the case may be, determined as provided in clause (a)(i) of Section 3.01. "Monthly Payment Date" shall mean the first Business Day of each calendar month. 5 "Moody's" shall mean Moody's Investors Service and its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company. "Notice Parties" shall mean (a) the Company, (b) the Trustee, (c) the Bond Insurer, (d) if the 2002 Series B Bonds are in an Interest Mode other than the Auction Mode or the Fixed Mode, the Remarketing Agent, the Tender Agent and the Agent Bank and (e) if the 2002 Series B Bonds are in the Auction Mode, the Auction Agent and each Broker-Dealer. "Officer's Certificate" shall mean a certificate of an Officer of the Company. "One Week LIBOR Rate" shall mean, as of any Rate Determination Date, the rate most recently published by Bloomberg L.P. on or prior to such Rate Determination Date as "LIBOR-USD-FIX-1WEEK" or, if such rate no longer shall be published, such replacement rate as shall be agreed upon by the Company, the Remarketing Agent and the Bond Insurer, but in no event in excess of the Maximum Rate. "Purchase Date" shall mean a Business Day on which 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) are to be purchased upon optional or mandatory tender or deemed tender thereof pursuant to the terms hereof. "Purchase Price" shall mean an amount equal to 100% of the principal amount of any 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) tendered or deemed tendered or remarketed pursuant to the Eleventh Supplemental Indenture plus accrued and unpaid interest, if any, at the 2002 Series B Bond Rate or Rates in effect from and including the first day of the then current Interest Accrual Period through and including the day immediately preceding the Purchase Date or the date of remarketing, as the case may be, unless, in the case of 2002 Series B Bonds in a Term Mode, the date of remarketing is on or after the Regular Record Date for the next succeeding Interest Payment Date for the 2002 Series B Bonds (other than 2002 Series B Bank Bonds) and on or prior to such Interest Payment Date, in which case the accrued and unpaid interest on such 2002 Series B Bonds being remarketed on such date shall not be paid as part of the Purchase Price. "Rate Adjustment Date" shall mean the day on which each Auction Mode Rate, Daily Rate, Weekly Rate, Flexible Rate, Term Rate or Fixed Rate on a 2002 Series B Bond shall become effective as provided in Section 3.03. "Rate Determination Date" shall mean the time and date as of which an interest rate for the 2002 Series B Bonds shall be determined, which Date shall be determined (a) in the case of any Interest Mode other than the Auction Mode, as provided in Section 3.03 and (b) in the case of the Auction Mode, as provided in Exhibit A. 6 "Rating Agency" shall mean Moody's if the 2002 Series B Bonds are then rated by Moody's, and S&P if the 2002 Series B Bonds are then rated by S&P, and Fitch if the 2002 Series B Bonds are then rated by Fitch, in each case, at the request of the Company. "Registrar" and "Register" shall have the meanings given to the terms "Bond Registrar" and "Bond Register," respectively, in the Indenture as in effect prior to the Release Date, and to the terms "Obligation Registrar" and "Obligation Register," respectively, in the Indenture as in effect from and after the Release Date. "Regular Record Date" shall mean (a) except as provided in clause (b) below, (i) with respect to an Interest Payment Date for 2002 Series B Bonds in the Term Mode or the Fixed Mode, the close of business on the fifteenth day (whether or not a Business Day) of the next preceding calendar month; and (ii) with respect to an Interest Payment Date for 2002 Series B Bonds in the Auction Mode, the Daily Mode, the Weekly Mode or the Flexible Mode and 2002 Series B Bank Bonds, the close of business on the Business Day immediately preceding such Interest Payment Date; and (b) in the case of any Interest Payment Date described in clause (a) of the definition thereof in this Appendix 2, the close of business on the Business Day immediately preceding such Interest Payment Date. "Release Date" shall have the meaning given to that term in the Tenth Supplemental Indenture to the Indenture. "Remarketing Agent" shall mean each firm (if any) appointed by the Company from time to time as the Remarketing Agent for the 2002 Series B Bonds and that is party to a Remarketing Agreement. "Remarketing Agreement" shall mean such agreement(s) (if any) as may be entered into between the Company and the Remarketing Agent from time to time and that is (or are) designated by an Officer of the Company as constituting a "Remarketing Agreement" hereunder at the time of the execution and delivery thereof. "S&P" shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., and its successors and assigns, and, if such division shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Company. "Securities Depository" shall mean the Person in whose name is registered 2002 Series B Bonds held in the Book-Entry System. The initial Securities Depository shall be as provided in Section 2.05. "Substitute Bond Insurance Policy" shall mean any municipal bond or financial guaranty insurance policy or surety bond to be substituted for the Bond Insurance Policy then in effect as provided in subsection 1 of Section 4.03, which Substitute Bond Insurance Policy shall have been consented to in writing by the Agent Bank and shall contain administrative provisions reasonably satisfactory to the Trustee. 7 "Substitute Liquidity Facility" shall mean any standby bond purchase agreement, revolving credit agreement, letter of credit, surety bond or other agreement or instrument under which any Person undertakes to make loans or provide funds to purchase 2002 Series B Bonds upon the tender (or deemed tender) thereof for purchase and as to which the conditions set forth in subsection 3 of Section 4.02 shall be satisfied, in each case, that shall have been consented to in writing by the Bond Insurer and that shall contain administrative provisions reasonably satisfactory to the Tender Agent. "Substitution Date" shall mean the Business Day on which the Company (a) causes a new bank or banks to be substituted for one or more of the Banks that is (or are) a party to the Liquidity Facility then in effect or (b) substitutes the Liquidity Facility then in effect with a Substitute Liquidity Facility, which Business Day shall be not later than the fifth Business Day immediately preceding the Liquidity Facility Expiration Date for the Liquidity Facility then in effect; any date specified as a Substitution Date in a notice of mandatory tender mailed to Holders of 2002 Series B Bonds pursuant to subsection 2 of Section 3.08 shall be treated as a Substitution Date for purposes of the Eleventh Supplemental Indenture even if the substitution of the new bank(s) or the Substitute Liquidity Facility, as the case may be, fails to occur. "Tender Agency Agreement" shall mean such agreement(s) (if any) as may be entered into between the Company and the Tender Agent from time to time and that is (or are) designated by an Officer of the Company as constituting a "Tender Agency Agreement" hereunder at the time of the execution and delivery thereof. "Tender Agent" shall mean each firm (if any) appointed by the Company from time to time as the Tender Agent for the 2002 Series B Bonds and that is party to a Tender Agency Agreement. "Term Mode" shall mean the Interest Mode during which the 2002 Series B Bonds bear interest at Term Rates. "Term Rate" shall mean the interest rate applicable to the 2002 Series B Bonds during the Term Mode, determined as provided in clause (e) of Section 3.03. "2002A Bonds" shall mean the New Bonds, 2002 Series A, to be issued by the Company pursuant to the Eleventh Supplemental Indenture. 8 "2002 Series B Bank Bond" shall mean any 2002 Series B Bond (or portion thereof or beneficial ownership interest therein) purchased by the Bank(s) (or a nominee or nominees thereof) pursuant to clause (b) of subsection 1 of Section 3.11; provided, however, that any such 2002 Series B Bond shall cease to be a 2002 Series B Bank Bond on the date on which such 2002 Series B Bond shall be delivered to a purchaser identified by the Remarketing Agent (or, to the extent permitted by the Liquidity Facility, the date on which the Bank(s) elect not to sell such 2002 Series B Bond to a purchaser identified by the Remarketing Agent). "2002 Series B Bond Liquidity Proceeds Account" shall mean the account by that name to be created and established in the 2002 Series B Bond Purchase Fund in Section 6.01. "2002 Series B Bond Purchase Fund" shall mean the fund by that name to be created and established pursuant to Section 6.01 and held by the Tender Agent separate and apart from any funds, accounts or subaccounts under the Indenture and which shall not constitute a fund or an account for purposes of the Indenture. "2002 Series B Bond Rate" shall mean the interest rate on 2002 Series B Bonds, determined pursuant to Section 3.03, but shall not include the interest rate on any 2002 Series B Bank Bonds. "2002 Series B Bond Remarketing Proceeds Account" shall mean the account by that name to be created and established in the 2002 Series B Bond Purchase Fund in Section 6.01. "2002 Series B Bonds" shall mean the Series of Bonds created and issued pursuant to the Eleventh Supplemental Indenture and designated therein as the "New Bonds, 2002 Series B." "Untendered 2002 Series B Bonds" shall have the meaning given to such term in Section 3.12. "Weekly Mode" shall mean the Interest Mode during which the 2002 Series B Bonds bear interest at Weekly Rates. "Weekly Rate" shall mean the interest rate applicable to the 2002 Series B Bonds during the Weekly Mode, determined as provided in clause (c) of Section 3.03. 3. Unless the context shall clearly indicate some other meaning, all terms used in this Eleventh Supplemental Indenture, including Exhibit A, that are defined in Exhibit A shall for all purposes of this Eleventh Supplemental Indenture, including Exhibit A, have the same respective meanings as such terms are given in Exhibit A. 9 2. GENERAL PROVISIONS RELATING TO 2002 SERIES B BONDS 2.01 Principal Amount The aggregate principal amount of the 2002 Series B Bonds that may be authenticated and delivered and Outstanding is limited to Sixty Million Dollars ($60,000,000). 2.02 Purpose The Company shall use the proceeds from the sale of the 2002 Series B Bonds: (a) to pay amounts owing by the Company with respect to the Company's 1991 Series A Bonds due 2002; (b) to redeem any Outstanding Bonds (and pay the redemption premium thereon) or deposit with the Trustee funds for that purpose pending any such redemption; (c) to pay the settlement amount owing by the Company to its counterparty with respect to termination of a Treasury rate-lock contract to which the Company is or was a party; and (d) for such other purposes as the Company may determine. 2.03 Maturity and Interest The 2002 Series B Bonds shall mature on _____________, 2012 and shall bear interest from the Delivery Date at the interest rate determined for each Interest Period pursuant to Section 3.03; provided, however, that each 2002 Series B Bank Bond shall bear interest as provided in Section 5.02. Interest on each 2002 Series B Bond accruing during each Interest Accrual Period shall be payable on the Interest Payment Date immediately following such Interest Accrual Period, to the Person in whose name such 2002 Series B Bond is registered at the Regular Record Date therefor; provided, however, that the Holder of a 2002 Series B Bond other than the Bank(s) (or the nominee(s) thereof) shall be paid interest thereon for an Interest Accrual Period only in the amount that would have accrued thereon at the 2002 Series B Bond Rate or Rates in effect during such Interest Accrual Period, regardless of whether or not such 2002 Series B Bond was a 2002 Series B Bank Bond during any portion of such Interest Accrual Period. Interest accrued at the Auction Mode Rate for an Auction Period of 180 days or less shall be computed on the basis of a 360-day year and actual days elapsed, interest accrued at the Daily Rate, Weekly Rate, Flexible Rate or (unless otherwise provided in the Liquidity Facility) Bank Rate shall be computed on the basis of a 365- or 366-day year, as applicable, for actual days elapsed, and interest accrued at the Auction Mode Rate for an Auction Period of more than 180 days, the Term Rate or the Fixed Rate shall be computed on the basis of a 360-day year comprised of twelve 30-day months. 10 Notwithstanding anything to the contrary contained herein, (a) in no event shall any Auction Mode Rate, Daily Rate, Weekly Rate, Flexible Rate, Term Rate or Fixed Rate exceed the Maximum Rate and (b) in no event shall any Bank Rate exceed the Maximum Bank Rate. The 2002 Series B Bonds initially shall be in the Auction Mode, and. following the Initial Period, shall be subject to a 28-day Auction Period until such time (if any) as such Auction Period shall be changed in accordance with Exhibit A. 2.04 Denominations, Dates, Numbers and Letters The 2002 Series B Bonds will be issued in fully registered form in the Authorized Denominations. Each 2002 Series B Bond shall be dated the date of its authentication except that all 2002 Series B Bonds issued prior to the first Interest Payment Date shall be dated the Delivery Date. Unless an Officer of the Company shall otherwise direct, the 2002 Series B Bonds will be numbered from one upward. 2.05 Designation of the 2002 Series B Bonds as Bonds to Be Held in Book-Entry System; Appointment of Securities Depository for 2002 Series B Bonds 1. The 2002 Series B Bonds initially shall be held in a Book-Entry System and shall (except to the extent otherwise required by the DTC Letter of Representation with respect to the 2002 Series B Bonds) be evidenced by one certificate for each maturity, in an amount equal to the aggregate principal amount of such maturity. Unless otherwise determined by an Officer of the Company, DTC is hereby appointed as the initial Securities Depository for the 2002 Series B Bonds. 2. While the 2002 Series B Bonds are held in the Book-Entry System, payment of the principal of, premium, if any, and interest on the 2002 Series B Bonds shall be made by wire transfer of Federal funds or equivalent same-day funds, or in such other manner as permitted by the DTC Letter of Representation executed by the Company in connection with such series (as the same may be amended from time to time), to the account of Cede & Co. Except as may be provided in the DTC Letter of Representation with respect to 2002 Series B Bonds, payment of principal (other than through operation of a sinking fund, if any) shall be made only upon presentation and surrender of each 2002 Series B Bond, as the same becomes due, at the office from which the Trustee performs the payment function for 2002 Series B Bonds. 11 3. So long as the 2002 Series B Bonds are held in the Book-Entry System, the registered Holder of all of the 2002 Series B Bonds shall be DTC, and the 2002 Series B Bonds shall be registered in the name of Cede & Co., as nominee for DTC pursuant to the DTC Letter of Representation with respect to 2002 Series B Bonds, as amended from time to time, and the provisions of such Letter of Representation shall be incorporated herein by this reference. Upon initial issuance, the ownership of the 2002 Series B Bonds shall be registered by the Trustee on the Register in the name of Cede & Co., as nominee of DTC. The Trustee and the Company may treat DTC (or its nominee) as the sole and exclusive registered Holder of the 2002 Series B Bonds registered in its name for the purposes of payment of the principal of or interest on the 2002 Series B Bonds, giving notice as required under the Indenture, registering the transfer of 2002 Series B Bonds, obtaining any consent or other action to be taken by the Holders and for all other purposes whatsoever; and neither the Trustee nor the Company shall be affected by any notice to the contrary. Neither the Trustee nor the Company shall have any responsibility or obligation to any person claiming a beneficial ownership interest in the 2002 Series B Bonds under or through DTC or any DTC Participant, or any other person which is not shown on the Register as being a registered Holder, with respect to the accuracy of any records maintained by DTC or any DTC Participant; the payment by DTC or any DTC Participant of any amount in respect of the principal of or interest on the 2002 Series B Bonds; any notice or direction which is permitted or required to be given to or received from Holders under the Indenture; or any consent given or other action taken by DTC as Holder; nor shall any DTC Participant or any such Person be deemed to be a third party beneficiary of any Holders' rights under the Indenture. The Trustee shall pay from moneys available hereunder all principal of and premium, if any, and interest on the 2002 Series B Bonds only to or upon the order of DTC or its designee, and all such payments shall be valid and effective to fully satisfy and discharge the Company's obligations with respect to the principal of and premium, if any, and interest on the 2002 Series B Bonds to the extent of the sum or sums so paid. So long as the 2002 Series B Bonds are held in the Book-Entry System, no person other than DTC shall receive an authenticated Bond for each separate stated maturity evidencing the obligation of the Company to make payments of principal of and premium, if any, and interest with respect to the 2002 Series B Bonds pursuant to the Indenture. Upon delivery by DTC to the Trustee of DTC's written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions of the Indenture with respect to transfers of 2002 Series B Bonds, the term "Cede & Co." in the Indenture shall refer to such new nominee of DTC. 4. At any time it determines that it is in the best interests of the Holders, the Company may notify DTC and the Trustee, whereupon DTC will, if consistent with DTC's then-current policies, notify the DTC Participants, of the availability through DTC of 2002 Series B Bond certificates. In such event, the Company shall prepare and execute and the Trustee shall issue, transfer and exchange, at the expense of the Company, 2002 Series B Bond certificates as requested in writing by DTC in appropriate amounts. DTC may determine to discontinue providing its services with respect to the 2002 Series B Bonds at any time by giving written notice to the Company and the Trustee and discharging its responsibilities with respect thereto under applicable law. If DTC resigns as Securities Depository for the 2002 Series B Bonds, 2002 Series B Bond certificates shall be delivered pursuant to this Section. Under such circumstances 12 (if there is no successor Securities Depository), the Company and the Trustee shall be obligated to deliver 2002 Series B Bonds as described in the Indenture, provided that the expense in connection therewith shall be paid by the Company. In the event that certificates for 2002 Series B Bonds are issued, the provisions of the Indenture shall apply to, among other things, the transfer and exchange of such certificates and the method of payment of principal of, premium, if any, and interest on such 2002 Series B Bonds. Whenever DTC requests the Company to do so, the Company will cooperate with DTC in taking appropriate action after written notice (a) to make available one or more separate certificates evidencing the 2002 Series B Bonds to any DTC Participant having 2002 Series B Bonds credited to its DTC account, or (B) to arrange for another securities depository to maintain custody of certificates evidencing the 2002 Series B Bonds. 5. Notwithstanding any provision herein to the contrary, so long as the Book-Entry System of transfers provided for in this Section shall remain in effect with respect to the 2002 Series B Bonds, (a) every transfer of such 2002 Series B Bonds made in accordance with the Auction Procedures set forth in Exhibit A, (b) every remarketing of such 2002 Series B Bonds (or portions thereof) by the Remarketing Agent and (c) all purchases and transfers of such 2002 Series B Bonds (or portions thereof) by the Tender Agent shall be conducted in accordance with such system. 2.06 Optional Redemption -- Prices and Terms 1. The 2002 Series B Bonds shall be subject to redemption at the option of the Company as follows, in whole or in part, at a Redemption Price of 100% of the principal amount thereof together with accrued interest, if any, to the redemption date: (a) if the 2002 Series B Bonds are in an Auction Mode, on any Interest Payment Date immediately following the end of an Auction Period; (b) if the 2002 Series B Bonds are in a Daily or Weekly Mode, on any Business Day; (c) if the 2002 Series B Bonds are in a Flexible or Term Mode, on any Rate Adjustment Date for the 2002 Series B Bonds to be redeemed; and (d) if the 2002 Series B Bonds are in a Fixed Mode, on the first day of the Fixed Mode for the 2002 Series B Bonds to be redeemed. 2. In addition, if the 2002 Series B Bonds are in a Term Mode or a Fixed Mode, the 2002 Series B Bonds shall be subject to redemption at the option of the Company on any date prior to their stated maturity, in whole or in part: 13 (a) unless clause (b) below applies, during any Interest Period therefor, on any day, but only after the fifth (5th) anniversary of the first day of such Interest Period, at a Redemption Price equal to 100% of the principal amount thereof; or (b) during any Interest Period therefor, on any alternate dates and at any alternate prices stated in an Officer's Certificate delivered to the Notice Parties prior to the Rate Determination Date for such Interest Period and accompanied by a Favorable Opinion of Bond Counsel. 3. Notwithstanding anything to the contrary contained in the Indenture, in the event that any 2002 Series B Bond in the Auction, Daily, Weekly or Flexible Mode shall become subject to redemption, notice of such redemption shall be given, in the manner provided in subsection 4 of this Section 2.06, not less than 15 days before the redemption date. 4. Notwithstanding anything to the contrary contained in the Indenture, notice of redemption shall be given by mail, postage prepaid, to the registered owners of any 2002 Series B Bonds or portions of 2002 Series B Bonds which are to be redeemed, at their last addresses, if any, appearing on the registry books, and failure so to mail any such notice shall not affect the validity of the proceedings for the redemption of any other 2002 Series B Bonds to be redeemed. 5. Notwithstanding anything to the contrary contained herein or in the Indenture, in the event that any 2002 Series B Bond is to be redeemed in part, the portion of such 2002 Series B Bond not so redeemed shall be in an Authorized Denomination. 6. Notwithstanding anything to the contrary contained herein or in the Indenture, in the event of any redemption of less than all of the 2002 Series B Bonds, 2002 Series B Bank Bonds shall be redeemed first, prior to the selection of any other 2002 Series B Bonds for redemption. 7. Notwithstanding anything to the contrary contained herein, 2002 Series B Bank Bonds shall be subject to redemption, at the election of the Company, in whole or in part at any time at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date of redemption (computed at the Bank Rate or Rates in effect from time to time). Any such redemption shall take place five (5) Business Days after the Company shall have given the Agent Bank, the Trustee, the Tender Agent and the Remarketing Agent notice thereof, specifying the 2002 Series B Bank Bonds or portions thereof to be so redeemed on such date, unless the Agent Bank shall consent to an earlier redemption date. 2.07 Mandatory Redemption of 2002 Series B Bonds Through Sinking Fund As a sinking fund for the 2002 Series B Bonds, the Company shall redeem the 2002 Series B Bonds in the aggregate principal amounts and on the dates specified in the following table: 14 Aggregate Principal Amount of Sinking Fund Payment to Be Made 2002 Series B Bonds to be Redeemed on ________________ in Year: through Sinking Fund on Such Date 2002 $________________________ 2003 $________________________ 2004 $________________________ 2005 $________________________ 2006 $________________________ 2007 $________________________ 2008 $________________________ 2009 $________________________ 2010 $________________________ 2011 $________________________ The principal amount of 2002 Series B Bonds acquired (and surrendered for cancellation) or redeemed by the Company otherwise than through operation of the sinking fund shall be credited against sinking fund payments for 2002 Series B Bonds of such maturity, in proportion to the respective amounts of such required sinking fund payments. 2.08 [Reserved] 2.09 [Reserved] 2.10 Place of Payment and Paying Agents The principal and Redemption Price of the 2002 Series B Bonds will be payable at the principal corporate trust office of U.S. Bank National Association, 180 E. Fifth Street, St. Paul, Minnesota 55101, and such institution is hereby appointed Paying Agent for the 2002 Series B Bonds. The principal and Redemption Price of the 2002 Series B Bonds shall also be payable at any other place which may be provided for such payment by the appointment of any other Paying Agent or Paying Agents as permitted by the Indenture. Interest on the 2002 Series B Bonds shall be paid (i) by check payable to the order of the person entitled thereto and mailed by first class mail, postage prepaid, to the address of such person as it shall appear on the books of the Company kept at the office of the Registrar, (ii) in the case of all 2002 Series B Bank Bonds, by wire transfer of immediately available funds at such wire address as the Agent Bank shall specify or (iii) in the case of 2002 Series B Bonds subject to the Auction Mode, the Flexible Mode, the Daily Mode or the Weekly Mode, by wire transfer in immediately available funds to any owner of 2002 Series B Bonds in the denomination of $1,000,000 or any Authorized Denomination in excess of such amount at such wire transfer address as such owner shall specify if such owner shall provide written notice to the Trustee not less than 15 days prior to such Interest Payment Date in which request for wire transfer payment is made and the wire transfer address is specified. 15 2.11 Registration of Transfers and Exchanges The Company hereby appoints the Auction Agent as co-Registrar and an Authenticating Agent for the 2002 Series B Bonds subject to the Auction Mode. The Company hereby appoints the Tender Agent as co-Registrar and an Authenticating Agent for the 2002 Series B Bonds subject to the Flexible Mode, the Daily Mode or the Weekly Mode. Each such co-Registrar shall maintain an office in the City of New York, New York where 2002 Series B Bonds subject to such Modes may be presented for registration, transfer or exchange. The Auction Agent and the Tender Agent each shall signify its acceptance of the duties imposed upon it hereunder as co-Registrar and Authenticating Agent by written instrument filed with the Company and the Trustee. 2.12 Application of Proceeds of 2002 Series B Bonds The proceeds of the 2002 Series B Bonds will be applied simultaneously with the delivery of the 2002 Series B Bonds, as follows: (1) There shall be deposited with the Trustee, in trust, such amount, if any, as shall, together with other available moneys (including, without limitation, proceeds of the 2002A Bonds), be determined by an Officer of the Company to be sufficient to satisfy any conditions imposed by the Indenture to the authentication and delivery of the 2002 Series B Bonds and/or the 2002A Bonds; and (2) The remaining balance of proceeds of the 2002 Series B Bonds will be disbursed to or for the account of the Company, at the direction of the Company. 2.13 [Reserved] 2.14 Issuance of 2002 Series B Bonds in Lieu of Those Deemed Purchased At such time as any 2002 Series B Bond shall be deemed purchased as provided iin this Eleventh Supplemental Indenture, the Company may issue a new Bond or Bonds in lieu thereof pursuant to the Indenture and the 2002 Series B Bond that is deemed purchased shall no longer be Outstanding. 2.15 Forms of 2002 Series B Bonds and Authentication Certificate The forms of the 2002 Series B Bonds and the form of the Trustee's certificate of authentication will be substantially as set forth in Exhibit B hereto with such variations, omissions and insertions as are required or permitted by the Indenture. 16 3. INTEREST MODES; DETERMINATION OF INTEREST RATES FOR 2002 Series B BONDS; TENDER AND PURCHASE OF 2002 Series B BONDS 3.01 Determination of Interest Modes Interest Modes may be determined as follows: (a) By the Company. If the 2002 Series B Bonds shall be in any Interest Mode other than the Fixed Mode, the Company may, subject to clause (b) of this Section, designate a different Interest Mode or a Term Mode with an Interest Period of different duration (and, if such new Interest Mode is a Term Mode, designate the duration of the initial Interest Period thereof) for the 2002 Series B Bonds by an Officer's Certificate delivered to the other Notice Parties not less than 45 days, if the 2002 Series B Bonds are then in a Flexible Mode or Term Mode, and not less than seven (7) days if the 2002 Series B Bonds are then in an Auction Mode and otherwise not less than 30 days, prior to the first day of such new Interest Mode (unless such shorter period of time prior thereto shall be acceptable to the Trustee and (1) if the 2002 Series B Bonds are then in an Auction Mode, the Auction Agent and each Broker-Dealer or (2) if the 2002 Series B Bonds are then in an Interest Mode other than the Auction Mode, the Tender Agent), stating: (i) Effective Date: the first day of the newly designated Interest Mode or Interest Period for the 2002 Series B Bonds (referred to herein as the "Mode Adjustment Date"), which shall be (A) if the Interest Mode then in effect is an Auction Mode with an Auction Period other than a daily Auction Period, the second Interest Payment Date following the final Auction Date, (B) if the Interest Mode then in effect for the 2002 Series B Bonds is an Auction Mode with a daily Auction Period, a Daily Mode or a Weekly Mode, an Interest Payment Date, (C) if the Interest Mode then in effect for the 2002 Series B Bonds is a Term Mode, any day on which the 2002 Series B Bonds may be redeemed at the option of the Company pursuant to subsection 1 or 2 of Section 2.06 at a Redemption Price of 100% of the principal amount thereof, plus accrued interest, if any, thereon, and (D) if the Interest Mode then in effect for the 2002 Series B Bonds is a Flexible Mode, the latest Interest Payment Date for all Interest Periods thereon then in effect or any Business Day thereafter, (ii) Designation: that the Company has determined that, effective on such Mode Adjustment Date, an Auction Mode, a Daily Mode, a Weekly Mode, a Flexible Mode, a Term Mode, a successive Term Mode with an Interest Period of different duration, or a Fixed Mode, as the case may be, shall take effect for the 2002 Series B Bonds, and (iii) Auction Period or Interest Period: if (A) the designated Interest Mode is an Auction Mode, the duration of the Auction Period to be in effect upon the effectiveness of such Auction Mode, which Auction Period shall be any of the Auction Periods referred to in Exhibit A, or (B) the designated Interest Mode is a Term Mode, the duration of the initial Interest Period thereof, which Interest Period shall end on the last calendar day of any June or December specified in such Officer's Certificate. 