-----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, LdItixxx3m9wOfNJiP8EgNxcdghCFn1F55WRq+eJFYenxg2LebjJPteSf7qcIQrJ T6ripExkxiWHUtvcGxQ8ZQ== 0000317187-96-000015.txt : 19961115 0000317187-96-000015.hdr.sgml : 19961115 ACCESSION NUMBER: 0000317187-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PP&L RESOURCES INC CENTRAL INDEX KEY: 0000922224 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 232758192 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11459 FILM NUMBER: 96660429 BUSINESS ADDRESS: STREET 1: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 18101 BUSINESS PHONE: 6107745151 MAIL ADDRESS: STREET 1: TWO NORTH NINTH STREET STREET 2: TWO NORTH NINTH STREET CITY: ALLENTOWN STATE: PA ZIP: 181011179 10-Q 1 United States Securities and Exchange Commission Washington, DC 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Registrant; State of Incorporation; IRS Employer Number Address; and Telephone No. Identification No. 1-11459 PP&L Resources, Inc. 23-2758192 (Pennsylvania) Two North Ninth Street Allentown, PA 18101 (610) 774-5151 1-905 Pennsylvania Power & Light Company 23-0959590 (Pennsylvania) Two North Ninth Street Allentown, PA 18101 (610) 774-5151 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. PP&L Resources, Inc. Yes X No PP&L Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: PP&L Resources, Inc. Common stock, $.01 par value, 162,280,159 shares outstanding at October 31, 1996 Pennsylvania Power & Light Co. Common stock, no par value, 157,300,382, shares outstanding and all held by PP&L Resources, Inc. at October 31, 1996 PP&L RESOURCES, INC. AND PENNSYLVANIA POWER & LIGHT COMPANY FORM 10-Q FOR THE QUARTER ENDED September 30, 1996 INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements PP&L Resources, Inc. Consolidated Statements of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Pennsylvania Power & Light Company Consolidated Statements of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Notes to Financial Statements PP&L Resources, Inc. and Pennsylvania Power & Light Company Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PP&L Resources, Inc. and Pennsylvania Power & Light Company PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K GLOSSARY OF TERMS AND ABBREVIATIONS SIGNATURES PP&L RESOURCES, INC. AND SUBSIDIARIES Part 1. FINANCIAL INFORMATION Item 1. Financial Statements In the opinion of PP&L Resources, Inc. (PP&L Resources), the unaudited financial statements, included herein, reflect all adjustments necessary to present fairly the Consolidated Balance Sheet as of September 30, 1996 and the Consolidated Statements of Income and Consolidated Statement of Cash Flows for the periods ended September 30, 1996 and 1995. PP&L Resources is the parent holding company of Pennsylvania Power & Light Company (PP&L), Power Markets Development Company (PMDC) and Spectrum Energy Services Corporation (Spectrum). PP&L comprises substantially all of PP&L Resources' assets, revenues and earnings. All nonutility operating transactions are included in "Other Income and (Deductions) - Net" in PP&L Resources' Consolidated Statements of Income. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars, except per share data)
Three Months Ended September 30, 1996 1995 Operating Revenues ............................... $715 $682 Operating Expenses Operation Fuel......................................... 124 130 Power purchases.............................. 84 66 Other........................................ 138 107 Maintenance..................................... 40 39 Depreciation (including amortized depreciation). 91 87 Income taxes.................................... 52 92 Taxes, other than income........................ 50 48 Voluntary early retirement program......................... (66) 579 503 Operating Income .................................. 136 179 Other Income and (Deductions) - Net 6 (28) Income Before Interest Charges & Dividends on Preferred Stock ........................................... 142 151 Interest Charges Long-term debt.................................. 52 53 Short-term debt and other....................... 4 4 56 57 Preferred Stock Dividend Requirements.............. 7 7 Net Income......................................... $79 $87 Earnings Per Share of Common Stock (a) ............ $0.49 $0.55 Average Number of Shares Outstanding (thousands)....................................... 161,360 158,131 Dividends Declared Per Share of Common Stock............................................. $0.4175 $0.4175 (a) Based on average number of shares outstanding. See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars, except per share data)
Nine Months Ended September 30, 1996 1995 Operating Revenues ............................... $2,173 $2,018 Operating Expenses Operation Fuel......................................... 349 336 Power purchases.............................. 249 214 Other........................................ 387 345 Maintenance..................................... 136 124 Depreciation (including amortized depreciation) 272 262 Income taxes.................................... 193 210 Taxes, other than income........................ 156 149 Voluntary early retirement program......................... (66) 1,742 1,574 Operating Income .................................. 431 444 Other Income and (Deductions) - Net 10 (21) Income Before Interest Charges & Dividends on Preferred Stock ........................................... 441 423 Interest Charges Long-term debt.................................. 155 161 Short-term debt and other....................... 9 8 164 169 Preferred Stock Dividend Requirements.............. 21 21 Net Income......................................... $256 $233 Earnings Per Share of Common Stock (a) ............ $1.60 $1.48 Average Number of Shares Outstanding (thousands)....................................... 160,650 157,187 Dividends Declared Per Share of Common Stock............................................. $1.2525 $1.2525 (a) Based on average number of shares outstanding. See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
September 30, December 31, 1996 1995 (Unaudited) (Audited) ASSETS Property, Plant and Equipment Electric utility plant in service - at original cost........................... $9,772 $9,637 Accumulated depreciation .................. (3,299) (3,113) Deferred depreciation ..................... 158 209 6,631 6,733 Construction work in progress - at cost...... 183 170 Nuclear fuel owned and leased - net of amortization ........................... 151 134 Other leased property - net of amortization . 79 85 Electric utility plant - net............... 7,044 7,122 Other property - (net of depreciation, amortization and depletion 1996, $58; 1995, $56).................................. 56 57 7,100 7,179 Investments Affiliated companies - at equity ............ 227 29 Nuclear plant decommissioning trust fund .... 120 109 Financial investments........................ 138 142 Other - at cost or less ..................... 16 9 501 289 Current Assets Cash and cash equivalents ................... 100 20 Current financial investments ............... 110 96 Accounts receivable (less reserve: 1996, $37; 1995, $35)................................. 188 211 Unbilled revenues............................ 79 92 Fuel - at average cost....................... 81 82 Materials and supplies - at average cost..... 106 108 Prepayments.................................. 29 11 Deferred income taxes ....................... 40 42 Other........................................ 25 31 758 693 Deferred Debits Taxes recoverable through future rates....... 976 1,003 Other ....................................... 292 328 1,268 1,331 $9,627 $9,492 See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
September 30, December 31, 1996 1995 (Unaudited) (Audited) LIABILITIES Capitalization Common equity Common stock............................... $2 $2 Capital in excess of par value ............ 1,566 1,513 Earnings reinvested ....................... 1,138 1,083 Capital stock expense and other ........... (3) (1) 2,703 2,597 Preferred stock With sinking fund requirements............. 295 295 Without sinking fund requirements.......... 171 171 Long-term debt............................... 2,832 2,829 6,001 5,892 Current Liabilities Commercial paper ................................ 68 Bank loans .................................. 219 21 Long-term debt due within one year............... 30 Capital lease obligations due within one year 80 81 Accounts payable............................. 126 128 Taxes accrued................................ 38 47 Interest accrued............................. 62 66 Dividends payable............................ 74 74 Other........................................ 78 86 677 601 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits ............. 212 219 Deferred income taxes ....................... 2,049 2,106 Capital lease obligations ................... 134 139 Other ....................................... 554 535 2,949 2,999 Commitments and Contingent Liabilities (See Note 5)..................................... $9,627 $9,492 See accompanying Notes to Financial Statements.