17 Upon (X) receipt by the other Notice Parties of such Officer's Certificate, (Y) receipt by the Tender Agent of the items referred to in subsection 1 of Section 4.02 and (Z) the giving of the notice provided in clause (b) of Section 3.04, the Interest Mode or Interest Period, as the case may be, for the 2002 Series B Bonds shall, subject to clause (b) of this Section and Section 3.02, automatically be converted on the Mode Adjustment Date specified in such Officer's Certificate to the specified Interest Mode or Interest Period, as the case may be, without further act, unless the Trustee and (1) if the designated Interest Mode is any Interest Mode other than the Auction Mode, the Tender Agent or (2) if the designated Interest Mode is the Auction Mode, the Auction Agent and each Broker-Dealer shall have received, prior to the mailing of notice thereof pursuant to clause (b) of Section 3.04, an Officer's Certificate electing not to effect such conversion. The Trustee shall promptly notify the other Notice Parties in writing of the conversion of the 2002 Series B Bonds to a new Interest Mode or Interest Period. (b) Limitations on Determinations. No change to any Interest Mode or in the Interest Period for any Term Mode shall be made for the 2002 Series B Bonds by an Officer's Certificate pursuant to clause (a) of this Section, unless: (i) Favorable Opinion of Bond Counsel: such Officer's Certificate is accompanied by, and in addition there is delivered to the Trustee, the Bond Insurer, the Tender Agent and the Remarketing Agent on the first day of such Interest Mode or Interest Period, as the case may be, a Favorable Opinion of Bond Counsel, (ii) Consent of Bond Insurer: such Officer's Certificate is accompanied by a written consent of the Bond Insurer to such change in Interest Mode or Interest Period, (iii) Liquidity Facility Requirement: except in the case of a change to the Auction Mode or the Fixed Mode, the Liquidity Facility shall be in an amount at least equal to the Liquidity Facility Requirement applicable to the Interest Mode to become effective, (iv) Qualified Interest Period: if the Interest Mode to become effective for the 2002 Series B Bonds is a Term Mode, the duration of the first Interest Period thereof designated by such Officer's Certificate is in accordance with the provisions of Section 3.02, and (v) Book-Entry System: if the Interest Mode to become effective for the 2002 Series B Bonds is an Auction Mode, the 2002 Series B Bonds shall, on the Mode Adjustment Date, be a Book-Entry Only 2002 Series B Bond. 18 (c) Restoration of Positions. If, after notice to any Person of any change in the Interest Mode or Interest Period for the 2002 Series B Bonds, such change may not be effected on the Mode Adjustment Date specified therefor in the Officer's Certificate designating such change because of any failure to satisfy the conditions of clause (b) of this Section, then the 2002 Series B Bonds shall remain in the Interest Mode which they are then in or remain subject to the same Interest Period as then is applicable, as the case may be; provided, however, that if the proposed change was from the Term Mode to any other Interest Mode and the Company causes to be delivered to the Trustee, the Bond Insurer, the Tender Agent and the Remarketing Agent a Favorable Opinion of Bond Counsel, then, so long as the Liquidity Facility then in effect (taking into account any amendments being made thereto in connection therewith) shall provide that the amount available to be drawn or advanced thereunder shall be at least equal to the principal amount of the Outstanding 2002 Series B Bonds (other than 2002 Series B Bank Bonds) plus 31 days' interest thereon computed at a rate per annum equal to the Maximum Rate and on the basis of a 365-day year, the 2002 Series B Bonds shall be changed to the Weekly Mode. In any such event, the 2002 Series B Bonds shall be subject to mandatory tender as and to the extent provided in clause (c)(iii) of Section 3.06. 3.02 Duration of Interest Modes and Interest Periods The duration of Interest Modes and Interest Periods will be as follows: (a) Interest Modes. Each Interest Mode for the 2002 Series B Bonds other than the Fixed Mode shall extend through the day prior to the effective date of any other Interest Mode for the 2002 Series B Bonds established in accordance with Section 3.01. Any Fixed Mode for the 2002 Series B Bonds shall extend to the stated maturity date of the 2002 Series B Bonds. (b) Interest Periods Generally. No Interest Period for any 2002 Series B Bond (or portion thereof) during a Flexible Mode or a Term Mode shall extend beyond (1) the fifth (5th) day preceding the Liquidity Facility Expiration Date or (2) the day prior to the effective date of any other Interest Mode for the 2002 Series B Bonds to become effective pursuant to the prior Officer's Certificate given in accordance with clause (a) of Section 3.01. (c) Interest Periods During Auction Mode. Each Interest Period for each 2002 Series B Bond (or beneficial ownership interest therein) while in an Auction Mode shall be the same as each Auction Period with respect thereto, which Auction Periods shall be determined in the manner provided in Exhibit A. (d) Interest Periods During Flexible Mode. The Interest Period for each 2002 Series B Bond (or beneficial ownership interest therein) while in a Flexible Mode shall be the period determined by the Remarketing Agent, on or before the Rate Adjustment Date therefor, to be the Interest Period which, in its judgment, will produce the greatest likelihood of the lowest overall debt service costs on the 2002 Series B Bonds prior to the maturity 19 thereof, given prevailing market conditions. The Remarketing Agent may determine different Interest Periods for different 2002 Series B Bonds (or beneficial ownership interests therein) on or before the same Rate Adjustment Date. Each Interest Period for any 2002 Series B Bond (or beneficial ownership interest therein) while in a Flexible Mode shall commence on the first day of such Flexible Mode for such 2002 Series B Bond (or beneficial ownership interest therein) or on the day immediately succeeding the immediately preceding Interest Period for such 2002 Series B Bond (or beneficial ownership interest therein) during such Flexible Mode, shall end on a day preceding a Business Day, and shall be not less than one nor more than 270 days in length. No Interest Period for any 2002 Series B Bond (or beneficial ownership interest therein) while in a Flexible Mode shall end later than the day preceding any redemption date described in subsection 1 or 2 of Section 2.06, unless the principal amount of 2002 Series B Bonds (or beneficial ownership interests therein) with an Interest Period which ends on or prior to such preceding day is at least equal to the principal amount of 2002 Series B Bonds to be redeemed on such redemption date pursuant to said subsection 1 or 2 of Section 2.06, as the case may be. (e) Interest Period During Term Modes. Each Interest Period for any 2002 Series B Bond (or beneficial ownership interest therein) while in a Term Mode shall commence on the Mode Adjustment Date with respect thereto or on the day immediately succeeding the immediately preceding Interest Period for such 2002 Series B Bond during such Term Mode. The initial Interest Period of each Term Mode for the 2002 Series B Bonds shall end on the last calendar day of any June or December specified in the Officer's Certificate designating such Interest Mode pursuant to clause (a) of Section 3.01 which occurs at least one year after the effective date of such Interest Mode. Each successive Interest Period during such Term Mode shall end on the day immediately preceding the anniversary of the last Interest Payment Date for interest accrued in the immediately preceding Interest Period which occurs the same number of 12-month periods after the first day of such successive Interest Period as the number of 12-month periods or portions thereof during the initial Interest Period in such Term Mode, unless changed by Officer's Certificate pursuant to Section 3.01. 3.03 Determination of Interest Rates; Effectiveness Thereof The various interest rates for the 2002 Series B Bonds will be determined as follows, and shall be effective for the periods described below: (a) Auction Mode Rate. During each Auction Mode for 2002 Series B Bonds, the Auction Mode Rates to be in effect from time to time shall be determined by the Auction Agent and notice thereof shall be given in the manner provided in Exhibit A, and each such Auction Mode Rate shall be effective for the Auction Period to which such Auction Mode Rate relates; provided, however, that the Auction Mode Rate for the Auction Period commencing on the Delivery Date shall be determined by J.P. Morgan Securities Inc., in its capacity as the initial Broker-Dealer, as the lowest rate which, in the judgment of such Broker-Dealer, is necessary to 20 enable the 2002 Series B Bonds (or beneficial ownership interests therein) to be sold to the initial purchasers thereof at a price (without regard to accrued interest) equal to 100% of the principal amount thereof; and provided, further, that in the event of a change to the Auction Mode from another Interest Mode, the Auction Mode Rate for the Auction Period commencing on the Mode Adjustment Date applicable thereto shall be determined by such Broker-Dealer as shall be specified by the Company as the lowest rate which, in the judgment of such Broker-Dealer, is necessary to enable the 2002 Series B Bonds (or beneficial ownership interests therein) to be remarketed on such Mode Adjustment Date at a price (without regard to accrued interest) equal to 100% of the principal amount thereof. (b) Daily Rate. During each Daily Mode for 2002 Series B Bonds, by 12:30 p.m., New York City time, on each Business Day for the Remarketing Agent, the Remarketing Agent shall determine the Daily Rate for the 2002 Series B Bonds by determining, in the manner described in clause (f) of this Section, the Market Rate therefor on such day, which Daily Rate shall be effective for the Interest Period beginning on such Business Day and ending on the day preceding the next succeeding Business Day. (c) Weekly Rate. During each Weekly Mode for the 2002 Series B Bonds, by 5:00 p.m., New York City time, on the last Business Day for the Remarketing Agent before the commencement of such Weekly Mode and before each succeeding Wednesday (or such other day as may be specified by the Remarketing Agent after notice to the Trustee, the Tender Agent and the Holders of the 2002 Series B Bonds) thereafter during such Weekly Mode, the Remarketing Agent shall determine the Weekly Rate for the 2002 Series B Bonds by determining, in the manner described in clause (f) of this Section, the Market Rate therefor on such day, which Weekly Rate shall be effective for the Interest Period beginning on Wednesday of such week and ending on the next succeeding Tuesday. (d) Flexible Rate. By not later than 12:30 p.m., New York City time, on or before the first Business Day for the Remarketing Agent in each Interest Period for each 2002 Series B Bond (or beneficial ownership interest therein) which is in a Flexible Mode, the Remarketing Agent shall determine the Flexible Rate for such 2002 Series B Bond (or beneficial ownership interest therein), in each case by determining, in the manner described in clause (f) of this Section, the Market Rate therefor on such day, which Flexible Rate shall be effective for such Interest Period. (e) Term Rate; Fixed Rate. On any date designated by the Remarketing Agent which is not more than 35 days preceding nor later than the last Business Day for the Remarketing Agent preceding each Interest Period for 2002 Series B Bonds during which such 2002 Series B Bonds are in a Term Mode or the Fixed Mode, the Remarketing Agent shall determine the Term Rate or the Fixed Rate, as the case may be, for the 2002 Series B Bonds by determining, in the manner described in clause (f) of this Section, the Market Rate therefor on such day, which Term Rate or Fixed Rate, as the case may be, shall be effective for such Interest Period. 21 (f) Procedure for Market Rate Determination. The Remarketing Agent shall make each determination of the Market Rate for any 2002 Series B Bond (or beneficial ownership interest therein) pursuant to this Section by determining in its judgment the minimum interest rate necessary to be borne by such 2002 Series B Bond (or beneficial ownership interest therein) for the relevant Interest Period to enable the Remarketing Agent to remarket such 2002 Series B Bond (or beneficial ownership interest therein) on the Rate Adjustment Date therefor at a price (without regard to accrued interest) equal to 100% of the principal amount thereof; provided, however, that in no event shall any rate so determined exceed the Maximum Rate. If for any reason the Remarketing Agent fails to determine the Market Rate for any 2002 Series B Bond (or beneficial ownership interest therein) on a Rate Determination Date, or any Market Rate for any 2002 Series B Bond (or beneficial ownership interest therein) determined by the Remarketing Agent on a Rate Determination Date is determined by a court of competent jurisdiction to be invalid or unenforceable, then, commencing on such Rate Determination Date or the date with respect to which such court's determination shall be effective, as the case may be, such 2002 Series B Bond (or beneficial ownership interest therein) shall bear interest at a rate equal to the One Week LIBOR Rate. 3.04 Notice of Interest Rates and Interest Modes Notice of interest rates and Interest Modes will be given as follows: (a) Notice to the Trustee, the Broker-Dealers, the Tender Agent and the Company. If the 2002 Series B Bonds shall be in the Auction Mode, the Auction Agent shall give notice to the Trustee of each Auction Rate determined pursuant to Exhibit A at the time and in the manner provided in Exhibit A. If the 2002 Series B Bonds shall be in any Interest Mode other than the Auction Mode, the Remarketing Agent shall give notice to the Trustee, the Tender Agent and the Company, at the times determined pursuant to the next sentence, of each interest rate determination made by it pursuant to Section 3.03 and of each determination of the duration of an Interest Period for any 2002 Series B Bond in a Flexible Mode made by it pursuant to clause (d) of Section 3.02, which notice shall be in writing (including by facsimile or other electronic means) or may be by telephone, promptly confirmed in writing (including by facsimile or other electronic means). Such notice shall be given (i) if the 2002 Series B Bonds shall be in the Daily Mode, (A) on each Friday, as to each rate determined during the week ending on such Friday and (B) on the last day of such Interest Period, as to each rate determined during the week in which such last day occurs and (ii) if the 2002 Series B Bonds shall be in the Weekly Mode, the Flexible Mode, the Term Mode or the Fixed Mode, on each day on which such rate is determined, as to the interest rate and, in the case of the Flexible Mode, the Interest Period so determined. In lieu of any notice in writing as aforesaid, the Remarketing Agent may make such information available to the Trustee, the Tender Agent and/or the Company by any readily available electronic means (e.g., by posting such information on the Internet); provided, however, that the 22 Remarketing Agent shall have given the Trustee, the Tender Agent and/or the Company, as the case may be, at least five days' prior written notice of its intention to make such information available in such manner. (b) Notice to Holders of 2002 Series B Bonds of Interest Modes. Not less than 15 days, if the 2002 Series B Bonds are in a Daily Mode or Weekly Mode, not less than 20 days if the 2002 Series B Bonds are in an Auction Mode, and not less than 30 days, if the 2002 Series B Bonds are in any other Interest Mode, and, in any such case, not more than 60 days, prior to (1) the effective date of a change in the Rate Determination Date for 2002 Series B Bonds in the Weekly Mode, as provided in clause (c) of Section 3.03, (2) any Mode Adjustment Date or (3) the first day of any new Interest Period for 2002 Series B Bonds in a Term Mode, the Tender Agent shall give notice to the Auction Agent (if any), the Broker-Dealers (if any), the Remarketing Agent (if any), the Agent Bank (if any) and the Holders of the 2002 Series B Bonds, stating: (i) that the interest rate on the 2002 Series B Bonds will be converted to an Auction Mode, a Daily Mode, a Weekly Mode, a Flexible Mode, a Term Mode or a Fixed Mode, or that the duration of the Interest Period or the Rate Determination Date for such 2002 Series B Bond then in effect will be altered, as the case may be, and (ii) the other information required by subsection 2 of Section 3.08. The Tender Agent shall provide a copy of each notice from the Tender Agent given pursuant to this clause (b) to each transferee, if any, of a 2002 Series B Bond to be converted to a new Interest Mode or to an Interest Period of different duration in a Term Mode that is authenticated by it on or after the date of such notice and prior to the effective date of the Interest Mode or Interest Period described therein. (c) Notice to Owners of 2002 Series B Bonds of Interest Rates. The Remarketing Agent shall provide the rate of interest constituting the Daily Rate, the Weekly Rate or the Flexible Rate for the 2002 Series B Bonds, and the Tender Agent shall provide the rate of interest constituting the Term Rate or the Fixed Rate for the 2002 Series B Bonds, from time to time to each owner thereof who requests such information, by telephone or in writing (including by facsimile or other electronic means). While in a Daily Mode or Weekly Mode, the Tender Agent shall provide to the Company and, upon written request, to any Holder of a 2002 Series B Bond to whom such interest is due the interest rates in effect since the preceding Interest Accrual Period therefor. 3.05 Effect of Determinations Each designation of an Interest Mode made pursuant to Section 3.01, each determination of the duration of an Interest Period made pursuant to Section 3.02, and each determination of an Auction Mode Rate, a Daily Rate, a 23 Weekly Rate, a Flexible Rate, a Term Rate or a Fixed Rate made pursuant to Section 3.03 shall be conclusive and binding upon (a) the Company, (b) the Trustee, (c) the Auction Agent and the Broker-Dealers (if the 2002 Series B Bonds shall be in an Auction Mode), (d) the Tender Agent, the Agent Bank and the Banks (if the 2002 Series B Bonds shall be in an Interest Mode other than the Auction Mode) and (e) the Holders of the 2002 Series B Bonds, and neither the Company nor the Trustee nor the Auction Agent nor the Broker-Dealers nor the Tender Agent nor the Remarketing Agent shall have any liability to any such Person for any such determination, whether due to any error in judgment, failure to consider any information, opinion or other resource, or otherwise. 3.06 Purchase of 2002 Series B Bonds The Tender Agent shall effect the purchase of 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein in principal amount equal to, and leaving untendered, an Authorized Denomination) from any Person at the Purchase Price therefor, payable in immediately available funds by the close of business on the applicable Purchase Date, but solely from and to the extent of the funds described in Section 3.10, for the account of the Persons described in subsection 1 of Section 3.11: (a) Daily Mode Tender Option: while the 2002 Series B Bonds are in a Daily Mode, upon delivery (or deemed tender pursuant to Section 3.12) for purchase of such 2002 Series B Bonds at the option of the Holder thereof (or, if the 2002 Series B Bonds shall be a Book-Entry Only 2002 Series B Bond, at the option of the beneficial owner thereof) on any Business Day, endorsed in blank (or accompanied by a bond power executed in blank) to the extent of the portion to be purchased, at the office of the Tender Agent by 11:00 a.m., New York City time, on such Business Day, if notice of such tender shall have been given to the Tender Agent in strict compliance with the provisions of Section 3.07, and (b) Weekly Mode Tender Option: while the 2002 Series B Bonds are in a Weekly Mode, upon delivery (or deemed tender pursuant to Section 3.12) for purchase of such 2002 Series B Bonds at the option of the Holder thereof (or, if the 2002 Series B Bonds shall be a Book-Entry Only 2002 Series B Bond, at the option of the beneficial owner thereof) on any Business Day, endorsed in blank (or accompanied by a bond power executed in blank) to the extent of the portion to be purchased, at the office of the Tender Agent by 11:00 a.m., New York City time, on such Business Day, if notice of such tender shall have been given to the Tender Agent in strict compliance with the provisions of Section 3.07, and (c) Mandatory Tender: upon tender (or deemed tender pursuant to Section 3.12) for purchase of such 2002 Series B Bonds as required by subsection 1 of Section 3.08: (i) Expiration of Liquidity Facility: on the fifth (5th) Business Day prior to the Liquidity Facility Expiration Date, 24 (ii) Substitution of Liquidity Facility: on the Substitution Date, (iii) Interest Mode Changes: on any Mode Adjustment Date designated by an Officer's Certificate pursuant to clause (a) of Section 3.01, whether or not such change to a new Interest Mode is effected, (iv) Rate Adjustment Dates: on each Rate Adjustment Date while the 2002 Series B Bonds are in (A) a Flexible Mode or (B) a Term Mode, (v) Company Option in Term Mode: on any day while the 2002 Series B Bonds are in a Term Mode, upon delivery of an Officer's Certificate, if such 2002 Series B Bonds may then be redeemed at the option of the Company pursuant to subsection 1 or 2 of Section 2.06 at a Redemption Price of 100% of the principal amount thereof, plus accrued interest, if any, thereon, (vi) Amendment to this Eleventh Supplemental Indenture or the Indenture: on (A) as provided in Section 2.07(b) of Exhibit A, any Auction Date while the 2002 Series B Bonds are in an Auction Mode on which the conditions of said Section 2.07(b) are satisfied, (B) any Business Day while the 2002 Series B Bonds are in a Daily Mode or Weekly Mode, (C) any Rate Adjustment Date while the 2002 Series B Bonds are in a Flexible Mode, or (D) any Business Day on which the 2002 Series B Bonds may then be redeemed at the option of the Company pursuant to subsection 1 or 2 of Section 2.06 at a Redemption Price of 100% of the principal amount thereof, plus accrued interest, if any, thereon while the 2002 Series B Bonds are in a Term Mode, in any such case, that is at least fifteen (15) days following delivery to the Trustee and the Tender Agent of an Officer's Certificate to the effect that the Company is causing the 2002 Series B Bonds to become subject to mandatory tender in order to enable any Supplemental Indenture amending this Eleventh Supplemental Indenture or the Indenture to take effect pursuant to subsection 2 of Section 7.06; provided, however, that such Officer's Certificate shall be accompanied by a Favorable Opinion of Bond Counsel, (vii) Liquidity Facility Default: on the fifteenth (15th) day (or if such day shall not be a Business Day, on the next preceding Business Day) after receipt by the Trustee and the Tender Agent of notice from the Agent Bank to the effect that an "event of default" (or similar provision) on the part of the Company has occurred and is continuing under the Liquidity Facility, and directing the Tender Agent to make a draw or request for funding, as the case may be, under the Liquidity Facility to effect a mandatory tender of all of the 2002 Series B Bonds, and (viii) Substitution of Bond Insurance Policy: on the Business Day preceding the day on which any Substitute Bond Insurance Policy is to become effective with respect to the 2002 Series B Bonds, as provided in subsection 1 of Section 4.03. 25 3.07 Optional Tender of 2002 Series B Bonds for Purchase Notice (which notice shall be irrevocable and effective upon receipt) of the tender of any 2002 Series B Bond (or portion thereof) for purchase pursuant to clause (a) or (b) of Section 3.06 shall specify the principal amount (or portion thereof) of such 2002 Series B Bond so to be purchased, the Purchase Date therefor, and the name of the Holder thereof (or, if such 2002 Series B Bond is a Book-Entry Only 2002 Series B Bond, the name and number of the account to which such beneficial ownership interest in the 2002 Series B Bonds is credited by the Securities Depository) and shall be given by the Holder thereof or such Holder's attorney duly authorized in writing or, if such 2002 Series B Bond is a Book-Entry Only 2002 Series B Bond, by the beneficial owner thereof or such owner's attorney duly authorized in writing, to: (a) Daily Mode: the Tender Agent by 10:00 a.m., New York City time, on such Purchase Date, if such 2002 Series B Bond is in a Daily Mode, by telephone, facsimile or other electronic means, and (b) Weekly Mode: the Tender Agent by 5:00 p.m., New York City time, on a Business Day which is at least seven calendar days prior to such Purchase Date, if such 2002 Series B Bond is in a Weekly Mode, in writing (including by facsimile or other electronic means). Holders (or, if applicable, beneficial owners) of 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) that have elected to require purchase as provided above will be deemed, by such election, to have agreed irrevocably to sell the 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) to any purchaser determined in accordance with the provisions of Section 3.10 and subsection 1 of Section 3.11, on the date fixed for purchase at the Purchase Price therefor, and will be required to deliver (or cause to be delivered) such tendered 2002 Series B Bonds (or portions thereof) to the office of the Tender Agent by 11:00 a.m., New York City time, on the Purchase Date, endorsed in blank (or accompanied by a bond power executed in blank). Promptly upon receipt of such notice in respect of 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein), the Tender Agent shall give notice by telephone, promptly confirmed in writing (including by facsimile or other electronic means) to the Company, the Remarketing Agent and the Agent Bank, specifying the principal amount of the 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) so tendered for purchase and the Purchase Date for such 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein). 3.08 Mandatory Tender of 2002 Series B Bonds for Purchase 1. Mandatory Tender. Each owner of a 2002 Series B Bond (or portion thereof or beneficial ownership interest therein) upon notice given by the 26 Tender Agent pursuant to subsection 2 of this Section 3.08 and, if in a Flexible Mode or a Term Mode, on each Rate Adjustment Date therefor, shall tender, and in any event shall be deemed to have tendered, to the Tender Agent as agent for the Persons which purchase the same pursuant to Section 3.10 and subsection 1 of Section 3.11, such 2002 Series B Bond (or portion thereof or beneficial ownership interest therein) as shall become subject to mandatory tender for purchase pursuant to clause (c) of Section 3.06. Holders (or, if applicable, beneficial owners) of 2002 Series B Bonds (or beneficial ownership interests therein) will be deemed to have agreed irrevocably to sell 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) subject to mandatory tender for purchase to any purchaser determined in accordance with the provisions of Section 3.10 and subsection 1 of Section 3.11, on the dated fixed for purchase at the Purchase Price therefor, and will be required to deliver (or cause to be delivered) such tendered 2002 Series B Bonds (or portions thereof) to the office of the Tender Agent by 11:00 a.m., New York City time, on the Purchase Date, endorsed in blank (or accompanied by a bond power executed in blank). 2. Notice. The Tender Agent shall give notice of each Purchase Date for 2002 Series B Bonds described in clause (c) of Section 3.06 (except clauses (c)(iv)(A) and (c)(vii) thereof) to the Company, the Trustee, the Agent Bank, the Remarketing Agent and each Holder of 2002 Series B Bonds by mail, first-class postage prepaid, not less than 15 days, if such 2002 Series B Bonds are in a Daily or Weekly Mode, not less than 30 days, if such 2002 Series B Bonds are in a Term or Flexible Mode, and in either case not more than 60 days preceding such Purchase Date. The Tender Agent shall give notice of any Purchase Date for 2002 Series B Bonds described in clause (c)(vii) of Section 3.06 to the Company, the Trustee, the Agent Bank, the Remarketing Agent and each Holder of 2002 Series B Bonds by mail, first-class postage prepaid, as promptly as practicable following receipt by it of the notice from the Agent Bank referred to in said clause (c)(vii). Each such notice shall state: (a) the date of such Purchase Date, (b) that each 2002 Series B Bond (or portion thereof) not tendered for purchase pursuant to clause (c) of Section 3.06 by 11:00 a.m., New York City time, on such Purchase Date shall be deemed to have been tendered for purchase on such Purchase Date at the Purchase Price therefor, and that, if due provision is made for the payment of such Purchase Price on such Purchase Date, such Holder shall not be entitled to any payment (including any interest accrued subsequent thereto) in respect of such 2002 Series B Bond (or portion thereof) other than the Purchase Price for such 2002 Series B Bond (or portion thereof) and, unless such Purchase Price shall include accrued interest thereon to such Purchase Date, such accrued interest, (c) the time and place for the tender of such 2002 Series B Bond (or portion thereof) and the then current name and address of the Tender Agent, and 27 (d) if applicable, the matters described in clause (b) of Section 3.04. 3.09 Remarketing of 2002 Series B Bonds 1. Except in the case of 2002 Series B Bonds subject to mandatory tender pursuant to clauses (c)(i) or (c)(vii) of Section 3.06, the Remarketing Agent shall offer for sale for the account of the respective owners thereof and use its best efforts to sell an aggregate principal amount of 2002 Series B Bonds equal to the aggregate principal amount of 2002 Series B Bonds which are required to be tendered for purchase pursuant to Section 3.06 hereof, at a price equal to the Purchase Price thereof, on the Purchase Date of such 2002 Series B Bonds or as soon thereafter as possible, without selling any such 2002 Series B Bonds at a discount or a premium; except that no 2002 Series B Bonds shall be remarketed to the Company. 2. By not later than 11:30 a.m., New York City time, on each Purchase Date for 2002 Series B Bonds, the Remarketing Agent shall give the Tender Agent notice by telephone, facsimile or other electronic means of the principal amount of such 2002 Series B Bonds tendered for purchase or deemed tendered on such Purchase Date that the Remarketing Agent has been able to remarket by such time. 3. If the Remarketing Agent is able to sell all or any portion of the 2002 Series B Bonds described in subsection 1 of this Section at the price described in such subsection, the Remarketing Agent shall cause the proceeds of the sale of such 2002 Series B Bonds to be transferred to the Tender Agent, by 11:45 a.m., New York City time, on such Purchase Date, in immediately available funds, for deposit in the 2002 Series B Bond Remarketing Proceeds Account in the 2002 Series B Bond Purchase Fund. 3.10 Purchase of Tendered 2002 Series B Bonds The Tender Agent shall apply the money in the 2002 Series B Bond Purchase Fund on and after each Purchase Date to pay the Purchase Price of 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) tendered pursuant to Section 3.06 from the following sources in the following order of priority: (a) first, from proceeds of the remarketing of such 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) deposited to the 2002 Series B Bond Remarketing Proceeds Account in the 2002 Series B Bond Purchase Fund on such Purchase Date, and (b) second, from amounts drawn under or derived from the Liquidity Facility pursuant to Section 4.01 and deposited to the 2002 Series B Bond Liquidity Proceeds Account in the 2002 Series B Bond Purchase Fund on such Purchase Date. 28 Upon tender for purchase of any 2002 Series B Bond (or portion thereof) on the Purchase Date therefor or of any Untendered 2002 Series B Bond on or after the Purchase Date therefor in accordance with Section 3.06, endorsed in blank (or accompanied by a bond power executed in blank) to the extent of the portion to be purchased, the Tender Agent shall pay to the Holder of such 2002 Series B Bond (or portion thereof) or such Untendered 2002 Series B Bond the Purchase Price therefor on behalf of the purchaser thereof specified in subsection 1 of Section 3.11 from funds available for such purchase held in the applicable account in the 2002 Series B Bond Purchase Fund. Upon tender for purchase or deemed tender for purchase of any beneficial ownership interest in a Book-Entry Only 2002 Series B Bond to be purchased in accordance with Section 3.06, the Tender Agent shall pay to the Securities Depository, for credit to the account to which such beneficial ownership interest is credited, the Purchase Price therefor on behalf of the purchaser thereof specified in subsection 1 of Section 3.11 from funds available for such purchase held in the applicable account in the 2002 Series B Bond Purchase Fund. The Tender Agent shall hold all money delivered to it hereunder and deposited (or required to be deposited) to the applicable account in the 2002 Series B Bond Purchase Fund for the purchase of 2002 Series B Bonds (or portions thereof) in trust solely for the benefit of the respective Persons which shall have so delivered such money until the 2002 Series B Bonds (or portions thereof) purchased with such money are delivered pursuant to subsection 2 of Section 3.11 and, thereafter, for the benefit of the Persons to whom such money is to be paid hereunder. 3.11 Disposition of Tendered 2002 Series B Bonds 1. Purchasers of Tendered 2002 Series B Bonds. 2002 Series B Bonds (or portions thereof) tendered or deemed tendered pursuant to Section 3.06, the Purchase Price for which has been paid pursuant to Section 3.10, shall be purchased: (a) by the Persons to whom such 2002 Series B Bonds (or portions thereof) have been remarketed, to the extent the Purchase Price for such 2002 Series B Bonds has been paid pursuant to clause (a) of the first paragraph of Section 3.10; and (b) by the Bank(s) (or a nominee or nominees thereof), to the extent the Purchase Price therefor is paid from amounts drawn under or derived from the Liquidity Facility pursuant to clause (b) of the first paragraph of Section 3.10. 2. Delivery of Purchased 2002 Series B Bonds. Whenever any 2002 Series B Bond (or portion thereof), other than a beneficial ownership interest in a Book-Entry Only 2002 Series B Bond, tendered or deemed tendered pursuant to Section 3.06 is purchased pursuant to Section 3.10 and subsection 1 of this Section 3.11, the Company shall execute, and the Tender Agent shall authenticate and deliver, in the name of the Person deemed to have purchased the same or its designee, one or more new 2002 Series B Bonds of any Authorized Denomination and of a like aggregate principal amount. Whenever any beneficial ownership interest in a Book-Entry Only 2002 Series B Bond tendered or deemed tendered pursuant to Section 3.06 is purchased pursuant to Section 3.10 and subsection 1 of this 29 Section 3.11, the Tender Agent shall cause such beneficial ownership interest to be credited to the account at the Securities Depository of (a) the Bank(s) or any nominee or nominees thereof, in the case of beneficial ownership interests purchased by the Tender Agent with amounts drawn under or derived from the Liquidity Facility, and (b) otherwise, the Person deemed to have purchased the same or any nominee thereof specified by such Person. Notwithstanding anything in this subsection 2 to the contrary, no 2002 Series B Bond (or portion thereof) shall be released by the Tender Agent (and the Tender Agent shall not cause the transfer of the beneficial ownership of any Book-Entry Only 2002 Series B Bond to any Person) if (x) such 2002 Series B Bond (or portion thereof or beneficial ownership interest therein) was purchased with funds drawn under or derived from the Liquidity Facility, and (y) the limit of the obligations of the Bank(s) thereunder was thereby reduced, until the limit of the obligations of the Bank(s) under the Liquidity Facility has been reinstated to an amount equal to the Liquidity Facility Requirement. 3. Tendered 2002 Series B Bonds to be Held in Trust. The Tender Agent shall hold all 2002 Series B Bonds or portions thereof (or beneficial interests therein) delivered to it hereunder in trust solely for the benefit of the respective Persons who have so delivered such 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) until money representing the Purchase Price of such 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) shall have been delivered to or for the account of or to the order of such Persons. 4. Agency; No Extinguishment. In carrying out its responsibilities with respect to the purchase of 2002 Series B Bonds under Sections 3.06 through 3.12, the Tender Agent shall be acting solely as the agent of the Holders or owners from time to time of the 2002 Series B Bonds tendered or deemed tendered pursuant to Section 3.06 and of the Persons purchasing the same pursuant to Section 3.10 and subsection 1 of Section 3.11, respectively. No delivery of 2002 Series B Bonds to the Tender Agent or purchase of 2002 Series B Bonds by the Tender Agent pursuant to Sections 3.06 through 3.12 shall constitute a redemption of 2002 Series B Bonds or other extinguishment of the debt evidenced thereby. 3.12 Untendered 2002 Series B Bonds; Book-Entry Only 2002 Series B Bonds Any 2002 Series B Bond (or portion thereof): (a) for which notice of tender thereof on any Purchase Date is given in accordance with Section 3.07, but which is not tendered for purchase by 11:00 a.m., New York City time, on such Purchase Date, or (b) which is required to be but which is not tendered for purchase by 11:00 a.m., New York City time, on any Purchase Date determined pursuant to clause (c) of Section 3.06 30 (such 2002 Series B Bonds (or portions thereof) being referred to herein as "Untendered 2002 Series B Bonds") shall, upon deposit in the applicable account in the 2002 Series B Bond Purchase Fund of an amount sufficient to pay the Purchase Price of such 2002 Series B Bond (or portion thereof) on such Purchase Date, be deemed to have been tendered and sold on such Purchase Date to the Person specified in subsection 1 of Section 3.11, and thereafter (1) the Person who has failed to deliver such 2002 Series B Bond (or portion thereof) shall not be entitled to any payment (including any interest accrued subsequent to such Purchase Date) in respect thereof other than the Purchase Price for such 2002 Series B Bond (or portion thereof) and, unless such Purchase Price shall include accrued interest thereon to such Purchase Date, such accrued interest, and such Untendered 2002 Series B Bond shall no longer be entitled to the benefit of the Indenture, except for the purpose of payment of the Purchase Price therefor and such accrued interest, if any, and (2) the Company shall execute, and the Tender Agent shall authenticate and deliver, in the name of the Person specified in subsection 1 of Section 3.11, one or more new 2002 Series B Bonds of any Authorized Denomination and of a like aggregate principal amount. To the extent permitted pursuant to the procedures of the Securities Depository, any beneficial ownership interest in a Book-Entry Only 2002 Series B Bond for which notice of tender thereof on any Purchase Date is given in accordance with Section 3.07 or which is required to be tendered for purchase pursuant to subsection 1 of Section 3.08 shall be deemed tendered to the Tender Agent endorsed in blank when the Securities Depository or any direct or indirect participant in its depository system which owns such beneficial ownership interest as nominee for the beneficial owner thereof shall have received sufficient instructions from the Person to whose account at the Securities Depository or participant such beneficial ownership interest is credited to transfer such beneficial ownership interest to the account of the Tender Agent and such transfer is effected, and payment of the Purchase Price of such beneficial ownership interest shall be deemed to be made when the Tender Agent gives sufficient instructions to (while maintaining sufficient funds at or delivering such funds to) the Securities Depository or such participant to credit such Purchase Price to the account of such Person at the Securities Depository or such participant. 4. LIQUIDITY FACILITY; DRAWINGS THEREUNDER; SUBSTITUTE LIQUIDITY FACILITIES; SUBSTITUTE BOND INSURANCE POLICIES 4.01 Drawings to Make Payments of Purchase Price 1. The Tender Agent shall present all drafts, demands and other documents and give such notices and do all such other acts as may be required by the Liquidity Facility (in the manner and to the extent therein permitted and by the time required thereby) to cause a draw on or request for funding under, as applicable, the Liquidity Facility in an amount sufficient to purchase at the 31 Purchase Price, on each Purchase Date all 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) (i) that are required to be purchased pursuant to Sections 3.06 through 3.12 on such Purchase Date and (ii) for which the Purchase Price thereof has not been paid (as provided by Section 3.12 or otherwise) or deposited in immediately available funds to the 2002 Series B Bond Remarketing Proceeds Account in the 2002 Series B Bond Purchase Fund from the proceeds of the remarketing of such 2002 Series B Bonds by 11:45 a.m., New York City time, on such Purchase Date. 2. On each Purchase Date the Tender Agent shall give notice to the Company by telephone, promptly confirmed in writing (including by facsimile or other electronic means) specifying the Purchase Price of the 2002 Series B Bonds to be purchased pursuant to or with funds drawn or claimed under the Liquidity Facility on such date. All funds drawn or claimed under the Liquidity Facility by the Tender Agent to pay the Purchase Price of 2002 Series B Bonds shall be credited to the 2002 Series B Bond Liquidity Proceeds Account in the 2002 Series B Bond Purchase Fund and applied in accordance with this Eleventh Supplemental Indenture. 4.02 Initial Liquidity Facility; Extension of Term of Liquidity Facility; Substitution of Liquidity Facilities; Surrender of Liquidity Facility 1. In the event that the 2002 Series B Bonds are to be changed from an Auction Mode to a Daily, Weekly, Flexible or Term Mode, on or prior to the date of delivery of the Officer's Certificate to be delivered pursuant to clause (a) of Section 3.01 in connection therewith, the Company shall enter into or cause to be delivered to the Tender Agent, as the case may be, a standby bond purchase agreement, revolving credit agreement, letter of credit, surety bond or other agreement or instrument satisfying the conditions set forth in the following sentence, pursuant to which one or more Persons undertakes to make loans or provide funds to purchase 2002 Series B Bonds upon the tender (or deemed tender) thereof for purchase. Such agreement or instrument (a) shall be in a stated amount, or the aggregate commitment of such Person(s) thereunder shall be, at least equal to the Liquidity Facility Requirement, (b) if the 2002 Series B Bonds are to be changed to a Term Mode, shall have a stated expiration or termination date that is not earlier than the fifth (5th) Business Day following the last day of the initial Interest Period for such Term Mode, (c) shall be acceptable to the Bond Insurer and its counsel and (d) shall have administrative provisions reasonably satisfactory to the Tender Agent. In addition, the Company shall cause to be delivered to the Tender Agent (i) a Favorable Opinion of Bond Counsel as to the provision of such agreement or instrument, (ii) a written consent of the Bond Insurer to the delivery of such Substitute Liquidity Facility, (iii) either (A) written evidence from each Rating Agency then rating the 2002 Series B Bonds to the effect that such Rating Agency has reviewed such agreement or instrument and stating the ratings of the 2002 Series B Bonds following such Mode Adjustment Date or (B) a statement of an Officer of the Company that no ratings have been obtained, (iv) if such agreement or instrument is other than a letter of credit issued by a domestic commercial bank, an Opinion of Counsel to the effect that no registration of the 2002 Series B Bonds or such agreement or instrument is required under the Securities Act of 1933, as amended, (v) an Opinion of Counsel satisfactory to an Officer of the Company to the effect that such agreement or instrument is a valid and enforceable obligation of the issuer or provider thereof and (vi) all information required to give the notice of mandatory tender for purchase of the 2002 Series B Bonds as required by subsection 2 of Section 3.08. 32 2. If, at any time, the Company shall obtain a renewal or extension of the Liquidity Facility then in effect (or a written commitment which evidences such renewal or extension) on substantially the same terms, unless the Agent Bank already shall have given notice thereof, the Company shall promptly give notice to the other Notice Parties of such renewal or extension, and the Tender Agent shall promptly give notice thereof to the Holders of the 2002 Series B Bonds. Any such renewal or extension shall not constitute substitution of a Liquidity Facility. 3. At any time prior to the giving by the Tender Agent, pursuant to subsection 2 of Section 3.08, of notice of the mandatory tender of the 2002 Series B Bonds as a result of the expiration of the Liquidity Facility then in effect, the Company may deliver to the Tender Agent a Substitute Liquidity Facility covering the 2002 Series B Bonds in an amount at least equal to the Liquidity Facility Requirement, which Substitute Liquidity Facility shall be accompanied by (i) a Favorable Opinion of Bond Counsel as to the substitution of such Substitute Liquidity Facility for the Liquidity Facility then in effect, (ii) a written consent of the Bond Insurer to the delivery of such Substitute Liquidity Facility, (iii) either (A) written evidence from each Rating Agency then rating the 2002 Series B Bonds to the effect that such Rating Agency has reviewed the proposed Substitute Liquidity Facility and stating the ratings of the 2002 Series B Bonds after substitution of such Substitute Liquidity Facility or (B) a statement of an Officer of the Company that no ratings have been obtained, (iv) if such Substitute Liquidity Facility is other than a letter of credit issued by a domestic commercial bank, an Opinion of Counsel to the effect that no registration of the 2002 Series B Bonds or such Substitute Liquidity Facility is required under the Securities Act of 1933, as amended, (v) an Opinion of Counsel satisfactory to an Officer of the Company to the effect that such Substitute Liquidity Facility is a valid and enforceable obligation of the issuer or provider thereof and (vi) all information required to give the notice of mandatory tender for purchase of the 2002 Series B Bonds as required by subsection 2 of Section 3.08. In such event, the Tender Agent shall accept such Substitute Liquidity Facility, which shall become effective with respect to the 2002 Series B Bonds on the Substitution Date therefor (which shall be the date of the mandatory tender for purchase established pursuant to clause (c)(ii) of Section 3.06). Promptly following such Substitution Date, the Tender Agent shall surrender the Liquidity Facility so substituted to the Agent Bank with respect to such Liquidity Facility, for cancellation in accordance with its terms, or shall deliver any document necessary to terminate such Liquidity Facility. 4. Upon (a) the downgrade of the short-term ratings of any Bank below the two highest rating categories by S&P or Moody's, (b) any request by a Bank for increased costs charged under the Liquidity Facility, (c) any Bank's failure to purchase 2002 Series B Bonds that have been tendered for purchase and not 33 remarketed when required under the terms of the Liquidity Facility or any Bank's default under any other term or condition of the Liquidity Facility, such default having continued for fifteen (15) Business Days after receipt by such Bank of written notice of such default from the Company, the Bond Insurer or the Trustee, or (d) bankruptcy, insolvency, receivership, liquidation or other similar proceedings instituted by or against such Bank, the Company may, with the consent of the Bond Insurer, or shall, at the written direction of the Bond Insurer, cause another bank to be substituted for the Bank with respect to which the event described in (a), (b), (c) or (d) shall have occurred under the Liquidity Facility then in effect or to issue or enter into a Substitute Liquidity Facility, as the case may be, on a stated date (which shall be the Substitution Date). In that event, the 2002 Series B Bonds shall be subject to mandatory tender for purchase on the Substitution Date, and the Tender Agent shall give notice thereof in the manner provided in subsection 2 of Section 3.08. 5. In connection with the delivery of (a) any agreement or instrument permitted pursuant to subsection 1 of this Section or (b) any Substitute Liquidity Facility permitted pursuant to subsection 3 or 4 of this Section, the Company shall, with the written consent of the Bond Insurer, be authorized to amend the provisions of this Eleventh Supplemental Indenture if and to the extent necessary to give effect to such agreement or instrument or such Substitute Liquidity Facility, as the case may be. Notwithstanding the foregoing, no such amendment shall be or become effective unless the Company shall have received a Favorable Opinion of Bond Counsel, which Opinion shall, in addition, state that such amendment will not adversely affect the rights of the Holders of the 2002 Series B Bonds. 6. Promptly following the conversion of the 2002 Series B Bonds to the Auction Mode or the Fixed Mode, the Tender Agent shall surrender the Liquidity Facility to the Agent Bank for cancellation in accordance with its terms, or shall deliver any document necessary to terminate the Liquidity Facility. 4.03 Substitution of Bond Insurance Policy 1. In the event that the ratings of the financial strength of the Bond Insurer by Moody's and S&P are reduced to below "Aa3" and "AA-", respectively, the Company, upon the written request of the Agent Bank, may provide a substitute or additional bond insurance policy insuring the 2002 Series B Bonds issued by a bond insurer with a financial strength rating by Moody's and S&P of at least "Aa3" and "AA-", respectively. In such event, the 2002 Series B Bonds shall be subject to mandatory tender as provided in clause (c)(viii) of Section 3.06, and the Tender Agent shall give notice thereof in the manner provided in subsection 2 of Section 3.08. 2. In connection with the delivery of any Substitute Bond Insurance Policy permitted pursuant to subsection 1 of this Section, the Company shall be authorized to amend the provisions of this Eleventh Supplemental Indenture if and to the extent necessary to give effect to such Substitute Bond Insurance Policy. Notwithstanding the foregoing, no such amendment shall be or become effective unless the Company shall have received a Favorable Opinion of Bond Counsel, which Opinion shall, in addition, state that such amendment will not adversely affect the rights of the Holders of the 2002 Series B Bonds. 34 5. 2002 Series B BANK BONDS 5.01 Remarketing of 2002 Series B Bank Bonds 1. With respect to each particular 2002 Series B Bank Bond, unless such 2002 Series B Bank Bond shall have been purchased by the Bank(s) (or any nominee or nominees thereof) pursuant to a mandatory tender described in clause (c)(i) or (c)(vii) of Section 3.06, the Remarketing Agent shall use its best efforts to remarket such 2002 Series B Bank Bond at a price equal to the principal amount thereof plus, in the event the 2002 Series B Bonds (other than 2002 Series B Bank Bonds) are subject to an Interest Mode other than the Flexible Mode, accrued interest, if any, to the date of such remarketing (computed in accordance with the provisions of subsection 3 of this Section 5.01). Notwithstanding anything to the contrary contained in this Eleventh Supplemental Indenture, if upon the termination of the Liquidity Facility the Bank(s) (or any nominee or nominees thereof) shall be the Holder of any 2002 Series B Bank Bond, unless otherwise agreed by the Remarketing Agent, the Remarketing Agent shall be obligated to use its best efforts to remarket such 2002 Series B Bank Bond in accordance with the provisions of this Section only until the 60th day following the date of purchase by the Bank(s) (or any nominee or nominees thereof) of such 2002 Series B Bank Bond. 2. In attempting to remarket any 2002 Series B Bank Bond, the Remarketing Agent shall treat such 2002 Series B Bank Bond for all purposes as if it were governed by the Interest Mode which governs the 2002 Series B Bonds (other than 2002 Series B Bank Bonds). 3. Unless otherwise provided in a Liquidity Facility, by becoming a Holder or beneficial owner of a 2002 Series B Bank Bond, the Bank(s) agree to transfer (or cause any nominee(s) or transferee(s) thereof to transfer) such Bond to any Person to which such Bond is remarketed by or through the Remarketing Agent, but only, however, against receipt of a purchase price therefor equal to the principal amount thereof plus, in the event the 2002 Series B Bonds (other than 2002 Series B Bank Bonds) are subject to an Interest Mode other than the Flexible Mode, accrued interest, if any, to the date of such remarketing, with such accrued interest being computed at the 2002 Series B Bond Rate or Rates in effect for the period beginning on the later of (i) the Bank Purchase Date with respect to such 2002 Series B Bank Bond and (ii) the most recent Interest Payment Date relating to such 2002 Series B Bank Bond on which interest accrued on such Bond has been paid in full and ending on the day preceding the day of such remarketing. If more than one 2002 Series B Bank Bond shall be owned by the Bank(s) (or any nominee(s) or transferee(s) thereof), the Tender Agent, in its sole discretion, shall select the particular 2002 Series B Bank Bond(s) that are so remarketed. If a 2002 Series B Bank Bond is transferred by the Bank(s) (or any nominee(s) or transferee(s) thereof) in accordance with the previous sentence, the Company agrees to pay to the Agent Bank, for the account of the Bank(s), or to such transferee(s), as the case may be, on the date of such remarketing, the amount of interest, if any, resulting from the Bank Rate or Rates in effect from time to time during the period referred to in the preceding sentence being in excess of such 2002 Series B Bond Rate or Rates 35 in effect during such period (said amount being referred to herein as the "Differential Interest Amount"). In the event that the Bank(s) is (or are) entitled (pursuant to its (or their) Liquidity Facility) to elect not to so transfer any such 2002 Series B Bond, and the Bank(s) so elect, the Tender Agent shall, upon notice thereof from the Agent Bank, promptly notify the Company and the Remarketing Agent of such fact by telephone, promptly confirmed in writing (including by facsimile or other electronic means), and such 2002 Series B Bond thereupon shall cease to be a 2002 Series B Bank Bond. 4. In the event that the Remarketing Agent shall identify a purchaser for any 2002 Series B Bank Bond pursuant to the provisions of subsection 1 of this Section, the Remarketing Agent shall give notice thereof to the Tender Agent, which notice shall specify the principal amount of the 2002 Series B Bank Bond(s) for which the Remarketing Agent has identified a purchaser and the purchase price thereof (which shall be the principal amount thereof plus, in the event the 2002 Series B Bonds (other than 2002 Series B Bank Bonds) are subject to an Interest Mode other than the Flexible Mode, accrued interest, if any, to the date of the proposed remarketing thereof (computed in accordance with the provisions of subsection 3 of this Section 5.01)). If such notice shall be given by 12:30 p.m., New York City time, on a Business Day, then the date of the giving of such notice shall be the date of such remarketing. If such notice shall be given after 12:30 p.m., New York City time, on a Business Day, then the next succeeding Business Day shall be the date of such remarketing. Promptly following the receipt of any such notice, the Tender Agent shall notify the Company and the Agent Bank thereof by telephone, promptly confirmed in writing (including by facsimile or other electronic means), which notice shall specify the principal amount of the 2002 Series B Bank Bond(s) for which the Remarketing Agent has identified a purchaser, and the purchase price thereof. 5. Except in a case where the Bank(s) shall have elected not to sell any 2002 Series B Bank Bond as permitted by subsection 3 of this Section 5.01, by not later than 2:30 p.m., New York City time, on the remarketing date for any 2002 Series B Bank Bond(s) for which the Remarketing Agent has identified a purchaser, in exchange for possession of such 2002 Series B Bond(s), the Remarketing Agent shall deliver or cause to be paid, in immediately available funds, to the Tender Agent for deposit in the 2002 Series B Bond Remarketing Proceeds Account, the purchase price for such 2002 Series B Bank Bond(s). 6. Notwithstanding anything to the contrary contained herein, in the event that any 2002 Series B Bank Bonds shall be Outstanding following the conversion of the 2002 Series B Bonds to an Auction Mode, all references in this Section 5.01 to the "Remarketing Agent" shall be deemed to refer to the Broker-Dealers, and all references in this Section 5.01 to the "remarketing" of any such 2002 Series B Bank Bonds shall be deemed to refer to the transfer of 2002 Series B Bonds in accordance with the Auction Procedures set forth in Exhibit A. 36 5.02 Interest on 2002 Series B Bank Bonds 1. Each 2002 Series B Bank Bond shall bear interest from and including the Bank Purchase Date with respect thereto to but not including the earliest of (a) the date (if any) on which such 2002 Series B Bank Bond is remarketed as provided in Section 5.01, (b) the date (if any) on which such 2002 Series B Bank Bond ceases to be a 2002 Series B Bank Bond, as provided in subsection 3 of Section 5.01 and (c) the maturity or redemption date thereof, at an annual rate equal to the Bank Rate or Rates in effect from time to time during such period computed on the basis of a 365 or 366-day year, as applicable, for the actual number of days elapsed. 2. Unless otherwise provided in the Liquidity Facility, interest on a 2002 Series B Bank Bond shall be paid (i) if the 2002 Series B Bonds (other than 2002 Series B Bank Bonds) shall be subject to the Auction Mode, the Daily Mode or the Weekly Mode, on each Interest Payment Date applicable to such Interest Mode and (ii) if the 2002 Series B Bonds (other than 2002 Series B Bank Bonds) shall be subject to the Term Mode, the Fixed Mode or the Flexible Mode, on each Monthly Payment Date, commencing with the first (1st) Monthly Payment Date to occur after the Bank Purchase Date with respect to such 2002 Series B Bank Bond. 3. Notwithstanding anything to the contrary contained herein, on the Bank Purchase Date with respect any 2002 Series B Bank Bond, the amount of accrued interest, if any, included in the purchase price of such 2002 Series B Bank Bond shall be paid to the Agent Bank, for the account of the Bank(s). 5.03 Principal Repayment of 2002 Series B Bank Bonds A particular 2002 Series B Bank Bond shall, as to the repayment of principal thereof, be governed solely by the provisions of Sections 2.03, 2.06 and 2.07. 6. ESTABLISHMENT OF 2002 SERIES B SUBORDINATED BOND PURCHASE FUND 6.01 2002 Series B Bond Purchase Fund At such time (if any) as the 2002 Series B Bonds shall be converted to an Interest Mode other than the Auction Mode, there shall be created a fund to be held by the Tender Agent and known as the "2002 Series B Bond Purchase Fund", consisting of a 2002 Series B Bond Liquidity Proceeds Account and a 2002 Series B Bond Remarketing Proceeds Account. The 2002 Series B Bond Purchase Fund and the Accounts therein shall not constitute funds or accounts for purposes of the Indenture or the Indenture. Amounts on deposit in the 2002 Series B Bond Purchase Fund shall not be commingled with the amounts held in any fund or account under the Indenture or the Indenture. All amounts received by the Tender Agent from the Remarketing Agent representing the Purchase Price of 2002 Series B Bonds remarketed by the Remarketing Agent shall be deposited in the 2002 Series B Bond Remarketing Proceeds Account in the 2002 Series B Bond Purchase 37 Fund. All amounts received by the Tender Agent from the Agent Bank representing the proceeds of a drawing or request for funding, as the case may be, under the Liquidity Facility to pay the Purchase Price of 2002 Series B Bonds tendered or deemed tendered for purchase shall be deposited in the 2002 Series B Bond Liquidity Proceeds Account in the 2002 Series B Bond Purchase Fund. All amounts on deposit in such Accounts in the 2002 Series B Bond Purchase Fund shall be used only to pay the Purchase Price of the 2002 Series B Bonds so remarketed (i) as provided in Section 3.10 in the case of 2002 Series B Bonds tendered for purchase and (ii) as provided in subsection 5 of Section 5.01 in the case of 2002 Series B Bank Bonds being remarketed; provided, however, that in the event that there shall not be sufficient funds on deposit in the 2002 Series B Bond Purchase Fund to purchase all 2002 Series B Bonds subject to purchase on a particular date as a result of any Bank failing to honor its commitment to advance funds under the Liquidity Facility, the Tender Agent shall select the particular 2002 Series B Bonds (or portions thereof or beneficial interests therein) to be so purchased at random in such manner as the Tender Agent in its discretion may deem fair and appropriate; and provided, further, that any funds on deposit in the 2002 Series B Bond Liquidity Proceeds Account in the 2002 Series B Bond Purchase Fund that will not be required to be applied to the purchase of 2002 Series B Bonds tendered or deemed tendered for purchase shall be returned to the Agent Bank, in immediately available funds, by 3:00 p.m., New York City time, on the date on which such funds shall have been received by the Tender Agent. 