PP&L RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Millions of Dollars)
Nine Months Ended September 30, 1996 1995 Cash Flows From Operating Activities Net income............................................ $256 $233 Adjustments to reconcile net income to net cash provided by operating activities Depreciation....................................... 274 264 Amortization of property under capital leases...... 63 61 Voluntary early retirement program......................... (66) Change in current assets and current liabilities 5 14 Other operating activities - net................... 34 33 Net cash provided by operating activities....... 632 539 Cash Flows From Investing Activities Property, plant and equipment expenditures............ (250) (318) Purchases of available-for-sale securities............ (405) (248) Sales and maturities of available-for-sale securities. 392 243 Net purchases and sales of other financial investments (203) (9) Other investing activities - net...................... 45 48 Net cash used in investing activities........... (421) (284) Cash Flows From Financing Activities Issuance of long-term debt............................ 116 55 Issuance of common stock.............................. 53 57 Retirement of long-term debt.......................... (145) (140) Payments on capital lease obligations................. (63) (61) Common and preferred dividends paid................... (221) (217) Net increase in short-term debt....................... 130 61 Other financing activities - net...................... (1) (11) Net cash used in financing activities........... (131) (256) Net Increase(Decrease) In Cash and Cash Equivalents ... 80 (1) Cash and Cash Equivalents at Beginning of Period ...... 20 10 Cash and Cash Equivalents at End of Period ............ $100 $9 Supplemental Disclosures of Cash Flow Information Cash paid during the period for Interest (net of amount capitalized)................. $156 $162 Income taxes......................................... $224 $196 See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES In the opinion of Pennsylvania Power & Light Company (PP&L), the unaudited financial statements, included herein, reflect all adjustments necessary to present fairly the Consolidated Balance Sheet as of September 30, 1996 and the Consolidated Statements of Income and Consolidated Statement of Cash Flows for the periods ended September 30, 1996 and 1995. All nonutility operating transactions are included in "Other Income and (Deductions) - Net" in PP&L's Consolidated Statements of Income. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars)
Three Months Ended September 30, 1996 1995 Operating Revenues ............................... $715 $682 Operating Expenses Operation Fuel......................................... 124 130 Power purchases.............................. 84 66 Other........................................ 138 107 Maintenance..................................... 40 39 Depreciation (including amortized depreciation) 91 87 Income taxes.................................... 52 92 Taxes, other than income........................ 50 48 Voluntary early retirement program......................... (66) 579 503 Operating Income .................................. 136 179 Other Income and (Deductions) - Net 3 (28) Income Before Interest Charges..................... 139 151 Interest Charges Long-term debt.................................. 52 53 Short-term debt and other....................... 1 3 53 56 Net Income......................................... 86 95 Dividends on Preferred Stock....................... 7 7 Earnings Available to PP&L Resources, Inc. ....... $79 $88 See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Millions of Dollars)
Nine Months Ended September 30, 1996 1995 Operating Revenues ............................... $2,173 $2,018 Operating Expenses Operation Fuel......................................... 349 336 Power purchases.............................. 249 214 Other........................................ 387 345 Maintenance..................................... 136 124 Depreciation (including amortized depreciation) 272 262 Income taxes.................................... 193 210 Taxes, other than income........................ 156 149 Voluntary early retirement program......................... (66) 1,742 1,574 Operating Income .................................. 431 444 Other Income and (Deductions) - Net 9 (20) Income Before Interest Charges..................... 440 424 Interest Charges Long-term debt.................................. 155 161 Short-term debt and other....................... 5 8 160 169 Net Income......................................... 280 255 Dividends on Preferred Stock....................... 21 21 Earnings Available to PP&L Resources, Inc. ........ $259 $234 See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
September 30, December 31, 1996 1995 (Unaudited) (Audited) ASSETS Property, Plant and Equipment Electric utility plant in service................ $9,772 $9,637 Accumulated depreciation....................... (3,299) (3,113) Deferred depreciation.......................... 158 209 6,631 6,733 Construction work in progress.................... 183 170 Nuclear fuel owned and leased - net of amortization................................ 151 134 Other leased property - net of amortization ..... 79 85 Electric utility plant - net................... 7,044 7,122 Other property - net of depreciation, amortization and depletion (1996, $58; 1995, $56) .................................... 56 57 7,100 7,179 Investments Affiliated company - at equity................... 17 17 Nuclear plant decommissioning trust fund ........ 120 110 Financial investments............................ 130 132 Other - at cost or less.......................... 10 9 277 268 Current Assets Cash and cash equivalents........................ 96 15 Current financial investments ................... 52 55 Accounts receivable (less reserve: 1996, $37; 1995, $35)..................................... 187 210 Unbilled revenues................................ 79 92 Fuel - at average cost........................... 81 82 Materials and supplies - at average cost......... 106 108 Prepayments...................................... 29 11 Deferred income taxes............................ 40 42 Other............................................ 25 31 695 646 Deferred Debits Taxes recoverable through future rates........... 976 1,003 Other............................................ 292 328 1,268 1,331 $9,340 $9,424 See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
September 30, December 31, 1996 1995 (Unaudited) (Audited) LIABILITIES Capitalization Common equity Common stock................................ $1,476 $1,476 Additional paid-in capital ................. 48 25 Earnings reinvested......................... 1,091 1,034 Capital stock expense and other ............ (10) (7) 2,605 2,528 Preferred stock With sinking fund requirements.............. 295 295 Without sinking fund requirements........... 171 171 Long-term debt................................ 2,832 2,829 5,903 5,823 Current Liabilities Commercial paper................................... 68 Bank loans.................................... 30 21 Long-term debt due within one year................. 30 Capital lease obligations due within one year. 80 81 Accounts payable.............................. 126 128 Taxes accrued................................. 39 48 Interest accrued.............................. 62 66 Dividends payable............................. 74 74 Other......................................... 78 86 489 602 Deferred Credits and Other Noncurrent Liabilities Deferred investment tax credits............... 212 219 Deferred income taxes......................... 2,048 2,106 Capital lease obligations..................... 134 139 Other......................................... 554 535 2,948 2,999 Commitments and Contingent Liabilities (See Note 5)....................................... $9,340 $9,424 See accompanying Notes to Financial Statements.
PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (Millions of Dollars)
Nine Months Ended September 30, 1996 1995 Cash Flows From Operating Activities Net income............................................ $280 $255 Adjustments to reconcile net income to net cash provided by operating activities Depreciation....................................... 274 264 Amortization of property under capital leases...... 63 61 Voluntary early retirement program............................ (66) Change in current assets and current liabilities 5 14 Other operating activities - net................... 12 12 Net cash provided by operating activities....... 634 540 Cash Flows From Investing Activities Property, plant and equipment expenditures............ (250) (318) Purchases of available-for-sale securities............ (84) (67) Sales and maturities of available-for-sale securities. 87 65 Other investing activities - net...................... 45 49 Net cash used in investing activities........... (202) (271) Cash Flows From Financing Activities Issuance of long-term debt............................ 116 55 Retirement of long-term debt.......................... (145) (140) Payments on capital lease obligations................. (63) (61) Common and preferred dividends paid................... (221) (217) Net increase(decrease) in short-term debt............. (59) 61 Other financing activities - net...................... 21 28 Net cash used in financing activities........... (351) (274) Net Increase(Decrease) In Cash and Cash Equivalents ... 81 (5) Cash and Cash Equivalents at Beginning of Period ...... 15 9 Cash and Cash Equivalents at End of Period ............ $96 $4 Supplemental Disclosures of Cash Flow Information Cash paid during the period for Interest (net of amount capitalized)................. $156 $162 Income taxes......................................... $226 $197 See accompanying Notes to Financial Statements.
PP&L Resources, Inc. and Pennsylvania Power & Light Company Notes to Financial Statements Terms and abbreviations appearing in Notes to Financial Statements are explained in the glossary on page 28. 1. Interim Financial Statements Certain information in footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC. These financial statements should be read in conjunction with the financial statements and notes included in PP&L Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year ended December 31, 1995. Certain amounts from prior periods' financial statements have been reclassified to conform to the presentation in the September 30, 1996 financial statements. 2. Rate Matters - PP&L Appeal of Base Rate Case Reference is made to PP&L Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year ended December 31, 1995 regarding the PUC Decision. The OCA has appealed certain aspects of the PUC Decision to the Commonwealth Court. PP&L cannot predict the final outcome of this matter. Energy Cost Rate Issues In March 1996, the PUC approved PP&L's 1996-97 ECR, effective April 1, 1996. The ECR reflects a $42 million decrease in energy costs from the previous ECR. This is largely due to lower coal prices, only one nuclear refueling outage, the start of gas and oil dual fuel capability at Martins Creek Units 3 and 4, and the end of a settlement adjustment charge for replacement power costs. 3. Sales to Other Major Electric Utilities - PP&L In March 1996, the New Jersey Board of Public Utilities approved an agreement between PP&L and JCP&L, under which PP&L will provide JCP&L with 150,000 kilowatts of capacity credits and energy from June 1997 through May 1998, 200,000 kilowatts from June 1998 through May 1999 and 300,000 kilowatts from June 1999 through May 2004. Prices under the new agreement are based on a predetermined reservation rate that escalates over time, plus an energy component based on PP&L's actual fuel-related costs. PP&L filed the agreement for FERC review and acceptance in October 1996. In September 1996, PP&L made installed capacity credit sales for up to 300,000 kilowatts to GPU Energy which will continue through the first half of 1997. 