6.02 Moneys Held in Trust All moneys deposited in the 2002 Series B Bond Purchase Fund shall be held in trust by the Tender Agent and applied only for the purposes set forth in, and in accordance with the provisions of, this Eleventh Supplemental Indenture. The 2002 Series B Bond Purchase Fund shall be a trust fund for such purposes. Amounts on deposit in the 2002 Series B Bond Purchase Fund shall not be commingled with any other funds held by the Tender Agent, and all amounts on deposit in such Fund are hereby pledged and assigned to the purchase of the 2002 Series B Bonds in accordance with the terms hereof. Such amounts on deposit in the 2002 Series B Bond Purchase Fund hereby pledged and assigned shall immediately be subject to the lien of this pledge without any physical delivery thereof or further act, and the lien of such pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the Company, irrespective of whether such parties have notice thereof. 6.03 No Investment Amounts on deposit in the 2002 Series B Bond Purchase Fund shall be held in cash, uninvested. 6.04 No Lien for Trustee or Tender Agent Notwithstanding anything in the Indenture or this Eleventh Supplemental Indenture to the contrary, neither the Trustee nor the Tender Agent shall have any right to, or lien whatsoever upon, any of the amounts on deposit in the 2002 38 Series B Bond Purchase Fund for the payment of fees, expenses or other compensation due and owing by the Company to the Trustee or the Tender Agent, as the case may be, for any services rendered under the Indenture or this Eleventh Supplemental Indenture. 7. ADDITIONAL COVENANTS; OTHER PROVISIONS 7.01 [Reserved] 7.02 The Tender Agent 1. At such time (if any) as the 2002 Series B Bonds shall be converted to an Interest Mode other than the Auction Mode or the Fixed Mode, the Company shall appoint the initial Tender Agent for the 2002 Series B Bonds, which appointment shall be made at such time as shall be necessary in order to enable the Tender Agent to perform all duties to be performed by it in connection with such conversion. The Tender Agent shall accept the duties and obligations thereof by execution and delivery of a written instrument of acceptance delivered to the other Notice Parties. 2. The Tender Agent shall agree to: (a) hold all 2002 Series B Bonds (or beneficial ownership interests therein) properly tendered to it for purchase hereunder as agent and bailee of, and in escrow for the benefit of, the respective Persons which shall have so tendered such 2002 Series B Bonds (or beneficial ownership interests therein) until moneys representing the Purchase Price of such 2002 Series B Bonds (or beneficial ownership interests therein) shall have been delivered to or for the account of or to the order of such Persons; (b) hold all moneys delivered to it hereunder for the purchase of 2002 Series B Bonds (or beneficial ownership interests therein) as agent and bailee of, and in escrow for the benefit of, the respective Persons which shall have so delivered such moneys, until the 2002 Series B Bonds (or beneficial ownership interests therein) purchased with such moneys shall have been delivered to or for the account of such Persons; (c) keep such books and records as shall be consistent with prudent industry practice and make such books and records available for inspection by the other Notice Parties at all reasonable times; (d) provide to the Trustee as soon as practicable after each Regular Record Date prior to the 2002 Series B Bonds being in the Fixed Mode, but in no case later than 10:00 a.m., New York City time, on the applicable Interest Payment Date, a list of the names and addresses of the Holders of the 2002 Series B Bonds as of such Regular Record Date; 39 (e) provide to the Trustee as soon as practicable after the Mode Adjustment Date in connection with a conversion of the 2002 Series B Bonds to the Fixed Mode, the books of registry of the Company containing the names and addresses of the Holders of 2002 Series B Bonds as of such Mode Adjustment Date; and (f) give notices as required hereunder at the times and in the manner specified herein. 3. Upon receipt by the Tender Agent of any notice of optional tender of 2002 Series B Bonds (or portions thereof or beneficial ownership interests therein) and the 2002 Series B Bonds (or beneficial ownership interests therein) delivered pursuant to such notice for purchase in accordance with the Eleventh Supplemental Indenture, the Tender Agent shall deliver to the Person delivering such notice and such 2002 Series B Bonds (or beneficial ownership interests therein) written evidence of the Tender Agent's receipt of such materials. The Tender Agent shall promptly return any such notice (together with the 2002 Series B Bonds (or beneficial ownership interests therein) submitted in connection therewith) that is incomplete or improperly completed or not delivered by the date and time required hereunder to the Person submitting such notice upon surrender of the receipt, if any, issued therefor. The Tender Agent's determination of whether any such notice is properly completed or delivered on a timely basis shall be binding on the Company, the Trustee, the Remarketing Agent and the Person that submitted such notice. 4. Each Tender Agent shall be (a) a bank or trust company organized under the laws of any state of the United States or a national banking association, having capital and surplus aggregating at least $25,000,000 or (b) a member of the National Association of Securities Dealers, Inc. having a capitalization of at least $25,000,000 and, in either such case, willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by the Eleventh Supplemental Indenture and shall be acceptable to each Rating Agency, as evidenced by written confirmation from each Rating Agency that the appointment of such Tender Agent will not result in the reduction or withdrawal of the then current ratings on the 2002 Series B Bonds. In the event that the 2002 Series B Bonds no longer shall be a Book-Entry Only 2002 Series B Bond, the Tender Agent shall maintain an office or agency in New York, New York at which its duties hereunder are to be performed. The Tender Agent may at any time resign and be discharged of the duties and obligations created by the Eleventh Supplemental Indenture by giving at least thirty (30) days' notice to the other Notice Parties. The Tender Agent may be removed at any time by the Company upon at least seven (7) days' notice to the other Notice Parties and the Holders of the 2002 Series B Bonds, other than 2002 Series B Bonds then in the Fixed Mode. Prior to the 2002 Series B Bonds being converted to the Auction Mode or the Fixed Mode, no such resignation or removal shall take effect until the appointment of, and the acceptance of such appointment by, a successor Tender Agent. Successor Tender Agents may be appointed from time to time by the Company with the written approval of the Bond Insurer and the Agent Bank. Upon the resignation or removal of the Tender Agent, the Tender Agent shall deliver any 2002 Series B Bonds (or beneficial ownership interests therein) and moneys held by it in such capacity to its successor. 40 5. The Tender Agent, upon receipt of any notice, Indenture, request, consent, order, certificate, report, opinion, bond, or other paper or document furnished to it pursuant to any provision of the Eleventh Supplemental Indenture, shall examine such instrument to determine whether it conforms to the requirements of the Eleventh Supplemental Indenture and shall be protected in acting upon any such instrument believed by it to be genuine and to have been signed or presented by the proper party or parties. The Tender Agent may consult with counsel, who may or may not be of counsel to the Company, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it under the Eleventh Supplemental Indenture in good faith and in accordance therewith. 6. Whenever the Tender Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Eleventh Supplemental Indenture, such matter (unless other evidence in respect thereof be therein specifically prescribed) may be deemed to be conclusively proved and established by a certificate of an Officer of the Company, and such certificate shall be full warrant for any action taken or suffered in good faith under the provisions of the Eleventh Supplemental Indenture upon the faith thereof; but in its discretion the Tender Agent may in lieu thereof accept other evidence of such fact or may require such further or additional evidence as to it may seem reasonable. 7. Except as otherwise expressly provided in the Eleventh Supplemental Indenture, any request, order, notice or other direction required or permitted to be furnished pursuant to any provision of the Eleventh Supplemental Indenture by the Company to the Tender Agent shall be sufficiently executed when the same is executed in the name of the Company by an Officer of the Company. 8. In the event that the Tender Agent is required to act pursuant to the terms of the Eleventh Supplemental Indenture upon the receipt of telephonic notice, such notice shall be promptly confirmed in writing. If such notice shall not be so confirmed, the Tender Agent shall be entitled to rely upon such telephonic notice for all purposes whatsoever. 9. In purchasing 2002 Series B Bonds (or beneficial ownership interests therein) hereunder, the Tender Agent shall be acting as a conduit and shall not be purchasing such 2002 Series B Bonds (or beneficial ownership interests therein) for its own account. 10. Upon any change in the Tender Agent, the Company shall furnish to each Rating Agency the notice provided for in Section 7.05 hereof, but the failure to provide such notice shall not affect the validity of any change in the Tender Agent. 41 7.03 The Remarketing Agent 1. At such time (if any) as the 2002 Series B Bonds shall be converted to an Interest Mode other than the Auction Mode or the Fixed Mode, the Company shall appoint the initial Remarketing Agent for the 2002 Series B Bonds, which appointment shall be made at such time as shall be necessary in order to enable the Remarketing Agent to perform all duties to be performed by it in connection with such conversion. 2. Notwithstanding any other provision of the Indenture or the Eleventh Supplemental Indenture, the Company may determine to appoint multiple Remarketing Agents for the 2002 Series B Bonds. In such event, the Company shall take such actions (including, without limitation, obtaining such additional CUSIP number(s) for the 2002 Series B Bonds) as shall be necessary to identify separately the 2002 Series B Bonds (or beneficial ownership interests therein) to be remarketed by each such Remarketing Agent, and for which each such Remarketing Agent shall be responsible for determining the 2002 Series B Bond Rate. In the event multiple Remarketing Agents shall be appointed as aforesaid (a) any reference herein to "the Remarketing Agent" shall be deemed to refer to the appropriate Remarketing Agent, or all such Remarketing Agents, as the context may require and (b) any reference herein to "the Remarketing Agreement" shall be deemed to refer to the Remarketing Agreement to which the appropriate Remarketing Agent is a party, or all such Remarketing Agreements, as the context may require. 3. Each Remarketing Agent shall accept the duties and obligations thereof under the Eleventh Supplemental Indenture by execution and delivery of an agreement with the Company under which such Remarketing Agent will agree, among other things, to keep such books and records regarding the remarketing of 2002 Series B Bonds (or beneficial ownership interests therein) and determining the interest rates on the 2002 Series B Bonds as provided herein as shall be consistent with prudent industry practice and to make such books and records available for inspection by the other Notice Parties at all reasonable times. 4. Each Remarketing Agent shall be a member of the National Association of Securities Dealers, Inc., having a capitalization of at least $50,000,000 and be authorized by law to perform all the duties imposed upon it by the Eleventh Supplemental Indenture. Any Remarketing Agent may at any time resign and be discharged of the duties and obligations created by the Eleventh Supplemental Indenture by giving at least thirty (30) days' notice to the other Notice Parties and as otherwise provided in the Remarketing Agreement relating to it. Any Remarketing Agent may be removed at any time by the Company upon such number of days' written notice to the other Notice Parties as shall be provided in the applicable Remarketing Agreement. Prior to the 2002 Series B Bonds being converted to the Auction Mode or the Fixed Mode, no such removal shall be effective until a successor Remarketing Agent shall have been appointed and shall have accepted such appointment. A successor Remarketing Agent may be appointed from time to time by the Company with the written approval of the Bond Insurer and the Agent Bank. 42 5. If a Remarketing Agent resigns or is removed, such Remarketing Agent shall pay over, assign and deliver any moneys and 2002 Series B Bonds (or beneficial ownership interests therein) held by it in such capacity, other than 2002 Series B Bonds (or beneficial ownership interests therein) held for its own account, to its successor. Upon any change in a Remarketing Agent, the Company shall furnish to each Rating Agency the notice provided for in Section 7.05 hereof, but the failure to provide such notice shall not affect the validity of any change in a Remarketing Agent. 7.04 Dealings in 2002 Series B Bonds The Trustee, the Auction Agent, each Broker-Dealer, the Tender Agent, any Bank and the Remarketing Agent, and their officers, directors, employees and agents, may in good faith buy, sell, own, hold and deal in any of the 2002 Series B Bonds (or beneficial ownership interests therein) and may join in any action which any Holder of the 2002 Series B Bonds may be entitled to take, with like effect as if it did not act in any capacity hereunder. The Trustee, the Auction Agent, each Broker-Dealer, the Tender Agent, any Bank and the Remarketing Agent may in good faith hold any other form of indebtedness of the Company, own, accept or negotiate any drafts, bills of exchange, acceptances or obligations of the Company, and make disbursements for the Company and enter into any commercial or business arrangement therewith. 7.05 Notices Written notice of (i) a change in the Trustee, Auction Agent, Remarketing Agent or Tender Agent for the 2002 Series B Bonds, (ii) any amendment to the Eleventh Supplemental Indenture or the Liquidity Facility, (iii) an extension, expiration or termination of the Liquidity Facility, (iv) any change in the Interest Mode applicable to the 2002 Series B Bonds, (v) any mandatory tender of the 2002 Series B Bonds, (vi) any declaration that the principal of all the Certificates then Outstanding, and the interest due thereon, shall be due and payable immediately, as provided in Section 8.01 of the Indenture, (vii) any substitution of a new bank for any Bank party to the Liquidity Facility then in effect or substitution of a Substitute Liquidity Facility for the Liquidity Facility then in effect, (viii) any substitution of a Substitute Bond Insurance Policy for the Bond Insurance Policy then in effect or (ix) a redemption or defeasance of all of the 2002 Series B Bonds, shall be given by the Trustee to each Rating Agency for which the Company provides an address. 7.06 Amendments to Eleventh Supplemental Indenture or the Indenture 1. The Eleventh Supplemental Indenture may be amended, at any time or from time to time, without the consent of the Holders of the Outstanding 2002 Series B Bonds or the Holders of Bonds Outstanding under the Indenture but with the written consent of the Bond Insurer, (i) for the purpose of making changes in the provisions hereof relating to the characteristics and operational provisions of the Interest Modes, (ii) to amend the provisions hereof relating 43 to the mandatory redemption of 2002 Series B Bank Bonds, (iii) in order to provide for and accommodate Substitute Liquidity Facilities as permitted by subsection 5 of Section 4.02 and (iv) in order to provide for and accommodate a Substitute Bond Insurance Policy as permitted by subsection 2 of Section 4.03. Each such amendment shall become effective on the Rate Adjustment Date next following the filing of a copy thereof with the records of the Company, the Trustee, the Bond Insurer, the Auction Agent, the Broker-Dealers, the Tender Agent, the Remarketing Agent and the Agent Bank, together with a Favorable Opinion of Bond Counsel. In addition, (a) in the case of amendments pursuant to clause (iii) of the first sentence of this subsection, no such amendment shall be effective until the date on which such Substitute Liquidity Facility becomes effective with respect to the 2002 Series B Bonds and (b) in the case of amendments pursuant to clause (iv) of the first sentence of this subsection, no such amendment shall be effective until the date on which such Substitute Bond Insurance Policy becomes effective with respect to the 2002 Series B Bonds. 2. In the event that the Company shall adopt any Supplemental Indenture making any amendment to the Eleventh Supplemental Indenture or to the Indenture for which the consent of the Holders of the 2002 Series B Bonds shall be required, an Officer of the Company may deliver to the Trustee and the Tender Agent an Officer's Certificate in accordance with the provisions of clause (c)(vi) of Section 3.06, requiring that the 2002 Series B Bonds be subject to mandatory tender for purchase at the time and in the manner provided in said clause (c)(vi). Following the date on which such mandatory tender shall occur, all subsequent Holders of the 2002 Series B Bonds shall be deemed to have consented to such Supplemental Indenture, notwithstanding anything to the contrary contained in the Indenture or the Eleventh Supplemental Indenture. 3. In addition, the provisions of this Appendix 2, including Exhibit A, may be amended at any time or from time to time without the consent of the Holders of the Outstanding 2002 Series B Bonds or the Holders of Bonds or other Obligations Outstanding under the Indenture, in the manner provided in Section 2.07(b) of Exhibit A. 4. No amendment permitted by the terms of this Section 7.06 which is reasonably believed by the Trustee or the Auction Agent (if the 2002 Series B Bonds shall be in an Auction Mode) or the Tender Agent (if the 2002 Series B Bonds shall be in an Interest Mode other than the Auction Mode) to adversely affect its rights, immunities and duties hereunder shall be effective without the written consent thereto of the Trustee, the Auction Agent or the Tender Agent, as applicable. 8. BOND INSURANCE PROVISIONS 8.01 Bond Insurer as Credit Enhancer As long as the Bond Insurance Policy shall be in full force and effect, the Bond Insurer is a Credit Enhancer with respect to the 2002 Series B Bonds. 44 8.02 Notice to the Bond Insurer of Non-Payment 1. In the event that, on the second Business Day, and again on the Business Day prior to an Interest Payment Date for any 2002 Series B Bond, the Trustee has not received sufficient moneys to pay all principal of and interest on the 2002 Series B Bonds due on the second following or following, as the case may be, Business Day, the Trustee shall immediately notify the Bond Insurer or its designee on the same Business Day by telephone or telegraph, confirmed in writing by registered or certified mail, of the amount of the deficiency. 2. If the deficiency is made up in whole or in part prior to or on such Interest Payment Date, the Trustee shall so notify the Bond Insurer or its designee. 8.03 Notice of Voidable Preference If the Trustee has notice that any Holder has been required to disgorge payments of principal or interest on the 2002 Series B Bonds to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes a voidable preference to such Holder within the meaning of any applicable bankruptcy laws, then the Trustee shall notify the Bond Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail. 8.04 Trustee as Attorney-in-Fact The Trustee is hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for Holders of the 2002 Series B Bonds as follows: (a) If and to the extent there is a deficiency in amounts required to pay interest on the 2002 Series B Bonds, the Trustee shall (i) execute and deliver to State Street Bank and Trust Company, N.A., or its successors under the Bond Insurance Policy (the "Insurance Paying Agent"), in form satisfactory to the Insurance Paying Agent, an instrument appointing the Bond Insurer as agent for such Holders in any legal proceeding related to the payment of such interest and an assignment to the Bond Insurer of the claims for interest to which such deficiency relates and which are paid by the Bond Insurer, (ii) receive as designee of the respective Holders (and not as Trustee) in accordance with the tenor of the Bond Insurance Policy payment from the Insurance Paying Agent with respect to the claims for interest so assigned and (iii) disburse the same to such respective Holders; and (b) If and to the extent of a deficiency in amounts required to pay principal of the 2002 Series B Bonds, the Trustee shall (i) execute and deliver to the Insurance Paying Agent, in form satisfactory to the Insurance Paying Agent, an instrument appointing the Bond Insurer as agent for such Holder in any legal proceeding relating to the payment of such principal and an assignment to the Bond Insurer of any of the 2002 Series B Bonds surrendered to the Insurance Paying Agent of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Trustee and available for such 45 payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent is received), (ii) receive as designee of the respective Holders (and not as Trustee) in accordance with the tenor of the Bond Insurance Policy payment therefor from the Insurance Paying Agent and (iii) disburse the same to such Holders. 8.05 Bond Insurer as Bondowner Payments with respect to claims for interest on and principal of the 2002 Series B Bonds disbursed by the Trustee from proceeds of the Bond Insurance Policy shall not be considered to discharge the obligation of the Company with respect to such 2002 Series B Bonds, and the Bond Insurer shall become the owner of such unpaid 2002 Series B Bonds and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this Section 8.05 or otherwise. 8.06 Subrogation Rights Irrespective of whether any such assignment is executed and delivered, the Company and the Trustee hereby agree for the benefit of the Bond Insurer that: They recognize that to the extent the Bond Insurer makes payments, directly or indirectly (as by paying through the Trustee), on account of principal of or interest on the 2002 Series B Bonds, the Bond Insurer will be subrogated to the rights of such Holders to receive the amount of such principal and interest from the Company, with interest thereon as provided and solely from the sources stated in the Eleventh Supplemental Indenture and the 2002 Series B Bonds; and (a) They will accordingly pay to the Bond Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Bond Insurance Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in the Eleventh Supplemental Indenture and the 2002 Series B Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the 2002 Series B Bonds to Holders, and will otherwise treat the Bond Insurer as the owner of such rights to the amount of such principal and interest. 8.07 Disclosure as to Additional Bonds In connection *-with the issuance of additional Bonds or Bonds under the Indenture, the Company shall deliver to the Bond Insurer a copy of the disclosure document, if any, circulated with respect to such Bonds or Bonds. 46 8.08 Furnishing of Amendments Copies of any amendments made to the documents executed in connection with the issuance of the 2002 Series B Bonds which are consented to by the Bond Insurer shall be sent to S&P. 8.09 Notices to the Bond Insurer Any notices given to the Bond Insurer pursuant to the Indenture or otherwise in connection with the 2002 Series B Bonds shall be given to ________________________, ___________________________________, Attention: _________________________. [If the Bond Insurer, in its capacity as Credit Enhancer with respect to the 2002 Series B Bonds, approves any Supplemental Indenture, the Company shall promptly provide a copy of such Supplemental Indenture to Standard & Poor's Ratings Services Group, a division of the McGraw Hill Companies, Inc.] 8.10 [Bond Insurer's Rights Upon an Event of Default If there is an Event of Default related to the payment of any interest or principal on the 2002 Series B Bonds (as such events are defined in Sections 6.1 (a) and (b) of the Indenture), then for so long as such Event of Default has not been cured or waived in accordance with the Indenture, the Bond Insurer, provided that it is not in default in performing its duties under the Bond Insurance Policy and after consultation with the Company, may direct the Company to convert from one Auction Period to another or from the current Interest Mode to a Fixed Mode, subject to the satisfaction of the other conditions of conversion set forth in this Eleventh Supplemental Indenture.] 47 EXHIBIT A TO APPENDIX 2 TO ELEVENTH SUPPLEMENTAL INDENTURE (AUCTION PROCEDURES DESCRIPTION) See "Appendix B - Auction Procedures" of the Registration Statement for which this Eleventh Supplemental Indenture is filed as an exhibit EXHIBIT B TO APPENDIX 2 TO ELEVENTH SUPPLEMENTAL INDENTURE (FORM OF 2002 SERIES B BOND DUE 2012) See Exhibit 4.18 of the Registration Statement for which this Eleventh Supplemental Indenture is filed as an exhibit EX-4 6 exh415.txt EXHIBIT 4.15 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- AUCTION AGREEMENT Dated __________, 2002 between U.S. BANK NATIONAL ASSOCIATION, as Trustee and BANKERS TRUST COMPANY, as Auction Agent relating to $60,000,000 Chugach Electric Association, Inc. New Bonds, 2002 Series B Due 2012 Auction Rate Bonds - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TABLE OF CONTENTS Page Section 1. Definitions and Rules of Construction..........................................................1 1.1 Terms Defined by Reference to the Eleventh Supplemental Indenture..............................1 1.2 Terms Defined Herein...........................................................................1 1.3 Rules of Construction..........................................................................2 Section 2. Auction........................................................................................3 2.1 Purpose; Appointment; Incorporation by Reference of Auction Procedures and Settlement Procedures.....................................................................................3 2.2 Preparation for each Auction; Maintenance of Registry of Beneficial Owners.....................3 2.3 Auction Schedule...............................................................................5 2.4 Notice of Auction Results......................................................................6 2.5 Notices to Existing Owners.....................................................................6 2.6 Broker-Dealers.................................................................................6 2.7 Ownership of 2002 Series B Bonds...............................................................6 2.8 Access to and Maintenance of Auction Records...................................................6 Section 3. The Auction Agent..............................................................................7 3.1 Duties and Responsibilities of the Auction Agent...............................................7 3.2 Rights of the Auction Agent....................................................................8 3.3 Auction Agent's Disclaimer.....................................................................9 3.4 Compensation, Expenses and Indemnification of the Auction Agent................................9 3.5 Broker-Dealer Fee..............................................................................9 Section 4. Representations and Warranties of the Trustee.................................................11 Section 5. Miscellaneous.................................................................................11 5.1 Term of Agreement.............................................................................11 5.2 Communications................................................................................12 5.3 Entire Agreement..............................................................................13 5.4 Benefits; Successors and Assigns..............................................................13 5.5 Amendment, Waiver.............................................................................13 5.6 Severability..................................................................................13 5.7 Execution in Counterparts.....................................................................13 5.8 Governing Law.................................................................................13 5.9 Ratings.......................................................................................13 i
AUCTION AGREEMENT THIS AUCTION AGREEMENT, dated __________, 2002 (the "Auction Agreement"), between BANKERS TRUST COMPANY, a New York banking corporation, as Auction Agent (the "Auction Agent"), and U.S. Bank National Association (the "Trustee"); WITNESSETH WHEREAS, concurrently with the execution and delivery of this Auction Agreement, the Chugach Electric Association, Inc. (the "Company") is issuing $60,000,000 in aggregate principal amount of its Chugach Electric Association, Inc., New Bonds, 2002 Series B Due 2012 (the "2002 Series B Bonds" or "Auction Rate Bonds") pursuant to the Eleventh Supplemental Indenture of Trust, dated as of __________, 2002 (the "Eleventh Supplemental Indenture"); WHEREAS, the Trustee is entering into this Auction Agreement as agent for the Bond Owners pursuant to the Eleventh Supplemental Indenture; and WHEREAS, the Auction Agent is to perform certain duties set forth herein; NOW, THEREFORE, the Trustee and the Auction Agent hereby agree as follows: Section 1. Definitions and Rules of Construction 1.1 Terms Defined by Reference to the Eleventh Supplemental Indenture. Capitalized terms not defined herein shall have the respective meanings specified in the Eleventh Supplemental Indenture, including the Auction Procedures Description. 1.2 Terms Defined Herein. As used herein and in the exhibits hereto, the following terms shall have the following meanings, unless the context otherwise requires: (a) "Auction Agent Fee" has the meaning set forth in Section 3.4(a) hereof. (b) "Auction Procedures Description" shall mean the Auction Procedures Description attached as Exhibit A of Appendix 2 of the Eleventh Supplemental Indenture. (c) "Auction Rate Bond Register" is defined in Section 2.2(c) hereof. (d) "Authorized Officer" shall mean (i) in the case of the Auction Agent, each Senior Vice President, Vice President, Assistant Vice President, and Associate of the Auction Agent assigned to its Corporate Trust & Agency Services Department and every other officer or employee of the Auction Agent designated an "Authorized Officer" for purposes hereof in a written communication delivered to the Trustee, (ii) in the case of the Company, its General Manager and every other officer or employee of the Company designated an "Authorized Officer" for purposes hereof in a written communication delivered to the Trustee, and (iii) in the case of the Trustee, every officer or employee of the Trustee designated as an "Authorized Officer" for purposes hereof in a written communication delivered to the Auction Agent. 1 (e) "Broker-Dealer Agreement" shall mean each agreement among the Auction Agent, the Company and a Broker-Dealer substantially in the form attached hereto as EXHIBIT A. (f) "Closing Date" shall mean the date of the delivery of the 2002 Series B Bonds to the initial Holders thereof. (g) "Company" shall mean Chugach Electric Association, Inc., an Alaska electric cooperative. (h) "Existing Owner" shall mean the owner of any beneficial interest in any 2002 Series B Bonds as shown on the Auction Rate Bond Register. (i) "Fee Payment Date" shall mean the first Interest Payment Date after the Closing Date, each anniversary thereof and the date of the termination of this Auction Agreement. (j) "Person" shall mean an individual, a corporation, a partnership, an association, a trust or any entity or organization, including a government or political subdivision or an agency or an instrumentality thereof. (k) "Settlement Procedures" shall mean the Settlement Procedures attached hereto as EXHIBIT B. 1.3 Rules of Construction. Unless the context or use indicates another or different meaning or intent, the following rules shall apply to the construction of this Auction Agreement. (a) Words importing the singular number shall include the plural number and vice versa. (b) The captions and headings herein are solely for the convenience of reference and shall not constitute a part of this Auction Agreement nor shall they affect its meaning, construction or effect. (c) The words "hereof," "herein" and other words of similar import refer to this Auction Agreement as a whole. (d) All references herein to a particular time of day shall be to New York City time. (e) Each reference to the purchase, sale or holding of "Auction Rate Bonds" or "2002 Series B Bonds" shall refer to beneficial ownership interests in Auction Rate Bonds in an Auction Rate Period unless the context clearly requires otherwise. 2 Section 2. Auction. 2.1 Purpose; Appointment; Incorporation by Reference of Auction Procedures and Settlement Procedures. (a) The Eleventh Supplemental Indenture provides that the interest rate on the 2002 Series B Bonds for each Auction Period shall be the Auction Rate which shall be, except as otherwise provided therein, the rate per annum that the Auction Agent determines to have resulted from the implementation of the Auction Procedures. (b) At the direction of the Company, the Trustee hereby appoints Bankers Trust Company to act as Auction Agent. Bankers Trust Company hereby accepts such appointment and agrees to perform, during the term of such appointment, the Auction Procedures, Settlement Procedures and other duties herein, in each Broker-Dealer Agreement and in the Eleventh Supplemental Indenture specified to be performed by the Auction Agent. (c) The Auction Procedures and other provisions contained in the Eleventh Supplemental Indenture are hereby incorporated herein by reference in their entirety, and shall be deemed to be a part hereof to the same extent as if such provisions were expressly set forth herein. 2.2 Preparation for each Auction; Maintenance of Registry of Beneficial Owners. (a) Not later than seven days prior to any Auction Date for which any change in Broker-Dealers is to be effective, the Trustee shall notify or cause to be notified the Auction Agent and the Company in writing of such change and, if such change is the addition of a Broker Dealer, the Company shall cause to be delivered to the Auction Agent, for execution by the Auction Agent pursuant to Section 2.6(a) hereof, a Broker-Dealer Agreement manually signed by such Broker-Dealer. The Auction Agent shall be entitled to assume that there has been no change in Broker-Dealers unless and until it has received such notification from an Authorized Officer of the Trustee. (b) (i) On each Auction Date, the Auction Agent shall determine the Maximum Auction Rate, the Minimum Auction Rate and the Index. For this purpose the prevailing ratings of the 2002 Series B Bonds, as of the Closing Date is ____ and the Auction Mode Multiple is _____%. Thereafter, if there shall have been a change in the prevailing rating of the 2002 Series B Bonds, the Company shall supply by facsimile transmission, prior to 9:00 a.m. on the first Auction Date following such change, the new prevailing rating of the 2002 Series B Bonds and the Auction Mode Multiple. The Auction Agent may conclusively rely upon such information so obtained and shall be entitled to assume that there has been no change in the prevailing rating of the 2002 Series B Bonds and the Auction Mode Multiple unless it has been so notified by an Authorized Officer of the Company to the contrary. Not later than 9:30 a.m. on each Auction Date, the Auction Agent shall notify the Trustee and the Broker-Dealers by telephone (confirmed to the Trustee in writing or by facsimile transmission after the Auction) or other electronic communication acceptable to the parties of the Default Rate, Maximum Auction Rate, the Minimum Auction Rate and the Index. (ii) Upon the occurrence of an Event of Default consisting of the failure to pay principal, premium or interest when due on any 2002 Series B Bond, the Trustee shall forthwith notify the Auction Agent of the same and upon receipt of such notice, the Auction Procedures shall be suspended commencing on the date of the Auction Agent's receipt of notice of such Event of Default from 3 the Trustee, and the interest rate on the 2002 Series B Bonds for each Auction Period commencing after the occurrence and during the continuance of such Event of Default to and including the Auction Period, if any, during which such Event of Default is cured will equal the Default Rate as determined by the Trustee on the first day of each such Auction Period as provided in the Eleventh Supplemental Indenture. If such Event of Default is later cured or waived, the Trustee shall forthwith notify the Auction Agent of the same. The Auction Procedures shall resume two Business Days after the Auction Agent receives such notice of cure or waiver with the next Auction to occur on the next regularly scheduled Auction Date occurring after such cure or waiver. (c) (i) The Auction Agent shall maintain a registry of the beneficial owners of 2002 Series B Bonds (the "Auction Rate Bond Register") who shall constitute Existing Owners for purposes of Auctions and shall indicate thereon the identity of the respective Broker-Dealer of each Existing Owner, if any, on whose behalf such Broker-Dealer submitted the most recent Order in any Auction which resulted in such Existing Owner continuing to hold or purchase such 2002 Series B Bonds. The Auction Agent shall keep such registry current and accurate based on the information supplied to it. Each Broker-Dealer is required under the Broker-Dealer Agreement to which it is a party to deliver to the Auction Agent on the Closing Date a list of the initial Existing Owners that purchased such 2002 Series B Bonds through such Broker-Dealer. The Auction Agent may conclusively rely upon, as evidence of the identities of the Existing Owners, the following: such lists; the results of Auctions; notices from DTC regarding the results of redemptions or mandatory tenders; notices from any Existing Owner, the Agent Member of any Existing Owner or the Broker-Dealer of any Existing Owner with respect to such Existing Owner's transfer of 2002 Series B Bonds to another Person; and the Auction Agent shall be fully protected in so relying. (ii) The Trustee shall notify the Auction Agent in writing of any partial redemption or mandatory tender. In the event the Auction Agent receives such notice of any partial redemption or mandatory tender of the 2002 Series B Bonds, the Auction Agent shall promptly request DTC to notify the Auction Agent of the Agent Members whose 2002 Series B Bonds have been called for redemption or mandatory tender and the person or department at such Agent Member to contact regarding such redemption or mandatory tender. Within two Business Days after the Auction Agent's receipt of such information, the Auction Agent shall request each such Agent Member to disclose to the Auction Agent (upon selection by such Agent Member of the Existing Owners whose 2002 Series B Bonds are to be redeemed) the principal amount of 2002 Series B Bonds of each such Existing Owner, if any, which are subject to such redemption or mandatory tender, provided the Auction Agent shall have been furnished with the name and telephone number of a person or department at such Agent Member from which it is to request such information. In the absence of receiving any such information with respect to an Existing Owner from such Existing Owner's Agent Member (or otherwise), the Auction Agent may continue to treat such Existing Owner as the beneficial owner of the principal amount of 2002 Series B Bonds shown in the Auction Rate Bond Register. (iii) The Auction Agent may refuse to register a transfer of beneficial ownership of 2002 Series B Bonds from an Existing Owner to another person unless (a) such transfer is pursuant to an Auction or (b) the Auction Agent has been notified in writing (I) in a notice in the form of Exhibit C to the Broker-Dealer Agreements by such Existing Owner, the Broker-Dealer or an Agent Member of such Existing Owner of such transfer, (II) in a notice in the form of 4 Exhibit D to the Broker-Dealer Agreements by the Broker-Dealer of any Person that purchased or sold such 2002 Series B Bonds in an Auction of the failure of such 2002 Series B Bonds to be transferred as a result of such Auction, or (III) in a notice from DTC regarding the results of mandatory tenders. In the event a notice referred to in the preceding clause (II) is received, the Auction Agent shall register the beneficial ownership of the 2002 Series B Bonds covered thereby in the name of the Existing Owner thereof prior to the Auction referred to in such notice. The Auction Agent shall not be required to accept any notice delivered pursuant to the terms of the foregoing sentence if received by the Auction Agent after 3:00 p.m. on the Business Day next preceding an Auction Date. (iv) The Auction Agent may request the Broker-Dealers, as set forth in the Broker-Dealer Agreements, to provide the Auction Agent with a list of their respective customers that such Broker-Dealers believe are Existing Owners of 2002 Series B Bonds. The Auction Agent shall not disclose such information so provided to any Person other than the Trustee, the Company and the Broker-Dealer that provided the same; provided, however, that the Auction Agent shall be authorized to disclose such information if (A) it is ordered to do so by a court of competent jurisdiction or by a regulatory, judicial or quasi-judicial agency or authority having the authority to compel such disclosure, (B) it is advised by its counsel that its failure to do so would be unlawful or (C) failure to do so would expose the Auction Agent to loss, liability, claim or damage for which it has been adequately indemnified. (d) In the event that the notice referred to in clause (vi) of paragraph (a) of the Settlement Procedures states an Auction Date that is subsequently changed, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of the new Auction Date not later than 9:15 a.m. on the earlier of the new Auction Date or the old Auction Date. (e) The Auction Agent shall deliver a copy of any notice received by it from the Trustee pursuant to clause (ii) of the foregoing paragraph (b) to the effect that an Event of Default has been cured or waived to the Broker-Dealers no later than the Business Day following its receipt thereof by telecopy or other electronic communication acceptable to the parties. 2.3 Auction Schedule. The Auction Agent shall conduct Auctions for the 2002 Series B Bonds in accordance with the schedule set forth below. Such schedule may be changed by the Auction Agent if directed in writing by the Company to reflect then currently accepted market practices for similar auctions. The Auction Agent shall give written notice of any such change to the Trustee, the Company and each Broker-Dealer. Such notice shall be given prior to the close of business on the Business Day next preceding the first Auction Date on which any such change shall be effective.
Time Event - --------------------------------- ----------------------------------------------------------------------------- By 9:30 A.M Auction Agent advises the Broker-Dealers of the Minimum Auction Rate, the Maximum Auction Rate and the Index, as set forth in Section 2.2(b)(i) hereof. 9:30 A.M. - 1:00 P.M. Auction Agent assembles information communicated to it by Broker-Dealers as (11:00 A.M in the case of a daily provided in Section 2.02 of Auction Procedures Description. Submission Auction Period). Deadline is 1:00 P.M. (11:00 A.M. in the case of a daily Auction Period). 5 As soon as practical after 1:00 P.M. Auction Agent makes determination pursuant to Section 2.03(b) of the (by 11:30 A.M. in the case of a daily Auction Procedures Description. Auction Period) By approximately 3:00 P.M. but not Submitted Bids and Submitted Sell Orders are accepted and rejected and 2002 later than the close of business (by Series B Bonds allocated as provided in Section 2.04 of Auction Procedures 12:00 Noon in the case of a daily Description. Auction Agent gives notice of Auction results as set forth in Auction Period) Section 2.4 hereof.
2.4 Notice of Auction Results. Following such Auction, the Auction Agent shall follow the notification procedures set forth in paragraph (a) of the Settlement Procedures. In addition, promptly after making the determinations required by Section 2.03 of the Auction Procedures Description on each Auction Date, the Auction Agent shall give notice of the Auction Rate to the Trustee and the Company by telephone (promptly confirmed in writing) or by telecopy or electronic communication acceptable to the parties and the Trustee shall promptly give notice to DTC of such Auction Rate. 2.5 Notices to Existing Owners. The Auction Agent shall be entitled to rely upon the address of each Existing Owner delivered by such Existing Owner in connection with any notice to Existing Owners required to be given by the Auction Agent. 2.6 Broker-Dealers. (a) On the Closing Date the Auction Agent shall enter into a Broker-Dealer Agreement with J. P. Morgan Securities Inc. The Auction Agent shall from time to time enter into such other Broker-Dealer Agreements as the Company shall request with written notice to the Trustee; provided, however, that such Broker-Dealer Agreement shall be effective with respect to an Auction only if the Auction Agent shall have received a manually signed copy of such Broker-Dealer Agreement at least five Business Days prior to such Auction. (b) The Auction Agent shall terminate any Broker-Dealer Agreement as set forth therein if so directed by the Company in writing with prior written notice to the Trustee. 2.7 Ownership of 2002 Series B Bonds. Neither the Company nor any Person controlled by the Company may submit any Order or Bid, directly or indirectly, in any Auction. The Auction Agent shall have no duty to monitor compliance with this Section 2.7. 2.8 Access to and Maintenance of Auction Records. The Auction Agent shall afford to the Trustee and its agents, independent public accountants and counsel, access at reasonable times during normal business hours to all books, records, documents and other information concerning the conduct and results of Auctions; provided that any such agent, accountant or counsel of the Trustee shall furnish 6 the Auction Agent with a letter from an Authorized Officer of the Trustee requesting that the Auction Agent afford such person access. Except as provided in Sections 3.1(d) and 5.1(b), the Auction Agent shall maintain records relating to any Auction for a period of two years after such Auction and such records shall, in reasonable detail, accurately and fairly reflect the actions taken by the Auction Agent hereunder. At the end of such two-year period the Auction Agent shall deliver such records to the Trustee if the Trustee so requests. The Auction Agent shall provide the Trustee with copies of any report the Auction Agent provides DTC concerning discrepancies between the records of the Auction Agent and DTC of the aggregate portions registered in each CUSIP number. The Auction Agent shall not be responsible for any actions of the Trustee or its agents, accountants or counsel for passing on confidential information as a result of access to the records of the Auction Agent. Section 3. The Auction Agent. 3.1 Duties and Responsibilities of the Auction Agent. (a) The Auction Agent is acting solely as agent of the Trustee and owes no duties, fiduciary or otherwise, to any other person by reason of this Auction Agreement, except as otherwise stated herein, and no implied duties, fiduciary or otherwise, shall be read into this Auction Agreement. (b) The Auction Agent and the Trustee undertake to perform such duties and only such duties as are expressly set forth herein, or expressly incorporated herein by reference pursuant to Section 2.1 hereof, to be performed by it, and no implied covenants or obligations shall be read into this Auction Agreement against the Auction Agent or the Trustee. (c) In the absence of bad faith or gross negligence on its part, the Auction Agent, whether acting directly or through agents or attorneys as provided in Section 3.2(d), shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties hereunder. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been grossly negligent in ascertaining the pertinent facts necessary to make such judgment. In no event shall the Auction Agent be liable for special, indirect or consequential damages of any kind whatsoever (including but not limited to lost profits), even if the Auction Agent has been informed of the likelihood of such loss or damage, and regardless of the form of action or inaction. (d) Upon termination of this Auction Agreement, the Auction Agent shall promptly deliver to the Company, copies of the Auction records and accompanying documentation and any other documents referred to in Section 2.8 to the extent not previously delivered to the Trustee. (e) The Auction Agent shall: (i) not be required to and shall make no representations and have no responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own; (ii) not be obligated to take any legal action hereunder that might, in its judgment, involve any expense or liability, unless it has been furnished with reasonable indemnity satisfactory to the Auction Agent; and (iii) not be responsible for or liable in any respect on account of the identity, authority or rights of any person executing or delivering or purporting to execute or deliver any document under this Auction Agreement or any Broker-Dealer Agreement. 7 (f) Whenever in the administration of the provisions of this Agreement the Auction Agent shall deem in necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of gross negligence or bad faith on the part of the Auction Agent, be deemed to be conclusively proved and established by a certificate signed by the Company, Trustee or Broker-Dealer, and delivered to the Auction Agent and such certificate, in the absence of gross negligence or bad faith on the part of the Action Agent, be deemed to be conclusively proved and established by a certificate signed by the Company, Trustee or Broker-Dealer, and delivered to the Auction Agent and such certificate, in the absence of gross negligence or bad faith on the part of the Auction Agent, shall be full warrant to the Auction Agent for any action taken, suffered or omitted by it under the provisions of this Agreement upon the faith thereof. (g) The Auction Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, entitlement order, approval or other paper or document. (h) Any corporation into which the Auction Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Auction Agent shall be a party, or any corporation succeeding to the business of the Auction Agent shall be the successor of the Auction Agent hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto, except where any instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. 3.2 Rights of the Auction Agent. (a) The Auction Agent may conclusively rely upon, and shall be fully protected in acting or refraining from acting upon, any communication authorized hereby and upon any such written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or other document believed by it to be genuine. The Auction Agent shall not be liable for acting in good faith upon any such communication made by telephone or other electronic communication acceptable to the parties which the Auction Agent reasonably believes to have been given by the particular party or parties. To the extent permitted by law, the Auction Agent may record telephone communications with the Company, the Trustee and the Broker-Dealers, and each of such parties may record telephone communications with the Auction Agent. (b) The Auction Agent may consult with counsel of its choice (provided such selection is made with reasonable care) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. The Company shall pay or cause to be paid all reasonable counsel's fees and disbursements incurred by the Auction Agent in connection with the negotiation and execution of this Auction Agreement by the Auction Agent. (c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. 8 (d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care. 3.3 Auction Agent's Disclaimer. The Auction Agent makes no representations as to and shall have no liability with respect to the correctness of the recitals therein, or the adequacy, accuracy or validity of this Auction Agreement, the Broker-Dealer Agreement, the Eleventh Supplemental Indenture or the Auction Rate Bonds or any offering document or agreement or instrument related thereto. 3.4 Compensation, Expenses and Indemnification of the Auction Agent. (a) The Company shall pay (a) to the Auction Agent on each Fee Payment Date a fee (the "Auction Agent Fee") equal to the product of (i) one one-hundredth of one percent (0.01%), and (ii) the aggregate outstanding principal amount of the 2002 Series B Bonds on such date, and (iii) in the case of the first Fee Payment Date and any Fee Payment Date which does not fall on an anniversary of the first Fee Payment Date, a fraction (x) the numerator of which is the actual number of days elapsed following but not including the Closing Date or the most recent Fee Payment Date, respectively, but in no case more than 360, and (y) the denominator of which is 360. The Company shall pay the Auction Agent Fee by wire transfer of immediately available funds to such account as the Auction Agent may designate. (b) The Company shall pay, upon request of the Auction Agent, the amount required to be paid by the Company pursuant to Section 3.2(b) hereof. (c) The Auction Agent Fee represents compensation for the services of the Auction Agent in conducting Auctions for the benefit of the beneficial owners of the 2002 Series B Bonds. The Auction Agent Fee may be adjusted from time to time with the approval of the Company upon a written request of the Auction Agent delivered to the Company. (d) The Company shall indemnify the Auction Agent, its directors, officers, agents and employees for, and hold it harmless against any loss, liability or expense incurred without gross negligence or bad faith on its part arising out of or in connection with its agency under the Auction Agreement and Broker-Dealer Agreement, including the costs and expenses of defending itself, its directors, officers, agents and employees against any claim of liability in connection with its exercise or performance of any of its duties thereunder, except such as may result from its gross negligence or bad faith. 3.5 Broker-Dealer Fee. (a) While the 2002 Series B Bonds are in an Auction Period other than a daily Auction Period, on each Interest Payment Date following each Auction Date, each Broker-Dealer shall be entitled to receive an amount equal to the product of (x) one-quarter of one percent (0.25%), multiplied by (y) (A) if an Auction was held on such Auction Date, the sum of the aggregate principal amount of 2002 Series B Bonds that were (1) the subject of a valid Hold Order of an Existing 9 Owner submitted by such Broker-Dealer, (2) the subject of a Submitted Bid of an Existing Owner submitted by such Broker-Dealer and continued to be held by such Existing Owner as a result of such Auction, (3) the subject of a Submitted Bid of a Potential Owner and were purchased by such Potential Owner as a result of such Auction and (4) deemed to be the subject of a Hold Order by an Existing Owner that were acquired by such Existing Owner from such Broker-Dealer, or (B) if an Auction was not held on such Auction Date, the aggregate principal amount of Outstanding 2002 Series B Bonds that were acquired by an Existing Owner through such Broker-Dealer, multiplied by (z) a fraction, the numerator of which is (i) if the Auction Period is seven-days, 28-days, 35-days, three months or a Flexible Auction Period of 180 days or less, the actual number of days in the Auction Period next succeeding such Auction Date or (ii) if the Auction Period is six months or a Flexible Auction Period of more than 180 days, the number of days in the Auction Period next succeeding such Auction Date, calculated on the basis of twelve 30 day months in a year, and in either case the denominator of which is 360. (b) If the 2002 Series B Bonds are in a daily Auction Period each Broker-Dealer shall be entitled to receive on each Interest Payment Date an amount equal to the sum calculated for each Auction Period in the preceding month of the product of: (x) one-quarter of one percent (0.25%), multiplied by (y) the aggregate principal amount of 2002 Series B Bonds for each Auction Period that were (1) the subject of a valid Hold Order submitted by such Broker-Dealer, (2) the subject of a Submitted Bid of an Existing Owner submitted by such Broker-Dealer and continued to be held by such Existing Owner as a result of such Auction, (3) the subject of a Submitted Bid of a Potential Owner submitted by such Broker-Dealer and were purchased by such Potential Owner as a result of such Auction, (4) deemed to be the subject of a Hold Order by an Existing Owner that were acquired by such Existing Owner from such Broker-Dealer and (5) if an Auction was not held for any Auction Period, the aggregate principal amount of Outstanding Bonds that were acquired by an Existing Owner through such Broker-Dealer, multiplied by (z) a fraction, the numerator of which is the number of days in the Auction Period and denominator of which is 360. (c) The Broker-Dealer Fee shall be calculated by the Auction Agent, and shall be conclusive absent manifest error. Such amounts shall be communicated by the Auction Agent to the Company and the Trustee by 4:00 p.m., New York City 10 time, on the Business Day immediately preceding each Interest Payment Date. On or before 10:00 A.M. on each Interest Payment Date, the Company shall pay to the Trustee the amount due to the Broker-Dealer. By noon on each Interest Payment Date, the Trustee shall deliver to the Auction Agent the amount constituting the Broker-Dealer Fee, by wire transfer of immediately available funds to such account as the Auction Agent may designate. The amount constituting the Broker-Dealer Fee shall be held by the Auction Agent on behalf of the Broker-Dealer, and immediately upon receipt of such Fee, the Auction Agent shall deliver such Fee to the Broker-Dealer, pursuant to the written instructions of the Broker-Dealer. If any Existing Owner who acquired 2002 Series B Bonds through a Broker-Dealer transfers any such 2002 Series B Bonds to another Person other than pursuant to an Auction, the Broker-Dealer for the 2002 Series B Bonds so transferred shall continue to be the Broker-Dealer with respect to such 2002 Series B Bonds; provided, however, that if the transfer was effected by, or if the transferee is, another Person who has met the requirements specified in the definition of "Broker-Dealer" contained in the 2002 Series B Bonds and executed a Broker-Dealer Agreement, such Person shall be the Broker-Dealer for such 2002 Series B Bonds. Section 4. Representations and Warranties of the Trustee. The Trustee hereby represents and warrants that: (a) this Auction Agreement has been duly and validly authorized, executed and delivered by the Trustee and constitutes the legal, valid and binding limited obligation of the Trustee; (b) neither the execution and delivery of this Auction Agreement, the consummation of the transactions contemplated hereby nor the fulfillment of or compliance with the terms and conditions of this Auction Agreement will conflict with, or violate or result in a breach of the terms, conditions or provisions of, or constitute a default under the organizational documents of the Trustee, any law or regulation, any order or decree of any court or public authority or corporation having jurisdiction over such party, or any mortgage, resolution, contract, agreement or undertaking to which the Trustee is a party or by which it is bound; and (c) any approvals, consents and orders of any governmental corporation, legislative body, board, agency or commission having jurisdiction over the Trustee which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by the Trustee of its obligations under this Auction Agreement have been obtained. Section 5. Miscellaneous. 5.1 Term of Agreement. (a) This Auction Agreement shall remain in effect until (i) all 2002 Series B Bonds are redeemed, paid or purchased and cancelled, (ii) the 2002 Series B Bonds are no longer held by DTC in book-entry form, (iii) this Auction Agreement shall be terminated as provided in this Section 5.1, or (iv) the Auction Agent is removed as provided in this Section 5.1. The Trustee shall, upon the written direction of the Company, remove the Auction Agent; provided that a successor Auction Agent has been appointed. The Auction Agent may terminate this Auction Agreement by giving at least ninety (90) days notice to 11 the Company and the Trustee, who shall give notice of the same to each Broker-Dealer. In the event the Auction Agent has not been compensated for its services rendered hereunder, the Auction Agent may terminate this Auction Agreement by giving at least thirty (30) days notice to the Company and the Trustee (who shall give notice of the same to each Broker-Dealer and the Bond Insurer), and upon the expiration of such thirty (30) days, the Auction Agent may resign even if a successor Auction Agent has not been appointed. (b) Except as otherwise provided in this paragraph (b), the respective rights and duties of the Trustee and the Auction Agent under this Auction Agreement shall cease upon termination of this Auction Agreement. The representations and warranties of the Trustee contained herein, and the rights of the Auction Agent under Sections 3.2 and 3.4 hereof, shall survive the termination hereof. Upon termination of this Auction Agreement, the Auction Agent shall be deemed to have resigned as Auction Agent under each of the Broker-Dealer Agreements and shall promptly deliver to the Company copies of all books and records maintained by it in connection with its duties hereunder. 