4. Credit Arrangements and Financing Activity - PP&L Resources/PP&L During the third quarter of 1996, 763,810 shares of PP&L Resources' common stock ($18 million) were issued through the DRIP. In October 1996, PP&L Resources issued an additional 686,615 shares of common stock ($15 million) through the DRIP. As of September 30, 1996, 161,593,544 shares of PP&L Resources common stock were outstanding. During the second quarter, PP&L Resources established a revolving credit facility in the amount of $300 million. At the option of PP&L Resources, interest rates can be based on Eurodollar deposit rates or the prime rate. Any loans made under this credit arrangement would mature, and the facility will terminate, on May 29, 1997. PP&L Resources used borrowings under this revolving credit facility for the funding of a PMDC subsidiary's indirect acquisition of a 25 percent interest in SWEB. In July 1996, the PMDC subsidiary obtained an ownership interest in SWEB for $189 million through the purchase of a 25 percent interest in SIUKH, a holding company for Southern Investments UK, which is the sole shareholder of SWEB. Borrowings of $190 million were outstanding under this credit facility at September 30, 1996. PP&L Resources expects to replace this revolving credit borrowing by the end of May 1997 with about one-half common equity and one-half long-term debt. PP&L has a $250 million revolving credit arrangement with a group of banks. Any loans made under this credit arrangement would mature in September 1999 and, at the option of PP&L, interest rates would be based upon certificate of deposit rates, Eurodollar deposit rates or the prime rate. PP&L has additional credit arrangements with another group of banks. The banks have committed to lend PP&L up to $45 million under these credit arrangements, which mature in May 1997, at interest rates based upon Eurodollar deposit rates or the prime rate. These credit arrangements produce a total of $295 million of lines of credit to provide back-up for PP&L's commercial paper and short-term borrowings of certain subsidiaries. No borrowings were outstanding at September 30, 1996 under these credit arrangements. PP&L retired $30 million principal amount of First Mortgage Bonds, 5- 5/8% Series that matured on June 1, 1996. In March 1996, PP&L issued $116 million principal amount of unsecured promissory notes which mature in March 2001. At the option of PP&L, interest rates can be based on Eurodollar deposit rates or the prime rate. The proceeds from the issuance of these notes were used for the redemption in March 1996 of $115 million principal amount of First Mortgage Bonds ($40 million principal amount of the 8-1/8 Series due 1999 and $75 million principal amount of the 7-5/8% Series due 2002) pursuant to the maintenance and replacement fund provisions of PP&L's Mortgage. 5. Commitments and Contingent Liabilities - PP&L Resources/PP&L There have been no material changes related to PP&L Resources' or PP&L's commitments and contingent liabilities since the companies filed their joint 1995 Form 10-K, except for the discussion below regarding environmental matters. For discussion pertaining to PP&L Resources' and PP&L's financing matters, see Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Financial Condition - Financing Programs." Nuclear Insurance PP&L is a member of certain insurance programs which provide coverage for property damage to members' nuclear generating stations. Facilities at the Susquehanna station are insured against property damage losses up to $2.75 billion under these programs. PP&L is also a member of an insurance program which provides insurance coverage for the cost of replacement power during prolonged outages of nuclear units caused by certain specified conditions. Under the property and replacement power insurance programs, PP&L could be assessed retroactive premiums in the event of the insurers' adverse loss experience. The maximum amount PP&L could be assessed under these programs at September 30, 1996 was about $40 million. PP&L's public liability for claims resulting from a nuclear incident at the Susquehanna station is limited to about $8.9 billion under provisions of The Price Anderson Amendments Act of 1988. PP&L is protected against this liability by a combination of commercial insurance and an industry assessment program. In the event of a nuclear incident at any of the reactors covered by The Price Anderson Amendments Act of 1988, PP&L could be assessed up to $151 million per incident, payable at a rate of $20 million per year, plus an additional 5% surcharge, if applicable. Environmental Matters Air The Clean Air Act deals, in part, with acid rain, attainment of federal ambient ozone standards and toxic air emissions. PP&L has complied with the Phase I acid rain provisions required to be implemented by 1995 by installing continuous emission monitors on all units, burning lower sulfur coal and installing low nitrogen oxide burners on certain units. To comply with the year 2000 acid rain provisions, PP&L plans to purchase lower sulfur coal and use banked or purchased emission allowances instead of installing FGD on its wholly-owned units. PP&L has met the initial ambient ozone requirements identified in Title I of the Clean Air Act by reducing nitrogen oxide emissions by 40% through the use of low nitrogen oxide burners. Further nitrogen oxide reductions to 55% and 75% of pre-Clean Air Act levels are specified under the Northeast Ozone Transport Region's Memorandum of Understanding for 1999 and 2003, respectively. The Clean Air Act requires EPA to study the health effects of hazardous air emission and fine particulates from power plants and other sources. Adverse findings could cause the EPA to mandate further emission reductions from PP&L's power plants. Expenditures to meet the year 1999 requirements are included in the table of projected construction expenditures in the Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Financial Condition - PP&L's Capital Expenditure Requirements". PP&L currently estimates that additional capital expenditures and operating costs for environmental compliance under the Clean Air Act will be incurred beyond 2000 in amounts which are not now determinable but could be material. Water and Residual Waste DEP residual waste regulations require PP&L to permit existing ash basins at all of its coal-fired generating stations as disposal facilities. Ash basins that cannot be permitted are required to close by July 1997. Any groundwater contamination caused by the basins must also be addressed. Any new ash disposal facility must meet the rigid siting and design standards set forth in the regulations. To address the DEP regulations, PP&L is moving forward with its plan to install dry fly ash handling systems at its power stations. Groundwater degradation related to fuel oil leakage from underground facilities and seepage from coal refuse disposal areas and coal storage piles has been identified at several PP&L generating stations. Remedial work is substantially completed at two generating stations. At this time, there is no indication that remedial work will be required at other PP&L generating stations. The current Montour station NPDES permit contains stringent limits for certain toxic metals and increased monitoring requirements. Depending on the results of toxic reduction studies in progress, additional water treatment facilities may be needed at the Montour station. DEP may require similar toxic reduction studies at the Holtwood station, which may indicate the need for additional water treatment facilities at Holtwood as well. Capital expenditures through year 2000 to comply with the residual waste regulations, correct groundwater degradation at fossil-fueled generating stations, and address waste water control at PP&L facilities are included in the table of construction expenditures in the Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Financial Condition - PP&L's Capital Expenditure Requirements". PP&L currently estimates that $11 million of additional capital expenditures may be required in the next four years and $68 million of additional capital expenditures could be required in year 2001 and beyond. Actions taken to correct groundwater degradation, to comply with the DEP's regulations and to address waste water control are also expected to result in increased operating costs in amounts which are not now determinable but could be material. Superfund and Other Remediation PP&L has signed a consent order with the DEP to address a number of sites where PP&L may be liable for remediation of contamination. This may include potential PCB contamination at certain of PP&L's substations and pole sites; potential contamination at a number of coal gas manufacturing facilities formerly owned and operated by PP&L; and oil or other contamination which may exist at some of PP&L's former generating facilities. At September 30, 1996, PP&L had accrued $11 million, representing the amount PP&L can reasonably estimate it will have to spend to remediate sites involving the removal of hazardous or toxic substances including those covered by the consent order mentioned above. Future cleanup or remediation work at sites currently under review, or at sites not currently identified, may result in material additional operating costs which PP&L cannot estimate at this time. In addition, certain federal and state statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup Act, empower certain governmental agencies, such as the EPA and the DEP, to seek compensation from the responsible parties for the lost value of damaged natural resources. The EPA and the DEP may file such compensation claims against the parties, including PP&L, held responsible for cleanup of such sites. Such natural resource damage claims against PP&L could result in material additional liabilities. Subsidiary Issues In June 1995, the DEP ordered a PP&L subsidiary to abate seepage allegedly discharged from a mine formerly operated by that subsidiary. Based on new information suggesting a connection between the seeps and water from the mine, the subsidiary has withdrawn its appeal of the order. The Company does not expect the costs of complying with the order to be material. Other Environmental Matters In addition to the issues discussed above, PP&L may be required to modify, replace or cease operating certain of its facilities to comply with other statutes, regulations and actions by regulatory bodies or courts involving environmental matters, including the areas of water and air quality, hazardous and solid waste handling and disposal, toxic substances and electric and magnetic fields. In this regard, PP&L also may incur material capital expenditures, operating expenses and other costs in amounts which are not now determinable. For additional information relating to Environmental Matters, see Note 15 in PP&L Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year ended December 31, 1995. PP&L Resources, Inc. and Pennsylvania Power & Light Company Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The financial condition and results of operations of PP&L are currently the principal factors affecting the financial condition and results of operations of PP&L Resources. All nonutility operating transactions are included in "Other Income and Deductions - Net" on the Consolidated Statements of Income. This discussion should be read in conjunction with the section entitled "Review of the Financial Condition and Results of Operations of PP&L Resources, Inc. and Pennsylvania Power & Light Company" in PP&L Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year ended December 31, 1995. Terms and abbreviations appearing in Management's Discussion and Analysis of Financial Condition and Results of Operations are explained in the glossary on page 28. Results of Operations The following explains material changes in principal items on the Consolidated Statements of Income comparing the three months and nine months ended September 30, 1996 to the comparable periods ended September 30, 1995. The Consolidated Statements of Income reflect the results of past operations and are not intended as any representation of the results of future operations. Future results of operations will necessarily be affected by various and diverse factors and developments. Because results for interim periods can be disproportionately influenced by various factors and developments and by seasonal variations, the results of operations for interim periods are not necessarily indicative of results or trends for the year. Earnings - PP&L Resources Comparison of Earnings-September 30 Three Months Ended Nine Months Ended 1996 1995 1996 1995 Earnings per share - excluding weather variances and other adjustments referred to below $.53 $.39 $1.59 $1.34 Weather variances (.02) .05 .04 (.01) Workforce reductions (.02) (.07) (.03) (.07) One-time adjustments: Related to PUC Decision .21 .21 Recognition of deferred tax liability related to undeveloped coal reserves (.03) (.03) Recovery of purchased power costs .04 Earnings per share - reported $.49 $.55 $1.60 $1.48 Earnings per share, excluding weather variances and certain other adjustments referred to above, improved by $.14 for the three months ended September 30, 1996 and by $.25 for the first nine months of 1996, when compared with the same periods in 1995. Earnings improvement for these periods, excluding the effects of weather, was primarily due to sales growth in all major customer sectors, the impact of the PUC Decision and certain income tax adjustments recorded in the third quarter of 1996. A reduction in PP&L's contractual bulk power sales to JCP&L reduced earnings by 5 cents per share during the nine-month period ended September 30, 1996. Electric Energy Sales - PP&L The increases (decreases) in PP&L's electric energy sales were attributable to the following: Sept 30, 1996 vs. Sept 30, 1995 Three Months Nine Months Ended Ended (Millions of Kwh) Electric energy sales Residential (165) 457 Commercial (17) 245 Industrial 84 38 Other (including UGI) (17) 18 System sales (115) 758 Sales to other utilities 732 2,912 PJM energy sales (425) (683) Total 192 2,987 System, or service area, sales were 8.0 billion kwh for the three months ended September 30, 1996. This was a 1.4% decrease over the comparable period in 1995. The decrease was primarily due to milder than normal weather during 1996 as compared to 1995. If normal weather had been experienced in the third quarter of both 1995 and 1996, system sales would have been 3.3% higher. System sales were 25.4 billion kwh for the nine months ended September 30, 1996, which was a 3.1% increase over the first nine months of 1995. The primary cause of this increase was a colder winter in 1996 as compared to 1995. Under normal weather conditions in both periods, the growth in system sales would have been 2.0%. Assuming normal weather conditions for the rest of the year, system sales for 1996 are expected to total 33.7 billion kwh or 3.1% higher than 1995. Sales to other utilities for the three months ended September 30, 1996, increased 31.7% as compared to the same period in 1995. For the nine months ended September 30, 1996, the increase in sales to other utilities was 50.5%. These increases were primarily the result of PP&L's one-year contract to supply energy to PSE&G and increased sales to other utilities. Sales to PJM for the three months ended September 30, 1996 decreased by 46.5% over the comparable period in 1995. For the nine months ended September 30, 1996, PJM sales decreased 36.0%. These lower PJM sales are primarily the result of an increase in direct sales to other utilities such as the contract with PSE&G referenced above. Operating Revenues - PP&L The increase in total operating revenues was attributable to the following: September 30, 1996 vs. September 30, 1995 Three Months Nine Months Ended Ended (Millions of Dollars) Base rate revenues: Rate increase - PUC Decision $22 $ 71 Sales volume/mix 21 35 Weather (26) 18 Energy revenue 16 11 Sales to other utilities & PJM (2) 23 Other, net 2 (3) $33 $155 Operating revenues increased by $33 million, or 4.7%, during the three months ended September 30, 1996, when compared with the same period in 1995. Base rate revenues were enhanced by the PUC Decision, which increased PUC jurisdictional rates by about 3.8%, and by strong sales growth in the industrial and commercial sectors. These revenues were partially offset by unfavorable weather impacts. The summer months of 1995 were warmer than normal, but these same months in 1996 were cooler than normal. Energy revenues were also higher, reflecting the recovery of the higher costs of power purchases in the ECR. Power purchases were higher during the three months ended September 30, 1996 when compared with the comparable period in 1995, primarily due to forced outages at fossil and nuclear units, as well as the nuclear refueling outage. For the first nine months of 1996, revenues increased by $155 million, or 7.6%, from the same period in 1995. The growth in base rate revenues was also attributable to the impact of the PUC Decision and strong sales growth in the residential and commercial sectors. In addition, weather provided a favorable impact when comparing the first nine months of 1996 and 1995. This is a result of the extremely cold weather during the first quarter of 1996 compared to milder weather during the first quarter of 1995. The strong sales growth, due to real growth and weather, also resulted in higher energy revenues. Revenues from sales to other utilities were also higher during the nine months ended September 30, 1996 compared with the same period in 1995. The increase is attributable to the agreement to supply energy to PSE&G and higher sales to other utilities. These increases were partially offset by a loss of revenue due to the phasing out of the capacity sales agreement with JCP&L. Rate Matters - PP&L Reference is made to PP&L Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year ended December 31, 1995 regarding the PUC Decision. The OCA has appealed certain aspects of the PUC Decision to the Commonwealth Court. PP&L cannot predict the final outcome of this matter. In March 1996, the PUC approved PP&L's 1996-97 ECR, effective April 1, 1996. The ECR reflects a $42 million decrease in energy costs from the previous ECR. This is largely due to lower coal prices, only one nuclear refueling outage, the start of gas and oil dual fuel capability at Martins Creek Units 3 and 4, and the end of a settlement adjustment charge for replacement power costs. Power Purchases For the three months ended September 30, 1996 power purchases increased $18 million, or 27.3%, over the comparable period in 1995 primarily due to forced outages of fossil and nuclear units as well as a nuclear refueling outage. For the nine months ended September 30, 1996, power purchases increased $35 million, or 16.6%, over the comparable period in 1995. This was primarily due to higher energy sales coupled with forced outages at both coal and nuclear units. Other Operating Expenses - PP&L Other operating expenses, excluding PUC Decision related items, decreased $1 million for the three months ended September 30, 1996 and $7 million for the nine months ended September 30, 1996 as compared to the same periods in 1995. The decrease for both periods was primarily due to workforce reductions and ongoing initiatives to reduce costs. Income Taxes - PP&L Resources/PP&L For the three months ended September 30, 1996, income tax expense decreased by $48 million, or 48.3% from the comparable period in 1995. This is primarily due to a decrease in PP&L Resources' pre-tax book income of $57 million, and the use of research and experimental tax credits of $5 million. Also, during 1995 there were one-time tax increases for expensing deferred tax benefits of $11 million as a result of the PUC Decision and recognizing deferred tax liabilities of $4 million relative to undeveloped coal reserves. For the nine months ended September 30, 1996, income tax expense decreased by $25 million, or 11.3%, from the comparable period in 1995. This results primarily from research and experimental tax credits and the one-time adjustments in 1995 related to the PUC Decision and undeveloped coal reserves described above. Financial Condition Capital Expenditure Requirements - PP&L The schedule below shows PP&L's current capital expenditure projections for the years 1996-2000. PP&L's Capital Expenditure Requirements (a) -------------Projected------------- 1996 1997 1998 1999 2000 (Millions of Dollars) Construction expenditures Generating facilities $ 92 $ 65 $ 81 $ 53 $ 76 Transmission and distribution facilities 126 120 126 123 147 Environmental 13 16 21 34 3 Other 50 57 44 20 17 281 258 272 230 243 Nuclear fuel owned and leased 96 68 71 67 71 Other leased property 20 24 22 22 22 Total $397 $350 $365 $319 $336 (a) Construction expenditures include AFUDC which is expected to be less than $12 million in each of the years 1996-2000. Capital expenditure plans are revised from time to time to reflect changes in conditions. PP&L's current capital expenditures projections for the years 1996-2000 total about $1.8 billion which is an $85 million increase over previously budgeted amounts for the same period. The change is due to a $107 million increase in projected "other leased property" and "nuclear fuel owned and leased" expenditures partially offset by a $22 million reduction in construction expenditures. Reductions in construction expenditures for transmission and distribution facilities and environmental expenditures are partially offset by increases in other expenditures. Financing Programs - PP&L Resources/PP&L From January through October 1996, PP&L Resources obtained $68 million from sales of common equity through the DRIP. During the second quarter, PP&L Resources obtained a commitment from certain banks to provide loans under an unsecured revolving credit facility up to an aggregate $300 million. See Financial Note 4 for additional information on the use of this revolving credit facility. PP&L retired $30 million principal amount of First Mortgage Bonds, 5- 5/8% Series that matured on June 1, 1996. In March 1996, PP&L issued $116 million principal amount of unsecured promissory notes which mature in March 2001. At the option of PP&L, interest rates can be based on Eurodollar deposit rates or the prime rate. The proceeds from the issuance of the notes were used for the redemption in March 1996 of $115 million principal amount of First Mortgage Bonds ($40 million principal amount of the 8-1/8 Series due 1999 and $75 million principal amount of the 7-5/8% Series due 2002) pursuant to the maintenance and replacement fund provisions of PP&L's Mortgage. PP&L's projected internally generated funds would be sufficient to permit PP&L to retire $775 million of its long-term debt during 1996-2000, which would reduce interest charges by approximately $60 million by 2000. Outside financing, in amounts not currently determinable, or the liquidation of certain financial investments, may be required over the next five years to finance investment opportunities in worldwide power projects by PMDC. Financial Indicators - PP&L Resources The ratio of pre-tax income to interest charges was 3.6 and 3.5, respectively, for the nine months ended September 30, 1996 and 1995. The annual per share dividend rate on common stock remained unchanged at $1.67 per share. The ratio of the market price to book value of common stock was 131% at September 30, 1996 compared with 145% at September 30, 1995. Commitments and Contingent Liabilities - PP&L Resources/PP&L There have been no material changes related to PP&L Resources' or PP&L's commitments and contingent liabilities since the companies filed their joint 1995 Form 10-K, except for the discussions in Financial Note 5 - -- "Commitments and Contingent Liabilities" regarding environmental matters. Increasing Competition Background The electric utility industry has experienced and will continue to experience a significant increase in the level of competition in the energy supply market. PP&L has publicly expressed its support for full customer choice of electricity suppliers for all customer classes. PP&L is actively involved in efforts at both the state and federal levels to encourage a smooth transition to full competition. PP&L believes that this transition to full competition should provide for the recovery of a utility's stranded investments, which are those costs incurred by a utility because of federal or state regulatory requirements and, also, any portion of prudent investments made in generating facilities which would not be recoverable in a competitive market. Pennsylvania Activities In April 1996, legislation was introduced in both the Pennsylvania House and Senate aimed at ensuring that all customers enjoy the benefits of increased competition in the electricity generation market. In general, the bills would open up the generation portion of the electric utility business to full competition while maintaining FERC regulation of the transmission portion of the business and PUC regulation of distribution. At the request of the Governor, the PUC recently held a series of meetings with major stakeholders to attempt to reach consensus on many of the