5.2 Communications. Except for (a) communications authorized to be by telephone pursuant to this Auction Agreement or the Auction Procedures and (b) communications in connection with Auctions (other than those expressly required to be in writing), all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or other electronic communication acceptable to the parties) and shall be given to such party, addressed to it, at its address, telecopy number or e-mail address set forth below: If to the Trustee, addressed: U.S. BANK NATIONAL ASSOCIATION 1420 Fifth Avenue, 7th Floor Mail Stop WWH1022 Seattle, Washington 98101 Attention: Corporate Trust Services Telecopier Number: (206) 344-4632 Telephone Number: (206) 344-4674 If to the Auction Agent, addressed: BANKERS TRUST COMPANY 100 Plaza One 6th Floor Jersey City, New Jersey 07311 Attention: Auction Rate Team Telecopier Number: (201) 593-6447 Telephone Number: (201) 860-6881 If to the Company addressed: CHUGACH ELECTRIC ASSOCIATION, INC. 5601 Minnesota Drive Anchorage, Alaska 99518 Attention: Executive Manager, Finance and Energy Supply Telecopier Number: (907) 762-4514 Telephone Number: (907) 762-4790 12 or such other address, telecopier number or e-mail address as such party may hereafter specify for such purpose by notice to the other parties. Each such notice, request or communication shall be effective (a) if given by telecopy, when such telecopy is transmitted to the telecopier number specified herein or (b) if given by any other means, when delivered at the address specified herein. Communications shall be given on behalf of the parties hereto by one of their respective Authorized Officers. 5.3 Entire Agreement. This Auction Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred, between the parties relating to the subject matter hereof. 5.4 Benefits; Successors and Assigns. This Auction Agreement shall be binding upon, inure to the benefit of and be enforceable by the Trustee and the Auction Agent and their respective successors and assigns. Nothing herein, express or implied, shall give to any person, other than the Trustee and the Auction Agent and their respective successors or assigns, any benefit of any legal or equitable right, remedy or claim hereunder, except as otherwise expressly stated, other than the rights expressly granted to the Company herein. 5.5 Amendment, Waiver. (a) This Auction Agreement shall not be deemed or construed to be modified, amended, rescinded, cancelled or waived, in whole or in part, except by written instrument signed by a duly authorized representative of both parties hereto, and consented to in writing by a duly authorized representative of the Company. (b) The failure of either party hereto to exercise any right or remedy hereunder in the event of a breach hereof by the other party shall constitute a waiver of any such right or remedy with respect to any subsequent breach. 5.6 Severability. If any clause, provision or section hereof shall be ruled invalid or unenforceable by any court or competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof. 5.7 Execution in Counterparts. This Auction Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 5.8 Governing Law. This Auction Agreement shall be governed by and construed in accordance with the laws of the State of New York. 5.9 Ratings. The Trustee shall, upon obtaining actual knowledge of a change in the prevailing ratings of the Auction Rate Bonds, notify the Auction Agent of the new prevailing ratings on the Auction Rate Bonds and of the Auction Mode Multiple by facsimile transmission prior to 9:00 a.m. on the first Auction Date following such change. 13 IN WITNESS WHEREOF, the parties hereto have caused this Auction Agreement to be duly executed and delivered by their proper and duly Authorized Officers as of the date first above written. U.S. BANK NATIONAL ASSOCIATION, as Trustee By: ---------------------------------------------- Authorized Signatory BANKERS TRUST COMPANY, as Auction Agent By: ---------------------------------------------- Authorized Signatory The Trustee is hereby directed to appoint Bankers Trust Company, as Auction Agent, pursuant to this Auction Agreement. The Company hereby acknowledges its obligations under Sections 2.2(a), 2.2(b)(i), 3.4 and 3.5 hereof. CHUGACH ELECTRIC ASSOCIATION, INC. By: ---------------------------------------------- Authorized Signatory 14 EXHIBIT A Form of Broker-Dealer Agreement See Exhibit 4.17 of Amendment No. 1 to the Registration Statement for which this Auction Agreement is filed as an exhibit. A-1 EXHIBIT B SETTLEMENT PROCEDURES (a) On each Auction Date, the Auction Agent shall notify by telephone or other electronic communication acceptable to the parties each Broker-Dealer that participated in the Auction held on such Auction Date and submitted an Order on behalf of any Existing Owner or Potential Owner of: (i) the Auction Rate on the 2002 Series B Bonds fixed for the succeeding Auction Period or, in the case of 2002 Series B Bonds in a daily Auction Period, the Auction Rate on the 2002 Series B Bonds fixed for the current Auction Period; (ii) whether Sufficient Clearing Bids existed for the determination of the Winning Bid Rate; (iii) if such Broker-Dealer submitted a Bid or a Sell Order on behalf of an Existing Owner, whether such Bid or Sell Order was accepted or rejected, in whole or in part, and the principal amount of 2002 Series B Bonds, if any, to be sold by such Existing Owner; (iv) if such Broker-Dealer submitted a Bid on behalf of a Potential Owner, whether such Bid was accepted or rejected, in whole or in part, and the principal amount of 2002 Series B Bonds, if any, to be purchased by such Potential Owner; (v) if the aggregate principal amount of 2002 Series B Bonds to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted Bids or Sell Orders is different from the aggregate principal amount of 2002 Series B Bonds to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more other Broker-Dealers (and the Agent Member, if any, of each such other Broker-Dealer) and the principal amount of 2002 Series B Bonds to be (A) purchased from one or more Existing Owners on whose behalf such other Broker-Dealers submitted Bids or Sell Orders or (B) sold to one or more Potential Owners on whose behalf such Other Broker-Dealers submitted Bids; and (vi) the immediately succeeding Auction Date. (b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Owner or Potential Owner shall: (i) advise each Existing Owner and Potential Owner on whose behalf such Broker-Dealer submitted a Bid or Sell Order whether such Bid or Sell Order was accepted or rejected, in whole or in part; (ii) instruct each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, to instruct such Potential Owner's Agent Member to pay to such Broker-Dealer (or its Agent Member) through DTC the amount necessary to purchase the principal amount of 2002 Series B Bonds to be purchased pursuant to such Bid (including, with B-1 respect to the 2002 Series B Bonds in a daily Auction Period, accrued interest if the purchase date is not an Interest Payment Date for such 2002 Series B Bonds) against receipt of such principal amount of 2002 Series B Bonds; (iii) instruct each Existing Owner on whose behalf such Broker-Dealer submitted a Sell Order that was accepted or a Bid that was rejected, in whole or in part, to instruct such Existing Owner's Agent Member to deliver to such Broker-Dealer (or its Agent Member) through DTC the principal amount of 2002 Series B Bonds to be sold pursuant to such Bid or Sell Order against payment therefor; (iv) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order and each Potential Owner on whose behalf such Broker-Dealer submitted a Bid of the Auction Rate for the next succeeding Auction Period or, in the case of 2002 Series B Bonds in a daily Auction Period, the Auction Rate for the current Auction Period; (v) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order of the Auction Date of the next succeeding Auction; and (vi) advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the Auction Date of the next succeeding Auction. (c) On the basis of the information provided to it pursuant to paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order shall allocate any funds received by it pursuant to subparagraph (b) (ii) above, and any 2002 Series B Bonds received by it pursuant to (b) (iii) above, among the Potential Owners, if any, on whose behalf such Broker-Dealer submitted Bids and the Existing Owners, if any, on whose behalf such Broker-Dealer submitted Bids or Sell Orders and any Broker-Dealer identified to it by the Auction Agent pursuant to subparagraph (a)(v) above. (d) On the Business Day after the Auction Date or, in the case of 2002 Series B Bonds in a daily Auction Period, on such Auction Date, DTC shall execute the transactions described above, debiting and crediting the accounts of the respective Agent Members as necessary to effect the purchase and sale of 2002 Series B Bonds as determined in the Auction. B-2 EX-4 7 exh416b.txt 4.16 EXHIBIT 4.16 REMARKETING AGREEMENT This REMARKETING AGREEMENT (the "Agreement"), is dated as of _________, 2002, between CHUGACH ELECTRIC ASSOCIATION, INC., an Alaskan electric cooperative corporation (the "Company"), and J.P. MORGAN SECURITIES INC. The Company is issuing $60,000,000 in aggregate principal amount of its New Bonds, 2002 Series B (the "2002 Series B Bonds") pursuant to the Eleventh Supplemental Indenture, dated as of __________, 2002 (the "Eleventh Supplemental Indenture"), to the Indenture of Trust, dated as of September 15, 1991, between the Company and Security Pacific Bank Washington, N.A., as trustee (the "Trustee"), as amended and supplemented (the "Indenture"). Each capitalized term not otherwise defined herein shall have the meaning given to such term in the Indenture. The parties hereto agree as follows: 1. Appointment and Acceptance. J.P. Morgan Securities Inc. hereby accepts its appointment as the Remarketing Agent (the "Remarketing Agent") for the 2002 Series B Bonds and hereby agrees to perform the duties and obligations imposed upon it as Remarketing Agent under the Eleventh Supplemental Indenture and hereunder and agrees to keep such books and records with respect to its duties as Remarketing Agent under the Eleventh Supplemental Indenture and hereunder as shall be consistent with prudent industry practice and to make such books and records available for inspection by the Company and the Trustee at all reasonable times. During an Auction Period, the Remarketing Agent shall approve (which approval shall not be unreasonably withheld) any additional Broker-Dealers selected by the Company. The Remarketing Agent represents that it routinely engages in the remarketing of securities such as the 2002 Series B Bonds and agrees that it will settle all transactions hereunder pursuant to customary industry practice. 2. Fees and Expenses. From the date of their initial issuance, the 2002 Series B Bonds will accrue interest at an Auction Rate and be subject to mandatory purchase and conversion as provided in the Eleventh Supplemental Indenture. The 2002 Series B Bonds are not subject to purchase on demand of the owners of the 2002 Series B Bonds during an Auction Period, including the Initial Period. If the 2002 Series B Bonds are subject to mandatory purchase or if the Company elects to convert the interest rate mode of the 2002 Series B Bonds to accrue interest at the Daily Rate, the Weekly Rate or the Flexible Rate, the Company shall pay the Remarketing Agent directly, as compensation for its services hereunder, a fee that will be agreed to by the parties prior to the date of remarketing of such 2002 Series B Bonds in accordance with the then prevailing market conditions. During an Auction Period, including the Initial Period, the Remarketing Agent shall receive no compensation from the Company, in consideration of the services to be performed by the Remarketing Agent under this Agreement and the Eleventh Supplemental Indenture, and except during an Auction Period, including the Initial Period, the Company will pay all expenses of delivering remarketed 2002 Series B Bonds and reimburse the Remarketing Agent for all direct, out-of-pocket expenses incurred by it as Remarketing Agent, including reasonable counsel fees and disbursements. 3. Disclosure Document. If the Remarketing Agent reasonably determines that it is necessary or desirable to use a Disclosure Document (as defined in Section 4) in connection with the remarketing of the 2002 Series B Bonds, the Remarketing Agent will notify the Company and the Company will provide the Remarketing Agent with a Disclosure Document reasonably satisfactory to the Remarketing Agent and its counsel in respect of the 2002 Series B Bonds. The Company will supply the Remarketing Agent with such number of copies of the Disclosure Document as the Remarketing Agent reasonably requests from time to time. The Company will supplement and amend the Disclosure Document so that at all times during the remarketing the Disclosure Document will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements in the Disclosure Document, in the light of the circumstances under which they were made, not misleading. 4. Indemnification. (a) The Company agrees to indemnify and hold harmless the Remarketing Agent and each person, if any, who controls the Remarketing Agent within the meaning of either Section 15 of the Securities Act of 1933, as amended (the "Securities Act"), or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in a Disclosure Document (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to the Remarketing Agent furnished to the Company in writing by the Remarketing Agent expressly for use therein. A "Disclosure Document" means (i) any registration statement relating to the 2002 Series B Bonds, as amended at the time when it shall become effective, or, if a post-effective amendment is filed with respect thereto, as amended by such post-effective amendment at the time of its effectiveness, including in each case information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act and any abbreviated registration statement filed pursuant to Rule 462(b) under the Securities Act with respect to the 2002 Series B Bonds, (ii) a prospectus in the form first used to confirm sales of the 2002 Series B Bonds, as amended or supplemented, or (iii) any other disclosure statement relating to the offer and sale of the 2002 Series B Bonds. (b) The Remarketing Agent agrees to indemnify and hold harmless the Company and each person who controls the Company within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to the Remarketing Agent, but only with reference to information relating to the Remarketing Agent furnished to the Company in writing by the Remarketing Agent expressly for use in the Disclosure Document or any amendment or supplement thereto. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any 2 Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Remarketing Agent and such control persons of the Remarketing Agent shall be designated in writing by the Remarketing Agent and any such separate firm for the Company, its directors, its officers who sign the Disclosure Document and such control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (d) If the indemnification provided for in paragraphs (a) and (b) of this Section 4 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Remarketing Agent on the other hand from the offering of the 2002 Series B Bonds or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Remarketing Agent on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and the Remarketing Agent on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Remarketing Agent and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 3 (e) The Company and the Remarketing Agent agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4, in no event shall the Remarketing Agent be required to contribute any amount in excess of the amount by which the total price at which the 2002 Series B Bonds were offered to the public exceeds the amount of any damages that the Remarketing Agent has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) The remedies provided for in this Section 4 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law of in equity. (g) The indemnity and contribution agreements contained in this Section 4 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, and (ii) any investigation made by or on behalf of the Remarketing Agent or the person controlling the Remarketing Agent or by or on behalf of the Company, its officers or directors or any other person controlling the Company. 5. Remarketing Agent's Liabilities. The Remarketing Agent shall incur no liability to the Company or any other party for its actions as Remarketing Agent pursuant to the terms hereof and of the Indenture except for (i) the liabilities for which the Remarketing Agent has agreed to indemnify the Company and others pursuant to Section 4(b) above, and (ii) its negligence or willful misconduct. The obligation of the Remarketing Agent to remarket 2002 Series B Bonds hereunder shall be on a best efforts basis. 6. Termination. (a) The Remarketing Agent will resign if requested by the Company by an instrument filed with the Remarketing Agent and the Trustee and may resign at any time on 30 days' written notice to the Company, and the Trustee. Following termination, the provisions of Sections 4 and 5 will continue in effect as to transactions prior to the date of termination, and each party will pay the other any amounts owing at the time of termination. The Remarketing Agent may cease remarketing and selling the 2002 Series B Bonds with immediate effect if it determines, in its reasonable judgment, that it is not advisable to attempt to remarket the 2002 Series B Bonds for any reason, including without limitation, (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities shall have been declared by either federal authorities or state authorities of New York or the state where the paying office of the Trustee with respect to the 2002 Series B Bonds is located, (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Remarketing Agent, is material and adverse and which, in 4 the judgment of the Remarketing Agent, makes it impracticable to market the 2002 Series B Bonds on the terms and in the manner contemplated in the Disclosure Document, (v) a material adverse change in the financial condition of the Company, (vi) a down-rating of the 2002 Series B Bonds, (vii) an imposition of material restrictions on the 2002 Series B Bonds or similar obligations, (viii) a material misstatement or omission in the Disclosure Document as then modified or supplemented, or (ix) notice is received of an event of default under the Indenture. (b) In the event of the resignation or removal of the Remarketing Agent, the Company shall appoint a successor Remarketing Agent meeting the qualifications set forth in the Indenture and the Remarketing Agent shall pay over, assign and deliver any moneys and 2002 Series B Bonds held by it in such capacity to its successor or, if there be no successor, to the Trustee. Any resignation or removal of the Remarketing Agent shall not become effective until the Company has appointed a successor Remarketing Agent in accordance with the Indenture. 7. Dealing in 2002 Series B Bonds by Remarketing Agent. (a) The Remarketing Agent, in its individual capacity, either as principal or agent, may buy, sell, own, hold and deal in any of the 2002 Series B Bonds, and may join in any action which any owner of any Series B Bond may be entitled to take with like effect as if it did not act in any capacity hereunder. The Remarketing Agent, in its individual capacity, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Company and may act as depositary, trustee or agent for any committee or body of Holders or other obligations of the Company as freely as if it did not act in any capacity hereunder. (b) In connection with 2002 Series B Bonds accruing interest at an Auction Rate, the Remarketing Agent is acting solely as agent of the Company and does not assume any obligation or relationship of agency or trust of or with any of the owners of such 2002 Series B Bonds. 8. Intention of Parties. It is the express intention of the parties hereto that no purchase, sale or transfer of any 2002 Series B Bonds, as herein provided, shall constitute or be construed to be the extinguishment of any 2002 Series B Bond or the indebtedness represented thereby or the reissuance of any 2002 Series B Bond or the refunding of any indebtedness represented thereby. 9. Notices. Unless otherwise provided, all notices, requests, demands and formal actions hereunder shall be in writing and mailed, telegraphed or delivered, if sent to the Company, to Chugach Electric Association, Inc., 5601 Minnesota Drive, Anchorage, Alaska 99519-6300, Attention: Executive Manager, Finance and Energy Supply, and if sent to the Remarketing Agent, to 60 Wall Street, New York, New York 10260-0060, Attention: Harris Kretsge, which is hereby designated as the Remarketing Agent's principal office for the purpose of the Indenture. 10. Governing Law. This Agreement will be governed by the laws of the State of New York. (Signatures follow on next page.) 5 IN WITNESS WHEREOF, the Remarketing Agent and the Company, intending to be legally bound, have caused their duly authorized representatives to execute and deliver this Agreement as of the date first written above. CHUGACH ELECTRIC ASSOCIATION, INC. By: ---------------------------------------- Title: ---------------------------------------- J.P. MORGAN SECURITIES INC. By: ---------------------------------------- Title: ---------------------------------------- EX-4 8 exh417b.txt 4.17 EXHIBIT 4.17 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Broker-Dealer Agreement Dated __________, 2002 among BANKERS TRUST COMPANY, as Auction Agent and J.P. MORGAN SECURITIES INC. and CHUGACH ELECTRIC ASSOCIATION, INC. relating to $60,000,000 New Bonds, 2002 Series B Due 2012 Auction Rate Bonds - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TABLE OF CONTENTS Page Section 1. DEFINITIONS AND RULES OF CONSTRUCTION..........................................................1 1.1 Terms Defined by Reference to the Eleventh Supplemental Indenture..............................1 1.2 Terms Defined Herein...........................................................................1 1.3 Rules of Construction..........................................................................2 1.4 Warranties of BD...............................................................................3 Section 2. THE AUCTION....................................................................................3 2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures............3 2.2 Preparation for Each Auction...................................................................4 2.3 Auction Schedule; Method of Submission of Orders...............................................4 2.4 Notices........................................................................................5 2.5 Compensation...................................................................................6 2.6 Settlement.....................................................................................7 Section 3. THE AUCTION AGENT..............................................................................8 3.1 Duties and Responsibilities of the Auction Agent...............................................8 3.2 Rights of the Auction Agent....................................................................9 3.3 The Auction Agent's Disclaimer................................................................10 Section 4. DISCLOSURE; INDEMNIFICATION...................................................................10 4.1 Disclosure....................................................................................10 4.2 Indemnification and Contribution..............................................................11 Section 5. MISCELLANEOUS.................................................................................13 5.1 Termination...................................................................................13 5.2 Participant...................................................................................13 5.3 Communications................................................................................13 5.4 Entire Agreement..............................................................................14 5.5 Benefits; Successors and Assigns..............................................................14 5.6 Amendment; Waiver.............................................................................14 5.7 Severability..................................................................................15 5.8 Execution in Counterparts.....................................................................15 5.9 Governing Law.................................................................................15 5.10 No Implied Duties.............................................................................15
Broker-Dealer Agreement This Broker-Dealer Agreement, dated ___________, 2002 (the "Broker-Dealer Agreement"), among (i) BANKERS TRUST COMPANY (the "Auction Agent"), a New York banking corporation, not in its individual capacity but solely as agent of U.S. BANK NATIONAL ASSOCIATION (the "Trustee"), pursuant to authority granted to the Auction Agent in the Auction Agreement, of even date herewith (the "Auction Agreement"), between the Trustee and the Auction Agent and acknowledged by the Company, as hereinafter defined; (ii) J.P. Morgan Securities Inc., a New York corporation ("BD"); and (iii) CHUGACH ELECTRIC ASSOCIATION, INC., an Alaskan electric cooperative (the "Company"). WITNESSETH WHEREAS, the Company is issuing $60,000,000 in aggregate principal amount of its New Bonds, 2002 Series B Due 2012 (the "2002 Series B Bonds" or the "Auction Rate Bonds"); and WHEREAS, BD is to perform certain duties set forth herein; and WHEREAS, the Eleventh Supplemental Indenture of Trust, dated as of ________, 2002, authorizing the issuance of the 2002 Series B Bonds (including all appendices, exhibits and other attachments thereto, and as amended, the "Eleventh Supplemental Indenture") provides that, except as provided therein, the interest rate on the 2002 Series B Bonds shall be the Auction Rate which shall be, except as otherwise provided therein, the rate per annum that the Auction Agent determines to have resulted from the implementation of the Auction Procedures; and WHEREAS, Bankers Trust Company has been appointed as Auction Agent for purposes of the Auction Agreement, and pursuant to Section 2.6(a) of the Auction Agreement, the Company has requested and directed the Auction Agent to execute and deliver this Broker-Dealer Agreement; and WHEREAS, the Auction Procedures require the participation of one or more Broker-Dealers; NOW, THEREFORE, the Auction Agent, as agent for the Trustee, BD, for the benefit of the Existing Owners and the Potential Owners of the 2002 Series B Bonds, and the Company agree as follows: Section 1. Definitions and Rules of Construction. 1.1 Terms Defined by Reference to the Eleventh Supplemental Indenture. Capitalized terms not defined herein shall have the respective meanings specified in the Eleventh Supplemental Indenture. Unless otherwise specified, section references to the Auction Agreement refer to such sections in the Auction Agreement. 1.2 Terms Defined Herein. As used herein and in the exhibits hereto, the following terms shall have the following meanings, unless the context otherwise requires. (a) "Auction Procedures Description" shall mean Exhibit A of Appendix 2 to the Eleventh Supplemental Indenture. (b) "Authorized Officers" shall mean such Senior Vice President, Vice President, Assistant Vice President and Associate of the Auction Agent assigned to its Corporate Trust & Agency Services Department and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes hereof in a communication to BD. (c) "BD Officer" shall mean each officer or employee of BD designated as a "BD Officer" for purposes of this Broker-Dealer Agreement in a communication to the Auction Agent. (d) "Broker-Dealer Agreement" shall mean this Broker-Dealer Agreement and any substantially similar agreement between the Auction Agent and a Broker-Dealer. (e) "Closing Date" shall mean the date of the delivery of the 2002 Series B Bonds to the initial Holders thereof. (f) "Disclosure Statement" shall have the meaning set forth in Section 4.1(b) hereof. (g) "Exchange Act" shall have the meaning set forth in Section 4.2(a) hereof. (h) "Indemnified Person" shall have the meaning set forth in Section 4.2(c) hereof. (i) "Indemnifying Person" shall have the meaning set forth in Section 4.2(c) hereof. (j) "Prospectus" shall have the meaning set forth in Section 4.1(a) hereof. (k) "Securities Act" shall have the meaning set forth in Section 4.2(a) hereof. (l) "Settlement Procedures" shall mean the Settlement Procedures for the Auction Rate Bonds and shall be substantially in the form attached hereto as EXHIBIT A. 1.3 Rules of Construction. Unless the context or rules indicates another or different meaning or intent, the following rules shall apply to the construction of this Broker-Dealer Agreement: (a) Words importing the singular number shall include the plural number and vice versa. (b) The captions and headings herein are solely for the convenience of reference and shall not constitute a part of this Broker-Dealer Agreement nor shall they affect its meaning, construction or effect. 2 (c) The words "hereof," "herein," "hereto," and other words of similar import refer to this Broker-Dealer Agreement as a whole. (d) All references herein to a particular time of day shall be to New York City time. (e) Each reference to the purchase, sale or holding of "2002 Series B Bonds" or "Auction Rate Bonds" shall refer to beneficial ownership interests in 2002 Series B Bonds unless the context clearly requires otherwise. 1.4 Warranties of BD. BD hereby represents and warrants that this Broker-Dealer Agreement has been duly authorized, executed and delivered by BD and that, assuming the due authorization, execution and delivery hereof by the Auction Agent, this Broker-Dealer Agreement constitutes a valid and binding agreement of BD, enforceable against it in accordance with its terms. Section 2. THE AUCTION. 2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures. (a) The Auction Procedures will be followed by the Auction Agent for the purpose of determining the Auction Rate for each Auction Period after the Initial Period for the 2002 Series B Bonds. Each periodic implementation of such procedures is hereinafter referred to as an "Auction." (b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part of this Broker-Dealer Agreement to the same extent as if such provisions were fully set forth herein. (c) BD agrees to act as, and assumes the obligations of, and limitations and restrictions placed upon, a Broker-Dealer under this Broker-Dealer Agreement. BD understands that other Persons meeting the requirements specified in the definition of "Broker-Dealer" contained in the Eleventh Supplemental Indenture may execute Broker-Dealer Agreements and participate as Broker-Dealers in Auctions. BD agrees to handle customer orders in accordance with its respective duties under applicable securities laws and rules. (d) BD and other Broker-Dealers may participate in Auctions for their own accounts. The Company may, however, by notice to BD and all other Broker-Dealers, prohibit all of the Broker-Dealers from submitting Bids in Auctions for their own accounts, provided that Broker-Dealers may continue to submit Hold Orders and Sell Orders. Notwithstanding the foregoing, if BD is an affiliate of the Company it may not submit Bids to purchase the 2002 Series B Bonds in Auctions for its own account, but may submit Hold Orders and Sell Orders in Auctions with respect to 2002 Series B Bonds otherwise acquired for its own account. The Auction Agent shall be under no duty or liability with respect to monitoring compliance with this Section 2.1(d). 3 2.2 Preparation for Each Auction. (a) Not later than 9:30 A.M. on each Auction Date, the Auction Agent shall advise the Broker-Dealers by telephone or other electronic communication acceptable to the parties of the Minimum Auction Rate, the Maximum Auction Rate and the Index. (b) On the Closing Date and from time to time thereafter as the Auction Agent shall request, BD shall provide the Auction Agent with a list, substantially in the form of EXHIBIT E hereto, of the names of its customers that it believes are Existing Owners of 2002 Series B Bonds and the principal amount of 2002 Series B Bonds held by each of such customers. The Auction Agent shall not disclose any such information so provided to any Person other than the Trustee, the Company or BD except as otherwise required by law. (c) Not later than 3:00 P.M. on the Regular Record Date preceding each Auction Date, the Auction Agent shall notify BD of any change in the aggregate principal amount of 2002 Series B Bonds, as of the opening of business on such Regular Record Date by delivering a notice to BD by telecopy or other electronic communication acceptable to the parties. 2.3 Auction Schedule; Method of Submission of Orders. (a) The Auction Agent shall conduct Auctions for the 2002 Series B Bonds in accordance with the schedule set forth below. Such schedule may be changed at any time by the Auction Agent at the written direction of the Company to reflect then currently accepted market practices for similar auctions. The Auction Agent shall give notice of any such change to BD, the Company and the Trustee, which notice shall be given prior to the close of business on the Business Day next preceding the first Auction Date on which any such change shall be effective.
Time Event - -------------------------------------------------------------- ----------------------------------------------------------- By 9:30 A.M. Auction Agent advises the Broker-Dealers of the Minimum Auction Rate, the Maximum Auction Rate and the Index, as set forth in Section 2.2(a). 9:30 A.M. -- 1:00 P.M. (11:00 A.M. in the case of a daily Auction Agent assembles information communicated to it Auction Period) by Broker-Dealers as provided in Section 2.02 of the Auction Procedures Description. Submission Deadline is 1:00 P.M. (11:00 A.M. in the case of a daily Auction Period). As soon as practical after 1:00 P.M. (by 11:30 A.M. in the Auction Agent makes determinations pursuant to Section case of a daily Auction Period) 2.03(b) of the Auction Procedures Description. By approximately 3:00 P.M. but not later than the close of Submitted Bids and Submitted Sell Orders are accepted business (by 12:00 Noon in the case of a daily Auction and rejected and 2002 Series B Bonds allocated as Period) provided in Section 2.04 of the Auction Procedures Description. Auction Agent gives notice of the Auction results as set forth in Section 2.4(a) hereof.
4 (b) BD agrees, for the purpose of implementing the Auctions (and thereby achieving the lowest possible interest rate on the 2002 Series B Bonds), to contact Potential Owners, including Persons that are not Existing Owners, prior to the Submission Deadline on each Auction Date to determine the principal amount of 2002 Series B Bonds, if any, that each such Potential Owner offers to purchase if the rate determined by the Auction Procedures for the next succeeding Auction Period is not less than the rate per annum requested by such Potential Owner. BD further agrees, upon request, to deliver a copy of the Auction Procedures and other relevant documents prepared for the purpose of disclosure to Potential Owners by the Company relating to the 2002 Series B Bonds to each Potential Owner prior to such Potential Owner's participation in any Auction. (c) In each Auction in which BD submits one or more Orders, BD shall submit a separate Order to the Auction Agent for each Potential Owner or Existing Owner on whose behalf BD is submitting an Order and shall not net the Orders of different Potential Owners or Existing Owners on whose behalf BD is submitting Orders. Each Order shall be in writing in substantially the form attached hereto as EXHIBIT B or in such other form as may be reasonably acceptable to the Auction Agent. (d) BD shall deliver to the Auction Agent (i) a written notice, substantially in the form attached hereto as EXHIBIT C of transfers of 2002 Series B Bonds made through BD by an Existing Owner to another Person other than pursuant to an Auction, and (ii) a written notice, substantially in the form attached hereto as EXHIBIT D of the failure of any 2002 Series B Bonds to be transferred to or by any Person that purchased or sold 2002 Series B Bonds through BD pursuant to an Auction. The Auction Agent is not required to accept any such notice specified in this Subsection (d) for an Auction if it is received by it after 3:00 P.M. on the Business Day preceding such Auction. 2.4 Notices. (a) On each Auction Date, the Auction Agent shall notify BD by telephone or other electronic communication acceptable to the parties of the results of the Auction as set forth in paragraph (a) of the Settlement Procedures. As soon as reasonably practicable thereafter, the Auction Agent shall notify BD, if so requested, in writing of the disposition of all Orders submitted by BD in the Auction held on such Auction Date. (b) The Auction Agent shall notify BD of any change in the Auction schedule set forth in Section 2.3(a) hereof. (c) BD shall notify each Existing Owner or Potential Owner on whose behalf BD has submitted an Order as set forth in paragraph (b) of the Settlement Procedures, and take such other action as is required of BD pursuant to the Settlement Procedures. 5 (d) The Auction Agent shall deliver to BD after receipt all notices and certificates which the Auction Agent is required to deliver to BD pursuant to Section 2 of the Auction Agreement at the times and in the manner set forth in the Auction Agreement. 2.5 Compensation. (a) The initial Broker-Dealer Fee shall equal one-quarter of one percent (0.25%) per annum and shall be calculated and paid in accordance with paragraph 2.5(b) hereof. The Broker-Dealer Fee for the 2002 Series B Bonds shall be paid by the Company and represents compensation for the services of the Broker-Dealer in facilitating Auctions for the benefit of the beneficial owners of the 2002 Series B Bonds. The Broker-Dealer Fee Rate may be adjusted from time to time with the approval of the Company upon a written request of the Broker-Dealer delivered to the Company. (b) (i) While the 2002 Series B Bonds are in an Auction Period other than a daily Auction Period, on each Interest Payment Date following each Auction Date, each Broker-Dealer shall be entitled to receive an amount equal to the product of: (x) one-quarter of one percent (0.25%), multiplied by (y) (A) if an Auction was held on such Auction Date, the sum of the aggregate principal amount of 2002 Series B Bonds that were (1) the subject of a valid Hold Order of an Existing Owner submitted by such Broker-Dealer, (2) the subject of a Submitted Bid of an Existing Owner submitted by such Broker-Dealer and continued to be held by such Existing Owner as a result of such Auction, (3) the subject of a Submitted Bid of a Potential Owner submitted by such Broker-Dealer and were purchased by such Potential Owner as a result of such Auction and (4) deemed to be the subject of a Hold Order by an Existing Owner that were acquired by such Existing Owner from such Broker-Dealer, or (B) if an Auction was not held on such Auction Date, the aggregate principal amount of Outstanding 2002 Series B Bonds that were acquired by an Existing Owner through such Broker-Dealer, multiplied by (z) a fraction, the numerator of which is (i) if the Auction Period is seven days, 28 days, 35 days, three months or a Flexible Auction Period of 180 days or less, the actual number of days in the Auction Period next succeeding such Auction Date or (ii) if the Auction Period is six months or a Flexible Auction Period of more than 180 days, the number of days in the Auction Period next succeeding such Auction Date calculated on the basis of twelve 30 day months in a year, and in either case the denominator of which is 360. 6 (ii) If the 2002 Series B Bonds are in a daily Auction Period each Broker-Dealer shall be entitled to receive on each Interest Payment Date an amount equal to the sum calculated for each Auction Period in the preceding month of the product of: (x) one-quarter of one percent (0.25%) multiplied by (y) the aggregate principal amount of 2002 Series B Bonds for each Auction Period that were (1) the subject of a valid Hold Order submitted by such Broker-Dealer, (2) the subject of a Submitted Bid of an Existing Owner submitted by such Broker-Dealer and continued to be held by such Existing Owner as a result of such Auction, (3) the subject of a Submitted Bid of a Potential Owner submitted by such Broker-Dealer and were purchased by such Potential Owner as a result of such Auction, (4) deemed to be the subject of a Hold Order by an Existing Owner that were acquired by such Existing Owner from such Broker-Dealer and (5) if an Auction was not held for any Auction Period, the aggregate principal amount of Outstanding 2002 Series B Bonds that were acquired by an Existing Owner through such Broker-Dealer, multiplied by (z) a fraction, the numerator of which is the number of days in the Auction Period and denominator of which is 360. (iii) The Broker-Dealer Fee shall be calculated by the Auction Agent, and shall be conclusive absent manifest error. Such amounts shall be communicated by the Auction Agent to the Company and the Trustee by 4:00 P.M., New York City time, on the Business Day immediately preceding each Interest Payment Date. On or before 10:00 A.M. on each Interest Payment Date, the Company shall pay to the Trustee the amount due to the Broker-Dealer. By noon on each Interest Payment Date, the Trustee shall deliver to the Auction Agent the amount constituting the Broker-Dealer Fee, by wire transfer of immediately available funds to such account as the Auction Agent may designate. The amount constituting the Broker-Dealer Fee shall be held by the Auction Agent on behalf of the Broker-Dealer, and immediately upon receipt of such Fee, the Auction Agent shall deliver such Fee to the Broker-Dealer, pursuant to the written instructions of the Broker-Dealer. If any Existing Owner who acquired 2002 Series B Bonds through a Broker-Dealer transfers any such 2002 Series B Bonds to another Person other than through an Auction, the Broker-Dealer for the 2002 Series B Bonds so transferred shall continue to be the Broker-Dealer with respect to such 2002 Series B Bonds, provided, however, that if the transfer was effected by, or if the transferee is, another Person who has met the requirements specified in the definition of "Broker-Dealer" contained in the 2002 Series B Bonds and executed a Broker-Dealer Agreement, such Person shall be the Broker-Dealer for such 2002 Series B Bonds. 2.6 Settlement. (a) If any Potential Owner on whose behalf BD has submitted an Order fails to deliver funds with respect to any Auction, BD shall promptly deliver 7 such funds to the party entitled to receive such funds. If any Existing Owner on whose behalf BD has submitted an Order fails to instruct its Agent Member to deliver 2002 Series B Bonds subject to such Order against payment therefor, BD shall instruct such Agent Member to deliver such 2002 Series B Bonds against payment therefor. The delivery of funds by BD for the purchase of 2002 Series B Bonds by a Potential Owner, as provided above, shall not relieve such Potential Owner of any liability to BD for payment for such 2002 Series B Bonds. Notwithstanding the foregoing provisions of this Section 2.6(a), any delivery or nondelivery of 2002 Series B Bonds which represents any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the terms of Section 2.3(d) hereof. The Auction Agent shall have no duty or liability with respect to enforcement of this Section 2.6(a). (b) The Auction Agent, the Trustee and the Company shall have no responsibility or liability with respect to the failure of an Existing Owner, a Potential Owner or its respective Agent Member to deliver 2002 Series B Bonds or to pay for 2002 Series B Bonds sold or purchased pursuant to the Auction Procedures or otherwise. Section 3. THE AUCTION AGENT. 3.1 Duties and Responsibilities of the Auction Agent. (a) The Auction Agent is acting solely as agent of the Trustee and owes no duties, fiduciary or otherwise, to any other person by reason of this Broker-Dealer Agreement except as expressly set forth herein or in the Auction Agreement, and no implied duties, fiduciary or otherwise, shall be read into this Broker-Dealer Agreement against the Auction Agent. (b) The Auction Agent undertakes to perform such duties and only such duties as are expressly set forth herein, or expressly incorporated herein by reference pursuant to Section 2.1(b) hereof, to be performed by it, and no implied covenants or obligations shall be read into this Broker-Dealer Agreement against the Auction Agent. (c) In the absence of bad faith or gross negligence on its part, the Auction Agent, whether acting directly or through agents or attorneys as provided in Section 3.2(d) hereof, shall not be liable for any action taken, suffered, or omitted or for any error of judgment made by it in the performance of its duties hereunder. The Auction Agent shall not be liable for any error of judgment made in good faith unless the Auction Agent shall have been negligent in ascertaining the pertinent facts necessary to make such judgment. In no event shall the Auction Agent be liable for special, indirect or consequential damages of any kind whatsoever (including but not limited to lost profits) even if the Auction Agent has been informed of the likelihood of such loss or damage, and regardless of the form of action or inaction. (d) The Auction Agent shall: (i) not be required to and shall make no representations and have no responsibilities as to the validity, accuracy, value or genuineness of any signatures or endorsements, other than its own; (ii) not be obligated to take any legal action hereunder that might, in its judgment, involve any expense or liability, unless it has been furnished with reasonable indemnity; and (iii) not be responsible for or liable in any respect on account of the identity, authority or rights of any person executing or 8 delivering or purporting to execute or deliver any document under this Broker-Dealer Agreement. 3.2 Rights of the Auction Agent. (a) The Auction Agent may conclusively rely upon, and shall be fully protected in acting or refraining from acting upon, any communication authorized hereby and upon any such written instruction, notice, request, direction, consent, report, certificate, share certificate or other instrument, paper or other document believed by it to be genuine. The Auction Agent shall not be liable for acting in good faith upon any such communication made by telephone, other electronic communication acceptable to the parties which the Auction Agent reasonably believes to have been given by the particular party or parties. To the extent permitted by law, the Auction Agent may record telephone communications with the Broker-Dealers, and each of such Broker-Dealers may record telephone communications with the Auction Agent. (b) The Auction Agent may consult with counsel of its choice (provided that such selection is made with reasonable care), and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Auction Agent shall not be required to advance, expend or risk its own funds or otherwise incur or become exposed to financial liability in the performance of its duties hereunder. (d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys and shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care. (e) Whenever in the administration of the provisions of this Agreement the Auction Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of gross negligence or bad faith on the part of the Auction Agent, be deemed to be conclusively proved and established by a certificate signed by the Company, Trustee or Broker-Dealer, and delivered to the Auction Agent and such certificate, in the absence of gross negligence or bad faith on the part of the Auction Agent, shall be full warrant to the Auction Agent for any action taken, suffered or omitted by it under the provisions of this Agreement upon the faith thereof. (f) The Auction Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, entitlement order, approval or other paper or document. (g) Any corporation into which the Auction Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Auction Agent shall be a party, or any corporation succeeding to the business of the Auction Agent shall be the successor of the Auction Agent hereunder without the execution or filing of any paper with any party hereto or any further act on the part of any of the parties hereto, except where any instrument of transfer or assignment is required by law to effect such succession, anything herein to the contrary notwithstanding. 9 3.3 The Auction Agent's Disclaimer. The Auction Agent makes no representations as to and shall have no liability with respect to the correctness of the recitals in, or the adequacy, accuracy or validity of this Broker-Dealer Agreement, the Auction Agreement, the Eleventh Supplemental Indenture, or the Auction Rate Bonds or any offering document or agreement or instrument related thereto. Section 4. DISCLOSURE; INDEMNIFICATION. 4.1 Disclosure. (a) The Company agrees to supply to BD, at the Company's expense, such number of copies of the Prospectus, dated ___________, 2002, including any amendments thereto (the "Prospectus"), as BD shall reasonably request from time to time and, upon request of BD, to amend the Prospectus so that the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. (b) If BD determines (upon consultation and mutual agreement with the Company) that it is necessary or desirable to use a disclosure statement (other than the Prospectus), relating specifically to the 2002 Series B Bonds (a "Disclosure Statement") in connection with the solicitation of Orders for the 2002 Series B Bonds, BD will notify the Company, and the Company will provide BD with a Disclosure Statement reasonably satisfactory to BD and its counsel. The Company will supply BD, at the Company's expense, with such number of copies of such Disclosure Statement as BD requests from time to time and will, upon request of BD, amend such Disclosure Statement (as well as the documents incorporated by reference therein) so that such Disclosure Statement will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. In connection with the use of any Disclosure Statement by BD in its solicitation of Orders for the 2002 Series B Bonds (other than the Prospectus), the Company will furnish to BD such certificates, accountants' letters and opinions of counsel as would be customary in a public offering of securities underwritten by BD. In addition, the Company will, at its own expense, take all steps reasonably requested by BD that BD or its counsel may consider necessary or desirable to effect compliance with applicable federal or state securities laws. 4.2 Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless BD and each person, if any, who controls BD within the meaning of either Section 15 of the Securities Act of 1933, as amended (the "Securities Act"), or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in a Prospectus or Disclosure Statement (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading. 10 (b) BD agrees to indemnify and hold harmless the Company, its directors, its officers who sign a Prospectus or Disclosure Statement and each person who controls the Company within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to BD, but only with reference to information relating to BD furnished to the Company in writing by BD expressly for use in such Prospectus or Disclosure Statement or any amendment or supplement thereto. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "Indemnified Person") shall promptly notify the person against whom such indemnity may be sought (the "Indemnifying Person") in writing, and the Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for BD and such control persons of BD shall be designated in writing by BD and any such separate firm for the Company, its directors, its officers who sign the Prospectus or a Disclosure Statement and such control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. 11 (d) If the indemnification provided for in paragraphs (a) and (b) of this Section 4.2 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion that BD is responsible for that portion represented by the percentage that the underwriters' discount on the sale of the 2002 Series B Bonds bears to the initial public offering price appearing on the cover page of the Prospectus and the Company is responsible for the balance or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and BD on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and BD on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by BD and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and BD agree that it would not be just and equitable if contribution pursuant to this Section 4.2 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.2, in no event shall BD be required to contribute any amount in excess of the amount by which the total price at which the 2002 Series B Bonds were offered to the public exceeds the amount of any damages that BD has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) The remedies provided for in this Section 4.2 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law of in equity. (g) The indemnity and contribution agreements contained in this Section 4.2 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, and (ii) any investigation made by or on behalf of BD or the person controlling BD or by or on behalf of the Company, its officers or directors or any other person controlling the Company. 12 Section 5. MISCELLANEOUS. 5.1 Termination. BD may resign at any time, upon five Business Days' notice to the Auction Agent; provided, however, that BD may resign immediately if it determines, in its reasonable judgment that it is not advisable to attempt to Auction the 2002 Series B Bonds, for any reason, including, without limitation, (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities shall have been declared by either federal authorities or state authorities of New York or the state where the paying office of the Trustee with respect to the 2002 Series B Bonds is located, (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the BD, is material and adverse and which, in the judgment of the BD, makes it impracticable to market the 2002 Series B Bonds on the terms and in the manner contemplated in the Disclosure Statement, (v) a material adverse change in the financial condition of the Company, (vi) a down-rating of the 2002 Series B Bonds, (vii) an imposition of material restrictions on the 2002 Series B Bonds or similar obligations, or (viii) notice is received of an event of default under the Indenture. The Auction Agent upon the written direction of the Company may terminate this Broker-Dealer Agreement at any time on five Business Days' notice to the other parties hereto; and provided that this Broker-Dealer Agreement shall terminate upon the resignation or removal of BD pursuant to this Section 5.1 or termination of the Auction Agreement. 5.2 Participant. BD is and for the term of this Broker-Dealer Agreement shall remain a member of, a participant in, or an affiliate of such a member or participant in DTC; and will give the Auction Agent, each other Broker-Dealer, the Company and the Trustee two Business Days' notice if it ceases to be so or if it changes its participation or affiliation to a different Bond Depository. 5.3 Communications. Except for (i) communications authorized to be by telephone pursuant to this Broker-Dealer Agreement or the Auction Procedures and (ii) communications in connection with Auctions (other than those expressly required to be in writing) all notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing or other electronic communication acceptable to the parties) and shall be given to such party, addressed to it, at its address, telecopy number or e-mail address set forth below and, where appropriate, reference the particular Auction to which such notice relates: If to BD addressed: J.P. MORGAN SECURITIES INC. 60 Wall Street New York, New York 10260-0060 Attention: Kevin O'Connor Telecopier Number: (212) 648-5628 Telephone Number: (212) 648-0945 13 If to the Auction Agent addressed: BANKERS TRUST COMPANY 100 Plaza One 6th Floor Jersey City, New Jersey 07311 Attention: Corporate Trust & Agency Services Telecopier Number: (201) 593-6447 Telephone Number: (201) 860-6881 If to the Company addressed: CHUGACH ELECTRIC ASSOCIATION, INC. 5601 Minnesota Drive Anchorage, Alaska 99518 Attention: Executive Manager, Finance and Energy Supply Telecopier Number: (907) 762-4514 Telephone Number: (907) 762-4790 or such other address, telecopy number or e-mail address as such party may hereafter specify for such purpose by notice to the other party. Each such notice, request or communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopy number specified herein or (ii) if given by any other means, when delivered at the address specified herein. Communications shall be given on behalf of BD by a BD Officer and on behalf of the Auction Agent by an Authorized Officer. 5.4 Entire Agreement. This Broker-Dealer Agreement, and the other agreements and instruments executed and delivered in connection with the issuance of the 2002 Series B Bonds, contain the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred, between the parties relating to the subject matter hereof 5.5 Benefits; Successors and Assigns. This Broker-Dealer Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and assigns of BD and the Auction Agent. Nothing in this Broker-Dealer Agreement, express or implied, shall give to any person, other than the Auction Agent and BD and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim under this Broker-Dealer Agreement, other than the rights expressly granted to the Company herein. 5.6 Amendment; Waiver. (a) This Broker-Dealer Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the parties hereto and consented to in writing by a duly authorized officer of the Company. 14 (b) Failure of any party to this Broker-Dealer Agreement to exercise any right or remedy hereunder in the event of a breach of this Broker-Dealer Agreement by any other party shall not constitute a waiver of any such right or remedy with respect to any subsequent breach. 