issues in the industry restructuring legislation. These issues include (i) stranded cost recovery and the mechanism for such recovery; (ii) universal service and the obligation to serve; (iii) rate caps or freezes; (iv) market power remediation; and (v) the role of cooperatives and municipalities that own electrical distribution systems. In addition, legislative provisions have been developed which should ensure that state tax revenues received by the Commonwealth will not be reduced as a result of restructuring the electric utility industry. With respect to the mechanism for stranded cost recovery, the legislation may provide for the issuance of "transition bonds" to pay the stranded costs. This procedure has been approved in California and is currently being considered in New York. The major elements include (i) the sale or transfer by the utility of the right to recover a portion of its stranded costs to a financing entity -- for a lump-sum payment of cash -- that could be used to retire the utility's debt and equity; (ii) the issuance by the financing entity of "transition bonds"; (iii) the collection by the utility of "transition charges" on customers' bills; and (iv) the transfer of these customer payments to the financing entity to pay the principal and interest and other related costs of issuing the transition bonds. Customer savings may be achieved because the interest rate on the transition bonds should be lower than the utility's pre-tax overall rate of return used to calculate the transition charges. The PUC would issue an order approving the collection of the transition charges which by law could not be subsequently reduced. This commitment by the state would protect the cash flow stream that would be used to repay the transition bonds. Restructuring legislation could be enacted in Pennsylvania this year. PP&L cannot predict the ultimate content of this legislation or its effect on the Company. In addition, in July 1996 the PUC issued to the Governor and General Assembly the report of its investigation on competition in Pennsylvania's electric utility industry. Major elements of the PUC report include: (i) a five-year transition period (which could be shorter or longer depending on the progress of the transition), during which time utilities would adopt specific plans to achieve retail competition; (ii) a request that each utility submit to the PUC by April 1997 a tentative restructuring proposal describing these specific plans; (iii) a four-year phase-in period for customer choice (2001 to 2004), after which time all customers would have retail access; (iv) an opportunity for utilities to recover their net, unmitigated stranded costs; (v) a recommendation that utilities file voluntary pilot programs for retail access, pending legislative action to require such programs; and (vi) a schedule of milestone PUC reviews on the progress made toward full retail competition. In response to the PUC Report, the Company on October 1, 1996 became the first Pennsylvania utility to file for PUC approval of its retail pilot program. Under this program, approximately 54,000 PP&L residential, commercial, and industrial customers -- representing approximately 5% of PP&L's average peak load -- will have an opportunity to purchase energy from alternative suppliers. The Company is requesting that the program become effective on April 1, 1997 and remain in effect for 21 months through December 31, 1998, to coincide with PP&L's proposed commencement date of January 1, 1999 for full retail competition. Under the pilot program, PP&L initially will provide capacity, all back-up services and customer service. Other utilities may participate in PP&L's program as suppliers if they offer this same opportunity for PP&L to participate in their programs. PP&L currently is preparing to respond to the other requirements of the PUC report. Federal Activities Legislation has been introduced in the U.S. Congress that would give all retail customers the right to choose among competitive suppliers of electricity as early as 2000. In addition, in April 1996 the FERC adopted rules on competition in the wholesale electricity market primarily dealing with open access to transmission lines and recovery of stranded costs (FERC Orders 888 and 889). These rules, which were effective on July 9, 1996, require all electric utilities to file open access transmission tariffs available to all wholesale sellers and buyers of electricity. The tariffs must offer point-to-point and network services, as well as ancillary services. A utility must offer these services to all eligible wholesale customers on a basis comparable to the services the utility provides to itself. A utility must take service under its open access transmission tariff for its own wholesale sales and purchases. The rules do not abrogate existing transmission agreements. The rules also provide that utilities are entitled to recover from their wholesale customers all "legitimate, verifiable, prudently incurred stranded costs." The FERC has provided recovery mechanisms for wholesale stranded costs, including stranded costs resulting from municipalization. Wholesale contracts signed after July 11, 1994 must contain explicit provisions addressing recovery of stranded costs. For contracts signed before this date, a utility may seek recovery if it can show that it had a reasonable expectation of continuing to serve the customer after the contract term. Under the new rules, 16 small utilities which have contracts with PP&L signed before July 11, 1994, requested and were provided with PP&L's current estimate of its stranded costs aplicable to these customers after these contracts terminate in 1999. Based upon a formula set forth in FERC Order 888 and applicable only to PP&L's wholesale customers, and based upon data unique to the contracts between PP&L and these customers, PP&L estimated that the stranded costs associated with service to these wholesale customers are approximately $95 million. As a result of a protest by these parties against such recovery, the FERC has ordered hearings regarding PP&L's right to recover these stranded costs. The rules also require that plans for restructuring of transactions within power pools and bilateral coordination agreements be filed by December 31, 1996 and implemented by March 1, 1997. In addition, utilities must separate their transmission and power marketing functions, and they must implement an electronic bulletin board for transmission capacity information by January 3, 1997. In July 1996, PP&L filed the open access transmission tariff required by FERC Order 888. Under the new FERC rules, that tariff became effective on July 9, 1996. Several parties, including the small utilities, moved to intervene and protested the new rates. PP&L currently expects these matters to be set for hearing by the FERC. In addition, PP&L has made the required informational filing which showed unbundled generation and transmission components of its billing to existing wholesale customers. The FERC is currently reviewing this information. On a related matter, on July 24, 1996, all of the PJM companies, except PECO, submitted a comprehensive filing for FERC approval of changes to the PJM Power Pool to accommodate greater competition and broader participation, with proposed implementation of the new structure by the end of 1996. The filing would (i) establish pool-wide transmission service tariffs to provide comparable, open-access service for all wholesale transactions throughout PJM; (ii) establish a price-based bidding system, with the resulting regional energy market open to all wholesale buyers and sellers of power; (iii) create a not-for-profit corporate entity in the form of an ISO responsible for impartial daily management and administration of the energy market and the transmission system; and (iv) develop an enhanced pool-wide planning function to be administered by the ISO. The sponsoring PJM Companies propose to enter into three pool participation agreements to define the relationships among the signatories and the ISO: (i) a Reserve Sharing Agreement among all entities that serve end-use customers within the new power pool; (ii) a Transmission Owners Agreement among entities that own bulk power transmission facilities; and (iii) a Market Operations Agreement to establish a spot energy market open to all wholesale entities that wish to participate in the new pool. In August 1996, PECO filed a separate PJM restructuring proposal with the FERC, which differs significantly from the other companies' filing. Unregulated Investments PMDC continues to pursue opportunities to develop and acquire electric generation, transmission and distribution facilities in the United States and abroad. As of September 30, 1996, PMDC had either investments or commitments in the amount of $258 million in distribution, transmission and generation facilities throughout the world, including the United Kingdom, Bolivia, Peru, Argentina, Spain and Portugal. The principal investment to date is a 25 percent interest in SWEB, a British regional electric utility company, for approximately $189 million. See Financial Note 4 for additional information on PP&L Resources' financing of SWEB. PP&L RESOURCES, INC. AND PENNSYLVANIA POWER & LIGHT COMPANY AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Notes to Financial Statements for information concerning rate matters. In April 1991, the U.S. Department of Labor through its Mine Safety and Health Administration (MSHA) issued citations to one of PP&L's coal- mining subsidiaries for alleged coal-dust sample tampering at one of the subsidiary's mines. The MSHA at the same time issued similar citations to more than 500 other coal-mine operators. Based on a review of its dust sampling procedures, the subsidiary is contesting all of the citations. It is belived at this time, based on the information available, that the MSHA allegations are without merit. Citations were also issued against the independent operator of another subsidiary mine, who is also contesting the citations issued with respect to that mine. The Administrative Law Judge (Judge) assigned to the proceedings ordered that one case be tried against a single mine operator unrelated to PP&L to determine whether the MSHA could prove its general allegations regarding sample tampering. In April 1994, the Judge ruled in favor of the mine operator and vacated the 75 citations against it. The MSHA appealed the Judge's decision to the Mine Safety and Health Review Commission. In November 1995, the Commission affirmed the Judge's rulings in favor of the operator. Although it initially appeared that the Secretary of Labor intended to vacate all the citations in this matter, that office instead has decided to pursue an appeal of the Commission's decision in the United States Court of Appeals for the District of Columbia Circuit. PP&L cannot predict the outcome of these proceedings. On July 25, 1994, Mon Valley Steel Company, Inc. (Mon Valley) filed suit in the Court of Common Pleas of Fayette County, Pennsylvania, against PP&L and two of its subsidiaries, claiming that PP&L and those subsidiaries made fraudulent misrepresentations during negotiations for the 1992 sale to Mon Valley of Tunnelton Mining Company (Tunnelton). Tunnelton was a coal- mining operation formerly owned by PP&L's subsidiary, Pennsylvania Mines Corporation. Specifically, Mon Valley alleges that PP&L and those subsidiaries misrepresented Tunnelton's capability to produce coal, as well as the amount of funding Tunnelton would receive for mine closing costs. Mon Valley is claiming about $6 million to cover mine closing costs as well as punitive damages in an unspecified amount. In July 1994, PP&L and those subsidiaries filed a legal action in the Court of Common Pleas of Allegheny County, Pennsylvania, requesting a judicial determination that they had not breached any of their contractual obligations to Mon Valley. While these matters were pending, Mon Valley was forced into involuntary bankruptcy by its creditors and, accordingly, in August 1996 PP&L removed the Fayette County action to Federal Bankruptcy Court. The Allegheny County action by PP&L has been stayed pending the Bankruptcy Court's determination. PP&L cannot predict the outcome of these proceedings. As a result of its ongoing cost reduction efforts, PP&L expects further reductions in the number of full-time employees. In this regard, PP&L and Local Union No. 1600 -- which represents approximately 4,000 PP&L employees -- have agreed to submit to arbitration under their collective bargaining agreement the issue of whether PP&L can eliminate bargaining unit positions while utilizing outside contractors for certain functions. In a series of rulings, the arbitrator has held that PP&L may not layoff employees if they would have work but for the use of contractors. As a result, PP&L is proceeding to offer certain contractor jobs to bargaining unit employees but expects to layoff a number of employees at the end of this process. Local 1600 continues to challenge the number of contractor jobs made available, and further hearings will take place in early 1997. PP&L cannot predict the outcome of these hearings or the effect they may have on the continuing workforce reduction effort. In June 1995, the DEP ordered a PP&L subsidiary to abate seepage allegedly discharged from a mine formerly operated by that subsidiary. Based on new information suggesting a connection between the seeps and water from the mine, the subsidiary has withdrawn its appeal of the order. The Company does not expect that the costs of complying with the order will be material. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10 - $300,000,000 Revolving Credit Agreement among PP&L Resources, Inc., Chemical Bank and Citibank, N.A., dated May 30, 1996. 27 - Financial Data Schedule (b) Reports on Form 8-K None. Glossary of Terms and Abbreviations Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation passed by Congress to address environmental issues including acid rain, ozone and toxic air emissions. DEP - Pennsylvania Department of Environmental Protection DRIP (Dividend Reinvestment Plan) - program available to shareowners of Resources' common stock and PP&L preferred stock to reinvest dividends in Resources' common stock instead of receiving dividend checks. ECR (Energy Cost Rate) - a tariff applied to PUC-jurisdictional customers to recover fuel and other energy costs. Differences between actual and estimated amounts are collected or refunded to customers. EPA - Environmental Protection Agency FGD - Flue gas desulfurization equipment installed at coal-fired power plants to reduce sulfur dioxide emissions. FERC (Federal Energy Regulatory Commission) - government agency that regulates interstate transmission and sale of electricity and related matters. ISO - Independent System Operator JCP&L - Jersey Central Power & Light Company NPDES - National Pollutant Discharge Elimination System OCA - Pennsylvania Office of Consumer Advocate PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical equipment up to the late 1970s. Now classified as a hazardous chemical. PECO - PECO Energy Company (the former Philadelphia Electric Company) PJM (Pennsylvania - New Jersey - Maryland Interconnection Association) - Mid-Atlantic power pool consisting of 11 operating electric utilities, including PP&L. PMDC (Power Markets Development Company) - Resources' unregulated subsidiary formed to invest in and develop world-wide power markets. PP&L - Pennsylvania Power & Light Company PP&L Resources (PP&L Resources, Inc.) - parent holding company of PP&L, PMDC and Spectrum. PP&L's Mortgage - Pennsylvania Power & Light Company's Mortgage and Deed of Trust dated October 1, 1945 PSE&G - Public Service Electric & Gas Company PUC (Pennsylvania Public Utility Commission) - agency that regulates certain ratemaking, accounting, and operations of Pennsylvania utilities. PUC Decision - final order issued by the PUC on September 27, 1995 pertaining to PP&L's base rate case filed in December 1994. SEC - Securities and Exchange Commission SIUKH - Southern Investments UK Holdings Limited Small utilities - utilities subject to FERC jurisdiction whose billings include base rate charges and a supplemental charge or credit for fuel costs over or under the levels included in base rates. Superfund - Federal and state legislation that addresses remediation of contaminated sites. SWEB - South Western Electricity plc, a British regional electric utility company. UGI - UGI Corporation SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiary. PP&L Resources, Inc. (Registrant) Pennsylvania Power & Light Company (Registrant) Date: November 13, 1996 /s/ R. E. Hill R. E. Hill Senior Vice President-Financial (PP&L Resources, Inc. and Pennsylvania Power & Light Company) /s/ J. J. McCabe J. J. McCabe Vice President & Controller (PP&L Resources, Inc. and Pennsylvania Power & Light Company) EX-10 2 EXECUTION COPY PP&L RESOURCES, INC. $300,000,000 REVOLVING CREDIT AGREEMENT _________________ DATED AS OF May 30, 1996 TABLE OF CONTENTS Page SECTION 1. Amounts and Terms of Loans 1 1.1 Commitments 1 1.2 Notices of Borrowing 1 1.3 Disbursement of Funds 2 1.4 Repayment of Loans; Evidence of Debt 3 1.5 Special Payment Provisions 4 1.6 Fees 5 1.7 Reductions in Total Commitments 6 1.8 Compensation 6 SECTION 1A. Letters of Credit. 6 SECTION 2. Interest 11 2.1 Rates of Interest 11 2.2 Determination of Rate of Borrowing 12 2.3 Interest Payment Dates 13 2.4 Conversions; Interest Periods 13 2.5 Increased Costs, Illegality, Etc. 14 SECTION 3. Payments 18 3.1 Payments on Non-Business Days 18 3.2 Voluntary Prepayments 19 3.3 Method and Place of Payment, Etc. 19 3.4 Net Payments 20 SECTION 4. Conditions Precedent 21 4.1 Conditions to Effectiveness 21 4.2 Conditions to Each Loan and Each Issuance of Letter of Credit 21 SECTION 5. Covenants 22 5.1 Financial Statements 23 5.2 Mergers 24 5.3 Ratings 24 5.4 Indebtedness 24 5.5 Liens 24 SECTION 6. Events of Default 24 6.1 Representations, Etc. 24 6.2 Principal and Interest 25 6.3 Defaults by Resources or PPLC Under Other Agreements 25 6.4 Judgments 25 6.5 Bankruptcy, Etc. 25 6.6 Other Covenants 26 SECTION 7. Representations and Warranties 27 7.1 Corporate Status 27 7.2 Authority; No Conflict 27 7.3 Legality, Etc. 27 7.4 Financial Statements 27 7.5 Litigation 28 7.6 No Violation 28 7.7 ERISA 28 7.8 Consents 28 7.9 Subsidiaries 29 7.10 Investment Company Act 29 7.11 Public Utility Holding Company Act 29 7.12 Tax Returns 29 SECTION 8. Agent 29 8.1 Appointment 29 8.2 Nature of Duties 30 8.3 Rights, Exculpation, Etc. 30 8.4 Reliance 31 8.5 Indemnification 31 8.6 The Agent, Individually 32 8.7 Resignation by the Agent 32 SECTION 9. Miscellaneous 32 9.1 Definitions 32 9.2 Accounting Principles 42 9.3 Exercise of Rights 42 9.4 Amendment and Waiver 43 9.5 Expenses; Indemnification 43 9.6 Successors and Assigns 45 9.7 Notices, Requests, Demands 48 9.8 Survival of Representations and Warranties 48 9.9 Governing Law 48 9.10 Counterparts 49 9.11 Effectiveness 49 9.12 Transfer of Office 49 9.13 Proration of Payments 49 9.14 Headings Descriptive 50 EXHIBIT A - Opinion of Counsel REVOLVING CREDIT AGREEMENT, dated as of May 30, 1996, among PP&L RESOURCES, INC., a Pennsylvania corporation ("Resources"), the banks listed on Schedule I hereto (each a "Bank" and collectively the "Banks") and CHEMICAL BANK, as fronting bank (in such capacity, the "Fronting Bank"), as collateral agent (in such capacity, the "Collateral Agent") and as Agent for the Banks to the extent and in the manner provided in Sec. 8 below (in such capacity, the "Agent") (all capitalized terms used herein shall have the meaning specified therefor in Sec. 9.1 unless otherwise defined herein). W I T N E S S E T H : WHEREAS, subject to and upon the terms and conditions set forth herein, the Banks are willing to make available to Resources the credit facility herein provided; NOW, THEREFORE, it is agreed: SECTION 1. Amounts and Terms of Loans. 1.1 Commitments. Subject to and upon the terms and conditions herein set forth, each Bank severally agrees, at any time and from time to time prior to the Expiry Date, to make a loan or loans (each a "Loan" and collectively for all Banks, the "Loans") to Resources, which Loans (i) shall at the option of Resources, be initially maintained as Base Rate Loans or Eurodollar Loans, provided that all the Loans made by all the Banks at any one Borrowing hereunder must be either all Base Rate Loans or all Eurodollar Loans, (ii) may be repaid and borrowed in accordance with the provisions hereof and (iii) shall not exceed in aggregate principal amount at any time outstanding the difference between such Bank's Commitment and the L/C Exposure of such Bank at such time. 1.2 Notices of Borrowing. Whenever Resources desires to make a Borrowing hereunder, it shall give the Agent at the Payment Office (i) no later than 12:00 Noon (New York time) at least three Business Days' prior written notice or telephonic notice (confirmed in writing) of each Eurodollar Loan to be made hereunder and (ii) no later than 10 A.M. (New York time) on the date of such Borrowing written notice or telephonic notice (confirmed in writing) of each Base Rate Loan to be made hereunder. Each such notice (each a "Notice of Borrowing") shall specify the aggregate principal amount Resources desires to borrow hereunder, the date of Borrowing (which shall be a Business Day), the Type of Loans to be made pursuant to such Borrowing and the Interest Period to be applicable thereto. The Agent shall promptly give each Bank telephonic notice (confirmed in writing) of the proposed Borrowing, of such Bank's proportionate share thereof and of the other matters covered by the Notice of Borrowing. Each Borrowing shall be in an integral multiple of $500,000 and not less than $10,000,000 and shall be made from each Bank in the proportion which its respective Commitment bears to the Total Commitment except as otherwise specifically provided in Sec. 2.5. The failure of any Bank to make any Loan required hereby shall not release any other Bank from its obligation to make Loans as provided herein. 1.3 Disbursement of Funds. (a) No later than 12:00 Noon (New York time) (or, in the case of Base Rate Loans, 2:00 P.M. (New York time)) on the date specified in each Notice of Borrowing each Bank will make available the amount of its pro rata portion of the Loans requested to be made on such date in U.S. dollars and in immediately available funds, to the Agent at the Payment Office. The Agent will make available to Resources not later than 1:00 P.M. (New York time) (or, in the case of Base Rate Loans, 3:00 P.M. (New York time)) on such date at the Payment Office the aggregate of the amounts in immediately available funds made available by the Banks against delivery to the Agent at the Payment Office, or at such other office as the Agent may specify, of the documents and papers provided for herein. The Agent shall deliver the documents and papers received by it for the account of each Bank to such Bank or upon its order. (b) If the Fronting Bank shall not have received from Resources the payment required to be made by Resources pursuant to Sec. 1A(e) within the time specified in such Section, the Fronting Bank will promptly notify the Agent of the L/C Disbursement and the Agent will promptly notify each Bank of such L/C Disbursement and its Applicable Percentage thereof. Not later than 2:00 P.M. (New York time) on such date (or, if such Bank shall have received such notice later than 12:00 Noon (New York time) on any day, no later than 10:00 A.M. (New York time) on the immediately following Business Day), each Bank will make available the amount of its Applicable Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute a Base Rate Loan of such Bank and such payment shall be deemed to have reduced the L/C Exposure) in immediately available funds, to the Agent at the Payment Office, and the Agent will promptly pay to the Fronting Bank amounts so received by it from the Banks. The Agent will promptly pay to the Fronting Bank any amounts received by it from Resources pursuant to Sec. 1A(e) prior to the time that any Bank makes any payment pursuant to this paragraph (b), and any such amounts received by the Agent thereafter will be promptly remitted by the Agent to the Banks that shall have made such payments and to the Fronting Bank, as their interests may appear. If any Bank shall not have made its Applicable Percentage of such L/C Disbursement available to the Agent as provided above, such Bank agrees to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Agent for the account of the Fronting Bank at, for the first such day, the Federal Funds Rate, and for each day thereafter, the Base Rate. 1.4 Repayment of Loans; Evidence of Debt. (a) The outstanding principal balance of each Loan shall be payable on the Expiry Date. Each Loan shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in Sec. 2.1. Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Bank resulting from each Loan made by such Bank from time to time, including the amounts of principal and interest payable and paid to such Bank from time to time under this Agreement. The Agent shall maintain the Register pursuant to Sec. 1.4(b), and a subaccount for each Bank, in which Register and subaccounts (taken together) shall be recorded (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from Resources to each Bank hereunder and (iii) the amount of any sum received by the Agent hereunder from Resources and each Bank's share thereof. The entries made in the Register and accounts maintained pursuant to this Sec. 1.4 shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided, however, that the failure of any Bank or the Agent to maintain such account, such Register or such subaccount, as applicable, or any error therein shall not in any manner affect the obligations of Resources to repay the Loans in accordance with their terms. (b) The Agent shall maintain at the Payment Office a register for the recordation of the names and addresses of the Banks, the Commitments of the Banks from time to time, and the principal amount of the Loans owing to each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Register shall be available for inspection by Resources, the Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice. 1.5 Special Payment Provisions. Unless the Agent shall have been notified by any Bank prior to any Borrowing Date that such Bank does not intend to make available to the Agent such Bank's portion of the Loans to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such Borrowing Date and the Agent may, in reliance upon such assumption, make available to Resources a corresponding amount. If such amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such amount on demand from such Bank. If such Bank does not pay such amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify Resources and Resources shall pay such amount to the Agent. The Agent shall also be entitled to recover from such Bank or Resources, as the case may be, interest on such amount in respect of each day from the date such amount was made available by the Agent to Resources to the date such amount is recovered by the Agent, at a rate per annum equal to (i) in the case of such Bank, the Federal Funds Rate and (ii) in the case of Resources, the applicable rate provided in Sec. 2.1 for the applicable Type of Loan. Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its Commitment hereunder or to prejudice any rights which Resources may have against any Bank as a result of the failure of such Bank to perform its obligations hereunder. 1.6 Fees. (a) Resources agrees to pay to the Agent for pro rata distribution to each Bank a Facility Fee (the "Facility Fee"), for the period from the Closing Date until the Expiry Date (or such earlier date as the Total Commitment shall be terminated), on the average daily Total Commitment, computed at the Applicable Facility Fee Percentage per annum computed on the basis of the number of days actually elapsed over a year of 365 or 366 days and payable quarterly in arrears on the last day of each calendar quarter and on the Expiry Date (or such earlier date as the Total Commitment shall be terminated). (b) Resources agrees to pay (i) to the Agent for pro rata distribution to each Bank a fee (an "L/C Participation Fee"), for the period from the Closing Date until the Expiry Date (or such earlier date as all Letters of Credit shall be canceled or expire and the Total Commitment shall be terminated), on the average daily L/C Exposure (excluding the portion thereof attributable to unreimbursed L/C Disbursements), at the rate per annum equal to the Applicable Eurodollar Margin from time to time in effect and payable quarterly in arrears on the last day of each calendar quarter and on the date on which the Total Commitment shall be terminated as provided herein and (ii) to the Fronting Bank a fee for the period from the Closing Date until the Expiry Date (or such earlier date as all Letters of Credit shall be canceled or expire and the Total Commitment shall be terminated), on the average daily L/C Exposure, at the rate of 0.10% per annum and payable quarterly in arrears on the last day of each calendar quarter and on the Expiry Date (or such earlier date as the Total Commitment shall be terminated as provided herein), plus, in connection with the issuance, amendment or transfer of any Letters of Credit or L/C Disbursement, the Fronting Bank's customary documentory and processing charges (collectively, the "Fronting Bank Fees"). All L/C Participation Fees and Fronting Bank Fees shall be computed on the basis of the number of days actually elapsed over a year of 365 or 366 days. 1.7 Reductions in Total Commitments. Resources shall have the right, upon at least 3 Business Days' prior written notice to the Agent at the Payment Office (which notice the Agent shall promptly transmit to each of the Banks), to re- duce permanently the Total Commitment, in an aggregate amount equal to an integral multiple of $500,000 and not less than $10,000,000, or to terminate the unutilized portion of the Total Commitment, provided that (i) any such reduction or termination shall apply proportionately to the Commitments of the Banks and (ii) no such termination or reduction shall be made that would reduce the Total Commitments to an amount less than the sum of the aggregate outstanding principal amount of Loans and the aggregate L/C Exposure. 1.8 Compensation. Resources shall compensate each Bank, upon such Bank's written request given promptly after learning of the same, for all losses, expenses and liabil- ities (including, without limitation, any interest paid by such Bank to lenders of funds borrowed by it to make or carry its Eurodollar Loans and any loss sustained by such Bank in connection with the re-employment of such funds), which the Bank sustains: (i) if for any reason (other than a failure of such Bank to perform its obligations) a Borrowing of any Eurodollar Loan does not occur on a date specified therefor in a Notice of Borrowing or notice of conversion (whether or not withdrawn or cancelled pursuant to Sec. 2.5 or otherwise), (ii) if any repayment or conversion (pursuant to Sec. 2.5 or otherwise) of any of its Eurodollar Loans occurs on a date which is not the last day of the Interest Period applicable thereto, or (iii) without duplication of any amounts paid pursuant to Sec. 2 hereof, as a consequence of any other default by Resources to repay its Eurodollar Loans when required by the terms of this Agreement. A certificate as to any amounts payable to any Bank under this Sec. 1.8 submitted to Resources by such Bank shall show the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. SECTION 1A. Letters of Credit. (a) General. Resources may from time to time request the issuance of Letters of Credit for its own account (for obligations of Resources or any of its subsidiaries), denominated in dollars, in form reasonably acceptable to the Agent and the Fronting Bank, at any time and from time to time while the Commitments remain in effect. This Section shall not be construed to impose an obligation upon the Fronting Bank to issue any Letter of Credit that is inconsistent with the terms and conditions of this Agreement. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. In order to request the issuance of a Letter of Credit (or to amend, renew or extend an existing Letter of Credit), Resources shall hand deliver or telecopy to the Fronting Bank and the Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) below), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare such Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if, and upon issuance, amendment, renewal or extension of each Letter of Credit Resources shall be deemed to represent and warrant that, after giving effect to such issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed $5,000,000 and (B) the Aggregate Credit Exposure shall not exceed the Total Commitment. (c) Expiration Date. Each Letter of Credit shall expire at the close of business on the date that is five Business Days prior to the Expiry Date, unless such Letter of Credit expires by its terms on an earlier date. (d) Participations. By the issuance of a Letter of Credit and without any further action on the part of the Fronting Bank or the Banks, the Fronting Bank hereby grants to each Bank, and each such Bank hereby acquires from the Fronting Bank, a participation in such Letter of Credit equal to such Bank's Applicable Percentage from time to time of the aggregate amount available to be drawn under such Letter of Credit, effective upon the issuance of such Letter of Credit. In consideration and in furtherance of the foregoing, each Bank hereby absolutely and unconditionally agrees to pay to the Agent, for the account of the Fronting Bank, such Bank's proportionate share of each L/C Disbursement made by the Fronting Bank and not reimbursed by Resources forthwith on the date due as provided in Sec. 1.3(b). Each Bank acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default or the termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Fronting Bank shall make any L/C Disbursement in respect of a Letter of Credit, Resources shall pay to the Agent an amount equal to such L/C Disbursement not later than two hours after Resources shall have received notice from the Fronting Bank that payment of such draft will be made, or, if Resources shall have received such notice later than 10:00 A.M. (New York time) on any Business Day, not later than 10:00 A.M. (New York time) on the immediately following Business Day. (f) Obligations Absolute. Resources' obligations to reimburse L/C Disbursements as provided in paragraph (e) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under any and all circumstances whatsoever, and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Loan Document; (iii) the existence of any claim, setoff, defense or other right that Resources, any other party guaranteeing, or otherwise obligated with, Resources or any subsidiary or other affiliate thereof or any other person may at any time have against the beneficiary under any Letter of Credit, the Fronting Bank, the Agent or any Bank or any other person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Fronting Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of the Fronting Bank, the Banks, the Agent or any other person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of Resources' obligations hereunder. Without limiting the generality of the foregoing, it is expressly understood and agreed that the absolute and unconditional obligation of Resources hereunder to reimburse L/C Disbursements will not be excused by the gross negligence or wilful misconduct of the Fronting Bank. However, the foregoing shall not be construed to excuse the Fronting Bank from liability to Resources to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by Resources to the extent permitted by applicable law) suffered by Resources that are caused by the Fronting Bank's gross negligence or wilful misconduct in determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof; it is understood that the Fronting Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit (i) the Fronting Bank's exclusive reliance on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute wilful misconduct or gross negligence of the Fronting Bank. (g) Disbursement Procedures. The Fronting Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Fronting Bank shall as promptly as possible give telephonic notification, confirmed by telecopy, to the Agent and Resources of such demand for payment and whether the Fronting Bank has made or will make an L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve Resources of its obligation to reimburse the Fronting Bank and the Banks with respect to any such L/C Disbursement. The Agent shall promptly give each Bank notice thereof. (h) Interim Interest. If the Fronting Bank shall make any L/C Disbursement in respect of a Letter of Credit, then, unless Resources shall reimburse such L/C Disbursement in full on the date thereof, the unpaid amount thereof shall bear interest for the account of the Fronting Bank, for each day from and including the date of such L/C Disbursement, to but excluding the earlier of the date of payment by Resources or the date on which interest shall commence to accrue on the Base Rate Loans resulting from such L/C Disbursement as provided in Sec. 1.3(b), at the rate per annum that would apply to such amount if such amount were a Base Rate Loan. (i) Cash Collateralization. If any Event of Default shall occur and be continuing, Resources shall, on the Business Day it receives notice from the Agent or the Required Banks thereof and of the amount to be deposited, deposit in an account with the Collateral Agent, for the benefit of the Banks, an amount in cash equal to the L/C Exposure as of such date. Such deposit shall be held by the Collateral Agent as collateral for the payment and performance of the obligations under this Agreement. The Collateral Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall not bear interest. Moneys in such account shall automatically be applied by the Agent to reimburse the Fronting Bank for L/C Disbursements for which it has not been reimbursed, and any remaining amounts will either (i) be held for the satisfaction of the reimbursement obligations of Resources for the L/C Exposure at such time or (ii) if the maturity of the Loans has been accelerated, be applied to satisfy the obligations under this Agreement. If Resources is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to Resources within three Business Days after all Events of Default have been cured or waived. SECTION 2. Interest. 