5.7 Severability. If any clause, provision or section of this Broker-Dealer Agreement shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof. 5.8 Execution in Counterparts. This Broker-Dealer Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 5.9 Governing Law. This Broker-Dealer Agreement shall be governed by and construed in accordance with the laws of the State of New York. 5.10 No Implied Duties. Nothing contained in this Broker-Dealer Agreement, the Eleventh Supplemental Indenture or the Auction Agreement shall be deemed to imply any duties, covenants or obligations on the part of the Company not otherwise expressly set forth herein or therein. (Signatures follow on next page.) 15 IN WITNESS WHEREOF, the parties hereto have caused this Broker-Dealer Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. BANKERS TRUST COMPANY, as Auction Agent By: ---------------------------------- Authorized Signatory J.P. MORGAN SECURITIES INC. By: ---------------------------------- Authorized Signatory CHUGACH ELECTRIC ASSOCIATION, INC. By: ---------------------------------- Authorized Signatory 16 EXHIBIT A SETTLEMENT PROCEDURES FOR AUCTION RATE BONDS (a) On each Auction Date, the Auction Agent shall notify by telephone or other electronic communication acceptable to the parties each Broker-Dealer that participated in the Auction held on such Auction Date and submitted an Order on behalf of any Existing Owner or Potential Owner of: (i) the Auction Rate fixed for the succeeding Auction Period or, in the case of Auction Rate Bonds in a daily Auction Period, the Auction Rate on the Auction Rate Bonds fixed for the current Auction Period; (ii) whether Sufficient Clearing Bids existed for the determination of the Winning Bid Rate; (iii) if such Broker-Dealer submitted a Bid or a Sell Order on behalf of an Existing Owner, whether such Bid or Sell Order was accepted or rejected, in whole or in part, and the principal amount of Auction Rate Bonds, if any, to be sold by such Existing Owner; (iv) if such Broker-Dealer submitted a Bid on behalf of a Potential Owner, whether such Bid was accepted or rejected, in whole or in part, and the principal amount of Auction Rate Bonds, if any, to be purchased by such Potential Owner; (v) if the aggregate principal amount of Auction Rate Bonds to be sold by all Existing Owners on whose behalf such Broker-Dealer submitted Bids or Sell Orders is different from the aggregate principal amount of Auction Rate Bonds to be purchased by all Potential Owners on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more other Broker-Dealers (and the Agent Member, if any, of each such other Broker-Dealer) and the principal amount of Auction Rate Bonds to be (A) purchased from one or more Existing Owners on whose behalf such other Broker-Dealers submitted Bids or Sell Orders or (B) sold to one or more Potential Owners on whose behalf such other Broker-Dealers submitted Bids; and (vi) the immediately succeeding Auction Date. (b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Owner or Potential Owner shall: (i) advise each Existing Owner and Potential Owner on whose behalf such Broker-Dealer submitted a Bid or Sell Order whether such Bid or Sell Order was accepted or rejected, in whole or in part; (ii) instruct each Potential Owner on whose behalf such Broker-Dealer submitted a bid that was accepted, in whole or in part, to instruct such Potential Owner's Agent Member to pay to such Broker-Dealer (or its Agent Member) through DTC the amount necessary to purchase the principal amount of Auction Rate Bonds to be purchased pursuant to such Bid (including, with respect to the Auction Rate Bonds in a daily Auction Period, accrued interest if the purchase date is not an Interest Payment Date for such Auction Rate Bond) against receipt of such principal amount of Auction Rate Bonds; A-1 (iii) instruct each Existing Owner on whose behalf such Broker-Dealer submitted a Sell Order that was accepted or a Bid that was rejected, in whole or in part, to instruct such Existing Owner's Agent Member to deliver to such Broker-Dealer (or its Agent Member) through DTC the principal amount of Auction Rate Bonds to be sold pursuant to such Bid or Sell Order against payment therefor; (iv) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order and each Potential Owner on whose behalf such Broker-Dealer submitted a Bid of the Auction Rate for the next succeeding Auction Period or, in the case of Auction Rate Bonds in a daily Auction Period, the Auction Rate for the current Auction Period; (v) advise each Existing Owner on whose behalf such Broker-Dealer submitted an Order of the Auction Date of the next succeeding Auction; and (vi) advise each Potential Owner on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the Auction Date of the next succeeding Auction. (c) on the basis of the information provided to it pursuant to paragraph (a) above, each Broker-Dealer that submitted a Bid or Sell Order shall allocate any funds received by it pursuant to subparagraph (b) (ii) above, and any Auction Rate Bonds received by it pursuant to (b) (iii) above, among the Potential Owners, if any, on whose behalf such Broker-Dealer submitted Bids, the Existing Owners, if any, on whose behalf such Broker-Dealer submitted Bids or Sell Orders, and any Broker-Dealer identified to it by the Auction Agent pursuant to subparagraph (a)(v) above. (d) On the Business Day after the Auction Date or, in the case of Auction Rate Bonds in a daily Auction Period, on such Auction Date, DTC shall execute the transactions described above, debiting and crediting the accounts of the respective Agent Members as necessary to effect the purchase and sale of Auction Rate Bonds as determined in the Auction. A-2 EXHIBIT B (Submit only one Order on this Order Form) $60,000,000 Chugach Electric Association, Inc. New Bonds, 2002 Series B Due 2012 Auction Rate Bonds Attention: - ------------------------ Date of Auction The undersigned Broker-Dealer submits the following Order on behalf of the Bidder listed below: Name of Bidder: ---------------------------------------------------------------- Bidder places the Order listed below covering the Auction Rate Bonds indicated (complete only one blank): $____________ Auction Rate Bonds now held by Bidder (an Existing Owner), and the Order is a (check one): _____ Hold Order; or _____ Bid at rate of %; or _____ Sell Order. OR $____________ Auction Rate Bonds not now held by Bidder (a Potential Owner), and the Order is a Bid at a rate of _____%. Notes: (1) If submitting more than one Order for one Bidder, use additional Order Forms. (2) If one or more Orders covering in the aggregate more than the number of Outstanding Auction Rate Bonds held by any Existing Owner are submitted, such Orders shall be considered valid in the order or priority set forth in the Auction Procedures. B-1 (3) A Hold Order may be placed only by an Existing Owner covering a number of Outstanding Auction Rate Bonds not greater than the number of Outstanding Auction Rate Bonds currently held. (4) Potential Owners may make only Bids, each of which must specify a rate. If more than one Bid is submitted on behalf of any Potential Owner, each Bid submitted shall be a separate Bid with the rate specified. (5) Bids may contain no more than three figures to the right of the decimal point. (6) An Order must be submitted in integral multiples of $50,000. Name of Broker-Dealer: ------------------------------- By ------------------------------------------------------------ B-2 EXHIBIT C (To be used only for transfers of Auction Rate Bonds made other than pursuant to an Auction) $60,000,000 Chugach Electric Association, Inc. New Bonds, 2002 Series B Due 2012 Auction Rate Bonds TRANSFER FORM Attention: -------------------------- --------------, ----- Check I, II or III I. We are the Existing Owner named below. - --------- II. We are the Agent Member for such Existing Owner. - --------- III. We are a Broker-Dealer for such Existing Owner. - --------- We hereby notify you that the Existing Owner named below has transferred: $ Auction Rate Bonds* to ----------------- ---------------------------- C-1 Complete either I or II I. Corporate Name of Existing Owner: By: ------------------------------------- Printed Name: Title: II. Corporate Name of Existing Owner: ------------------------------------- Name of Agent Member or Broker-Dealer Submitting this notice: ------------------------------------- By: ------------------------------------- Printed Name: Title: - -------------------- *Auction Rate Bonds may only be transferred in integral multiples of $50,000. C-2 EXHIBIT D (To be used for failure to deliver Auction Rate Bonds sold pursuant to an Auction) $60,000,000 Chugach Electric Association, Inc. New Bonds, 2002 Series B Due 2012 Auction Rate Bonds NOTICE OF FAILURE TO DELIVER Attention: ---------------------------------- Complete either I or II _____________,____ ___________,____ I. We are a Broker-Dealer for __________________ (the "Purchaser"), who was to purchase $______ Auction Rate Bonds * in the Auction held on ______________. II. We are a Broker-Dealer for __________________ (the "Seller"), who was to sell $_______ Auction Rate Bonds * in the Auction held on _______________. We hereby notify you that (check one) - ________ the Seller failed to deliver such Auction Rate Bonds to us. ________ the Purchaser failed to make payment to us upon delivery of such Auction Date Bonds. ________ the following Broker-Dealer failed to deliver to us such Auction Rate Bonds. ________ the following Broker-Dealer failed to make payment to us upon delivery of such Auction Rate Bonds: Name: --------------------------------------------------------- D-1 (Name of Broker-Dealer submitting this notice) By: ---------------------------------------------- Printed Name: Title: * Auction Rate Bonds may only be transferred in integral multiples of $50,000. D-2 EXHIBIT E TO BROKER - DEALER AGREEMENT LISTING OF EXISTING OWNERS OF AUCTION RATE BONDS $60,000,000 Chugach Electric Association, Inc. New Bonds, 2002 Series B Due 2012 Auction Rate Bonds Attention: ---------------------------------- The undersigned Broker-Dealer hereby provides the names and related principal amounts of each of its customers that it believes is an Existing Owner of Auction Rate Bonds: Name of Existing Owner Principal Amount of Auction Rate Bonds Name of Broker-Dealer: By: ----------------------------------- Name: Title: EX-4 9 exh418.txt 4.18 Exhibit 4.18 (Form of 2002 Series B Bond) UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (55 WATER STREET, NEW YORK, NEW YORK) ("DTC") TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. CHUGACH ELECTRIC ASSOCIATION, INC. NEW BONDS, 2002 SERIES B, DUE 2012 No. 2002B-1 $60,000,000 CUSIP No. ______________ Chugach Electric Association, Inc., an Alaska electric cooperative (herein called the "Company", which term includes any successor corporation under the Indenture referred to on the reverse side hereof), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of Sixty Million Dollars ($60,000,000) on [_____________], 2012, and to pay interest thereon as provided herein and in the Indenture (as defined below), commencing on the date hereof, on each Interest Payment Date (as hereafter defined), until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture referred to on the reverse side hereof, be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered at the close of business on the Regular Record Date (as defined below and in the Indenture) for such interest. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Bond (or one or more Predecessor Bonds) is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to Holders of Bonds of this series not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which Bonds of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of and interest on this Bond will be made at the office or agency of the Company maintained for that purpose in St. Paul, Minnesota, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; PROVIDED, HOWEVER, that (subject to the terms on the reverse hereof) at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Bond Register. Reference is hereby made to the further provisions of this Bond set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Bond shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Bond to be duly executed. CHUGACH ELECTRIC ASSOCIATION, INC. By _______________________________ Authorized Officer ATTEST: - ------------------------------------ Secretary or Assistant Secretary [Trustee's Certificate of Authentication] This is one of the Bonds referred to in and secured by the Indenture of Trust dated as of September 15, 1991, by and between Chugach Electric Association, Inc. and Security Pacific Bank Washington, N.A., as the same may be amended and effective from time to time prior to the Release Date (the "Pre-Release Indenture"), under which the undersigned now acts as Trustee. From and after the Release Date (as defined in the Tenth Supplemental Indenture of Trust to the Pre-Release Indenture), this shall constitute one of the unsecured Obligations referred to in and entitled to the benefits of that Amended and Restated Indenture dated April 1, 2001, between Chugach Electric Association, Inc. and U.S. Bank Trust National Association, the form of which is attached as Exhibit A to such Tenth Supplemental Indenture (the "Amended and Restated Indenture"), which Amended and Restated Indenture amends and supersedes the Pre-Release Indenture in its entirety from and after the Release Date. Dated: _______________, 2002 U.S. BANK TRUST NATIONAL ASSOCIATION, as Trustee By: ______________________________ Authorized Signatory This is one of one of a duly authorized series of bonds designated "New Bonds, 2002 Series B," herein call the "2002 Series B Bonds," referred to in and secured by the Indenture of Trust dated as of September 15, 1991, by and between Chugach Electric Association, Inc. and Security Pacific Bank Washington, N.A., as trustee, as the same may be amended and effective from time to time prior to the Release Date (as defined therein) (the "Pre-Release Indenture"), under which U.S. Bank Trust National Association now acts as trustee (the "Trustee," which term includes any successor trustee under the Indenture). From and after the Release Date (as defined in the Tenth Supplemental Indenture of Trust to the Pre-Release Indenture), this shall constitute one of the unsecured Obligations referred to in and entitled to the benefits of that Amended and Restated Indenture dated April 1, 2001, between Chugach Electric Association, Inc. and U.S. Bank Trust National Association, the form of which is attached as Exhibit A to such Tenth Supplemental Indenture (the "Amended and Restated Indenture"), which Amended and Restated Indenture amends and supersedes the Pre-Release Indenture in its entirety from and after the Release Date. The Pre-Release Indenture, including all indentures supplemental thereto and effective prior to the Release Date, contains a statement of the description of the properties thereby mortgaged, pledged and assigned, the nature and extent of the security and the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Bonds and of the terms upon which the Bonds are, and are to be, authenticated and delivered, in each case prior to the Release Date. The Amended and Restated Indenture, including all indentures supplemental thereto, contains a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Obligations and of the terms upon which the Obligations are, and are to be, authenticated and delivered from and after the Release Date. From and after the Release Date, the term "Bond" as used in this instrument shall be construed to mean "Obligation" as that term is used in the Amended and Restated Indenture and all indentures supplemental thereto. The term "Indenture" as used herein means the Pre-Release Indenture prior to the Release Date and the Amended and Restated Indenture from and after the Release Date, in each case as the same may be amended from time to time. If an Event of Default with respect to the Bonds shall occur and be continuing, the principal of the Bonds may be declared due and payable in the manner and with the effect provided in the Indenture. Notwithstanding the foregoing, except as otherwise provided in a Supplemental Indenture authorizing Bonds for which Credit Enhancement is being provided, if not in default in respect of any of its obligations with respect to Credit Enhancement for the Bonds of a series, or a maturity within a series, the Credit Enhancer for, and not the actual Holders of, such Bonds, shall be deemed to be the Holder of such Bonds at all times for the purpose of (i) giving any approval or consent to the effectiveness of any Supplemental Indenture or any amendment, change or modification of the Indenture which requires the written approval or consent of Holders; provided, however, that the provisions of this Clause (i) shall not apply to any change which could not be made pursuant to Section 13.02 of the Pre-Release Indenture (prior to the Release Date) or Section 10.2 of the Amended and Restated Indenture (on and after the Release Date) without the consent of each Holder affected thereby, or shall change or modify any of the rights or obligations of the Trustee or any Paying Agent without its written assent thereto, and (ii) giving any approval or consent, effecting any waiver or authorization, exercising any remedies or taking any other action in accordance with the provisions of Article Nine of the Pre-Release Indenture (prior to the Release Date) or Article 6 of the Amended and Restated Indenture (on and after the Release Date). The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of Bonds under the Indenture at any time by the Company with the consent of the Holders of a majority in aggregate principal amount of Bonds of all series at the time Outstanding affected by such modification. The Indenture also contains provisions permitting the Holders of a majority in principal amount of Bonds at the time Outstanding, on behalf of the Holders of all Bonds to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Bond shall be conclusive and binding upon such Holder and upon all future Holders of this Bond and of any Bond issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Bond. No reference herein to the Indenture and no provision of this Bond or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Bond at the times, places and rates, and in the coin or currency, herein prescribed. Pursuant to Section 34.20.160 of the Alaska Statutes, notice is hereby given that the Company is personally obligated and fully liable for the amount due under this Bond and the Holder of this Bond has the right to sue on this Bond and obtain a personal judgment against the Company for satisfaction of the amount due hereunder either before or after a judicial foreclosure of the lien of the Indenture under Sections 09.45.170 through 09.45.220 of the Alaska Statutes. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Bond is registrable in the Bond Register, upon surrender of this Bond for registration of transfer at the office or agency of the Company in St. Paul, Minnesota, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Bond Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Bonds of this series, of Authorized Denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Bonds of this series are issuable only in registered form without coupons in denominations provided in the Eleventh Supplemental Indenture to the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, Bonds of this series are exchangeable for a like aggregate principal amount of Bonds of this series of a different Authorized Denomination, but of the same Maturity, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Bond for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Bond is registered as the owner hereof for all purposes, whether or not this Bond be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Bonds of this series initially shall be held in a Book-Entry System. While the Bonds of this series are held in the Book-Entry System, payment of the principal of, premium, if any, and interest on such Bonds shall be made by wire transfer of Federal funds or equivalent same-day funds, or in such other manner as permitted by the DTC Letter of Representation executed by the Company in connection with such series (as the same may be amended from time to time), to the account of Cede & Co. In the event the Bonds of this series are no longer held in the Book-Entry System, interest on such Bonds shall be payable on each Interest Payment Date (i) by check payable to the order of the person entitled thereto and mailed by first class mail, postage prepaid, to the address of such person as it shall appear on the books of the Company kept at the office of the Bond Registrar, (ii) in the case of all 2002 Series B Bank Bonds, by wire transfer of immediately available funds at such wire address as the Agent Bank shall specify or (iii) in the case of Bonds subject to the Auction Mode, the Flexible Mode, the Daily Mode or the Weekly Mode, by wire transfer in immediately available funds to any owner of Bonds in the denomination of $1,000,000 or any Authorized Denomination in excess of such amount at such wire transfer address as such owner shall specify if such owner shall provide written notice to the Trustee not less than 15 days prior to such Interest Payment Date in which request for wire transfer payment is made and the wire transfer address is specified. All terms used in this Bond which are defined in the Indenture shall have the meanings assigned to them in the Indenture. Definitions To the extent not defined herein, the terms used in this Bond shall have the meanings as set forth in the Eleventh Supplemental Indenture dated [____________], 2002 (including all appendices, exhibits and other attachments thereto, the "Eleventh Supplemental Indenture"), which is amendatory and supplemental to the Indenture: "Auction Mode" shall mean the Interest Mode during which the 2002 Series B Bonds bear interest at Auction Mode Rates. "Auction Mode Rate" means the rate of interest to be borne by the 2002 Series B Bonds during each Auction Period determined as provided in the Eleventh Supplemental Indenture; provided, however, in no event may the Auction Mode Rate exceed the Maximum Rate. "Auction Period" means (i) a Flexible Auction Period, (ii) with respect to 2002 Series B Bonds in a daily Auction Period, a period beginning on each Business Day and extending to but not including the next succeeding Business Day, (iii) with respect to 2002 Series B Bonds in a seven-day Auction Period, a period of generally seven days beginning on a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on the Tuesday thereafter (unless such Tuesday is not followed by a Business Day in which case on the next succeeding day which is followed by a Business Day), (iv) with respect to 2002 Series B Bonds in the 28-day Auction Period, a period of generally 28 days beginning on a Wednesday (or the day following the last day of the prior Auction Period if the prior Auction Period does not end on a Tuesday) and ending on the fourth Tuesday thereafter (unless such Tuesday is not followed by a Business Day in which case on the next succeeding day which is followed by a Business Day), (v) with respect to 2002 Series B Bonds in the 35-day Auction Period, a period of generally 35 days beginning on a Wednesday (or the day following the last day of the prior Auction Period if the Auction Period does not end on a Tuesday) and ending on the fifth Tuesday thereafter (unless such Tuesday is not followed by a Business Day in which case on the next succeeding day which is followed by a Business Day), (vi) with respect to 2002 Series B Bonds in a three-month Auction Period, a period of generally three months (or shorter period upon a conversion from another Auction Period) beginning on the day following the last day of the prior Auction Period and ending on the first day of the month that is the third calendar month following the beginning date of such Auction Period, and (vii) with respect to 2002 Series B Bonds in a semiannual Auction Period, a period of generally six months (or shorter period upon a conversion from another Auction Period) beginning on the day following the last day of the prior Auction Period and ending on the next succeeding June 30 or December 31; provided, however, that if there is a conversion from a daily Auction Period to a seven-day Auction Period, the next Auction Period will begin on the date of the conversion (i.e., the Interest Payment Date for the prior Auction Period) and will end on the next succeeding Tuesday (unless such Tuesday is not followed by a Business Day in which case on the next succeeding day which is followed by a Business Day), if there is a conversion from a daily Auction Period to a 28-day Auction Period, the next Auction Period will begin on the date of the conversion (i.e., the Interest Payment Date for the prior Auction Period) and will end on the Tuesday (unless such Tuesday is not followed by a Business Day in which case on the next succeeding day which is followed by a Business Day) which is more than 21 days, but not more than 28 days from such date of conversion, and, if there is a conversion from a daily Auction Period to a 35-day Auction Period, the next Auction Period will begin on the date of the conversion (i.e., the Interest Payment Date for the prior Auction Period) and will end on the Tuesday (unless such Tuesday is not followed by a Business Day in which case on the next succeeding day which is followed by a Business Day) which is more than 28 days, but not more than 35 days from such date of conversion. "Business Day" means any day, other than a Saturday or Sunday, on which (a) the principal office of the Company is open for business during its normal business hours, (b) the principal corporate trust office of the Trustee is open for business during its normal business hours, and (c) if the 2002 Series B Bonds are in the Auction Mode, the principal corporate trust office of the Auction Agent and the principal office of each Broker-Dealer are open for business during their respective normal business hours. "Daily Mode" means the Interest Mode during which the 2002 Series B Bonds bear interest at Daily Rates. "Daily Rate" shall mean the interest rate applicable to the 2002 Series B Bonds during the Daily Mode, determined pursuant to the Eleventh Supplemental Indenture. "Defaulted Interest" means interest on any 2002 Series B Bond which is payable but is not punctually paid or duly provided for, on any Interest Payment Date. "Fixed Rate" means the interest rate applicable to the 2002 Series B Bonds during the Fixed Mode, determined in accordance with the Eleventh Supplemental Indenture. "Fixed Mode" means the Interest Mode during which the 2002 Series B Bonds bear interest at the Fixed Rate. "Flexible Auction Period" means any period of not less than seven nor more than 364 days which begins on an Interest Payment Date and ends on a Tuesday unless such Tuesday is not followed by a Business Day, in which case on the next succeeding day which is followed by a Business Day. "Flexible Mode" means the Interest Mode during which the 2002 Series B Bonds bear interest at Flexible Rates. "Flexible Rate" means the interest rate applicable to the 2002 Series B Bonds during the Flexible Mode, determined pursuant to the Eleventh Supplemental Indenture. "Initial Period" means the period from the Delivery Date to but not including [____________], 2002. "Interest Mode" means a period of time relating to the frequency with which the interest rate on the 2002 Series B Bonds is determined pursuant to the Eleventh Supplemental Indenture. An Interest Mode may be the Auction Mode, the Daily Mode, the Weekly Mode, the Flexible Mode, the Term Mode or the Fixed Mode. "Interest Payment Date" means, with respect to 2002 Series B Bonds in the Auction Rate Mode, [________________], 2002, and thereafter (a) when used with respect to any Auction Period other than a daily Auction Period or a Flexible Auction Period, the Business Day immediately following such Auction Period, (b) when used with respect to a daily Auction Period, the first Business Day of the month immediately succeeding such Auction Period, (c) when used with respect to a Flexible Auction Period of (i) seven or more but fewer than 92 days, the Business Day immediately following such Flexible Auction Period, or (ii) 92 or more days, each thirteenth Wednesday after the first day of such Flexible Auction Period or the next Business Day if such Wednesday is not a Business Day and on the Business Day immediately following such Flexible Auction Period, (d) any Mode Adjustment Date and (e) the maturity or redemption date thereof. "Interest Period" shall mean the period from and including a Rate Adjustment Date to but excluding the next succeeding Rate Adjustment Date (if any); provided, however, that (a) the first Interest Period for the 2002 Series B Bonds shall be the period from and including the Delivery Date to but excluding the first Rate Adjustment Date and (b) the final Interest Period for any 2002 Series B Bond shall be the period from and including the last Rate Adjustment Date preceding the maturity or redemption date of such 2002 Series B Bond to but excluding such maturity or redemption date. "Maximum Rate" means fifteen percent (15%) per annum, or such higher rate as shall be approved by the Company if (1) a Favorable Opinion of Bond Counsel shall have been delivered to the Notice Parties and (2) such higher rate shall have been consented to in writing by the Bond Insurer. "Mode Adjustment Date" means any date on which the Interest Mode or Interest Period to which the 2002 Series B Bonds are subject is to be changed to another Interest Mode or Interest Period, as the case may be, as determined pursuant to the Eleventh Supplemental Indenture. "Notice Parties" shall mean the Company, the Trustee, the Auction Agent and each Broker-Dealer. "Regular Record Date" means with respect to a particular 2002 Series B Bond during an Auction Mode Rate, the Business Day immediately preceding an Interest Payment Date. INTEREST RATES Initial Interest Rate; Subsequent Rates; Rate Periods. The 2002 Series B Bonds shall bear interest at a rate of [______]% per annum for the Initial Period. Thereafter, the 2002 Series B Bonds shall bear interest at Auction Mode Rates established for 28-day Auction Periods until a Mode Adjustment Date or until a change of Auction Period as provided in the Eleventh Supplemental Indenture. During the Auction Rate Period, the 2002 Series B Bonds shall bear interest at the Auction Mode Rate. At no time shall the 2002 Series B Bonds bear interest at a rate higher than the Maximum Rate. Interest during an Auction Rate Period shall be calculated on the basis of a 360-day year for the actual number of days elapsed except that interest during a six month Auction Period or a Flexible Auction Period of more than 180 days shall be calculated on the basis of a 360-day year composed of twelve 30-day months. MANDATORY REDEMPTION THROUGH OPERATION OF SINKING FUND As a sinking fund for the 2002 Series B Bonds, the Company shall redeem the 2002 Series B Bonds in the aggregate principal amounts and on the dates specified in the following table: Aggregate Principal Amount of 2002 Series B Bonds to Be Redeemed Date of Sinking Fund Payment Through Sinking Fund on Such Date ____________, 2003 $________________________ ____________, 2004 $________________________ ____________, 2005 $________________________ ____________, 2006 $________________________ ____________, 2007 $________________________ ____________, 2008 $________________________ ____________, 2009 $________________________ ____________, 2010 $________________________ ____________, 2011 $________________________ The principal amount of 2002 Series B Bonds acquired (and surrendered for cancellation) or redeemed by the Company otherwise than through operation of the sinking fund shall be credited against sinking fund payments for 2002 Series B Bonds of such maturity, in proportion to the respective amounts of such required sinking fund payments. OPTIONAL REDEMPTION Optional Redemption. During the Auction Mode, 2002 Series B Bonds may be redeemed by the Company, in whole or in part on any Interest Payment Date immediately following the end of an Auction Period, at the principal amount of the 2002 Series B Bonds to be redeemed and without premium, together with the accrued interest; provided, however, in the event of an optional partial redemption of the 2002 Series B Bonds bearing interest at an Auction Mode Rate, the aggregate principal amount not so redeemed is an integral multiple of $100,000. Selection of 2002 Series B Bonds to be Redeemed. If less than all of the 2002 Series B Bonds of like maturity are to be redeemed in an optional redemption, the particular 2002 Series B Bonds to be redeemed shall be selected at random by the Trustee in such manner as the Trustee deems fair and appropriate and the portion of such 2002 Series B Bonds not redeemed will be in an Authorized Denomination. Notice of Redemption. The Trustee is to give notice of an optional redemption of the 2002 Series B Bonds in the name of the Company by mailing a notice of redemption, by mail, postage prepaid, not less than fifteen (15) days prior to the redemption date, to each Holder of the 2002 Series B Bonds which are to be redeemed, at their last known addresses appearing on the registration books. If notice of redemption shall have been given as aforesaid, the 2002 Series B Bonds or portions thereof specified in said notice shall become due and payable on the redemption date therein fixed, and if, on the redemption date, moneys for the redemption of all the 2002 Series B Bonds and portions thereof to be redeemed, together with interest to the redemption date, shall be available for such payment on said date, then, from and after the redemption date, interest on such 2002 Series B Bonds or portions thereof so called for redemption shall cease to accrue and be payable. Upon a conversion to a Daily Rate, Weekly Rate, Flexible Rate, Term Rate or Fixed Rate, the 2002 Series B Bonds are subject to mandatory tender and a new bond form will be issued containing the appropriate provisions. -----END PRIVACY-ENHANCED MESSAGE-----