2.1 Rates of Interest. (a) Resources agrees to pay interest in respect of the unpaid principal amount of each Base Rate Loan from the date the proceeds thereof are made available to Resources until prepayment pursuant to Sec. 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the Base Rate in effect from time to time. (b) Resources agrees to pay interest in respect of the unpaid principal amount of each Eurodollar Loan from the date the proceeds thereof are made available to Resources until prepayment pursuant to Sec. 3 or maturity (whether by acceleration or otherwise) at a rate per annum which shall be the relevant Quoted Rate plus the Applicable Eurodollar Margin. (c) Resources agrees to pay interest in respect of overdue principal of, and (to the extent permitted by law) overdue interest in respect of, each Loan, on demand, at a rate per annum which shall be 2% in excess of the Base Rate in effect from time to time. (d) Interest shall be computed on the actual number of days elapsed on the basis of a 360-day year; provided, however, that for any rate of interest determined by reference to the Prime Rate, interest shall be computed on the actual number of days elapsed on the basis of a year of 365 or 366 days. (e) In computing interest on the Loans, the date of the making of a Loan shall be included and the date of payment shall be excluded, provided, however, that if a Loan is repaid on the same day on which it is made, such day shall nevertheless be included in computing interest thereon. 2.2 Determination of Rate of Borrowing. As soon as practicable after 10:00 A.M. (New York time) on the second Business Day prior to the commencement of the Interest Period with respect to Eurodollar Loans, the Agent shall determine (which determination, absent manifest error, shall be final, conclusive and binding upon all parties) the rate of interest which shall be applicable to the Eurodollar Loans for the Interest Period applicable thereto and shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to Resources and the Banks. In the event that there is no applicable rate for the Eurodollar Loans: (i) the Agent shall promptly give notice thereof (in writing or by telephone, confirmed in writing) to Resources and the Banks and (ii) such Loans shall be deemed to have been requested to be made as Base Rate Loans and (iii) the rate applicable to such Loans shall be the Base Rate in effect from time to time. 2.3 Interest Payment Dates. Accrued interest shall be payable (i) in respect of each Eurodollar Loan, at the end of the Interest Period relating thereto and in respect of each Loan with an Interest Period of longer than 3 months, on each 3-month anniversary of the first day of such Interest Period, (ii) in respect of each Base Rate Loan, at the end of each Interest Period relating thereto and (iii) in respect of each Loan, on any prepayment (on the amount prepaid), at maturity (whether by acceleration or otherwise) and, after maturity, on demand. 2.4 Conversions; Interest Periods. (a) Resources shall have the option to convert on any Business Day, all or a portion at least equal to $10,000,000 of the outstanding principal amount of the Loans made pursuant to one or more Borrowings of one Type of Loans into a Borrowing or Borrowings of another Type of Loan, provided that (i) except as provided in Sec.2.5(b), Eurodollar Loans may be converted into Base Rate Loans only on the last day of an Interest Period applicable thereto and no partial conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount of the Loans pursuant to such Borrowing to less than $10,000,000 and (ii) Loans may only be converted into Eurodollar Loans if no Default or Event of Default is in existence on the date of the conversion. Each such conversion shall be effected by Resources by giving the Agent at its Payment Office, prior to 12:00 Noon (New York time), at least three Business Days (or by 12:00 Noon on the same Business Day in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") spec- ifying the Loans to be so converted, the Borrowing or Borrowings pursuant to which such Loans were made, the Type of Loans to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Loans. (b) At the time Resources gives a Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans (in the case of any subsequent Interest Period), Resources shall have the right to elect, by giving the Agent written notice (or telephonic notice promptly confirmed in writing), the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of Resources, be a one, two, three or six month period or, subject to availability on the part of each Bank, such shorter period as ends on the Expiry Date. Notwithstanding anything to the contrary contained above: (i) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period applicable to a Borrowing of Eurodollar Loans begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iii) no Interest Period in respect of any Borrowing of Loans shall extend beyond the Expiry Date; and (iv) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period. If upon the expiration of any Interest Period, Resources has failed to elect a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above or is unable to elect a new Interest Period as a result of Sec. 2.4(a)(ii) above, Resources shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 2.5 Increased Costs, Illegality, Etc. (a) In the event that any Bank (including the Agent and the Fronting Bank) shall have reasonably determined (which determination shall be final and conclusive and binding upon all parties but, with respect to the following clauses (i), (ii) and (iii), shall be made only after consultation with Resources and the Agent on the date of such determination) that: (i) on any date for determining the Quoted Rate for any Interest Period, by reason of any change after the date hereof affecting the interbank Eurodollar market or affecting the position of the Agent in such market, adequate and fair means do not exist for ascertaining the applicable interest rate by reference to the Quoted Rate; or (ii) at any time, by reason of (y) any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof by a governmental authority or otherwise (provided that, in the case of an interpretation not by a governmental authority, such interpretation shall be made in good faith and shall have a reasonable basis) and including the introduction of any new law or governmental rule, regulation or order), to the extent not provided for in clause (iii) below, or (z) in the case of Eurodollar Loans, other circumstances affecting such Bank or the interbank Eurodollar market or the position of such Bank in such market, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iii) at any time, by reason of the requirements of Regulation D or other official reserve requirements, the Quoted Rate shall not represent the effective pricing to such Bank for funding or maintaining the affected Eurodollar Loan; or (iv) at any time, that the making or continuance of any Eurodollar Loan or the issuance of any Letter of Credit has become unlawful by compliance by such Bank or by the Fronting Bank in good faith with any law, governmental rule, regulation, guideline or order, or would cause severe hardship to such Bank or to the Fronting Bank as a result of a contingency occurring after the date hereof which materially and adversely affects the interbank Eurodollar market; then, and in any such event, the Bank so affected shall on such date of determination give notice (by telephone con- firmed in writing) to Resources and (except with respect to clause (iii) of this Sec. 2.5(a)) to the Agent (who shall give similar notice to each Bank) of such determination. Thereafter, (x) in the case of clause (i), (ii) or (iii) above, Resources shall pay to such Bank, upon written demand therefor, such additional amounts deemed in good faith by such Bank to be material (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its discretion shall determine) as shall be required to cause such Bank to receive interest with respect to its affected Eurodollar Loan at a rate per annum equal to the then Applicable Eurodollar Margin in excess of the effective pricing to such Bank to make or maintain such Eurodollar Loan and (y) in the case of clause (iv), Resources shall take one of the actions specified in Sec. 2.5(b) as promptly as possible and, in any event, within the time period required by law. A certificate as to additional amounts owed any such Bank, showing in reasonable detail the basis for the calculation thereof, submitted to Resources and (except with respect to clause (iii) of this Sec. 2.5(a)) the Agent by such Bank shall, absent manifest error, be final, conclusive and binding upon all of the parties hereto. (b) At any time that any of its Loans are affected by the circumstances described in Sec. 2.5(a) (other than clause (iii) thereof) Resources may (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Agent notice thereof by telephone (confirmed in writing) on the same date that Resources was notified by the affected Bank pursuant to Sec. 2.5(a) or (ii) if the affected Eurodollar Loan is then outstanding, upon at least 3 Business Days' written notice to the Bank, require the Bank to convert such Eurodollar Loan into a Base Rate Loan; provided that if more than one Bank is affected at any time, then all affected Banks must be treated in the same manner pursuant to this Sec. 2.5(b). (c) In the event that Resources shall be paying additional amounts to a Bank pursuant to Sec. 2.5(a)(i) or (ii) or Sec. 2.5(d) (and, in the case of Sec. 2.5(d), such Bank has not eliminated the increased costs by designating a new Applicable Lending Office) or is unable to incur a Eurodollar Loan from such Bank because of the existence of a condition described in Sec. 2.5(a)(iv) (any such Bank, an "Affected Bank") covering a period of 90 consecutive days, Resources, the Agent and the Affected Bank shall consult with a view towards (but being under no obligation to) amending this Agreement, with the consent of the Banks other than the Affected Bank (the "Unaffected Banks") which, at such time, have outstanding two-thirds of the aggregate principal amount of the Loans outstanding hereunder (exclu- sive of the aggregate principal amount of the Loans out- standing of the Affected Bank), to provide for (i) the term- ination of the Affected Bank's Commitment, provided that such termination is accompanied by payment in full of the outstanding amount of all Loans of the Affected Bank, interest accrued on such amount to the date of payment and all other liabilities and obligations of Resources hereunder (including, without limitation, amounts payable pursuant to Sec. 1.8, Sec. 2.5(a) or Sec. 2.5(d)), and (ii) the substitution of another bank for the Affected Bank and/or the increase, pro rata or otherwise, of the Commitments of the Unaffected Banks or otherwise, so that the Total Commitment remains the amount which would be applicable in the absence of the occurrence of clause (i) of this Sec. 2.5(c); provided that no Commitment of any Unaffected Bank may be changed without the consent of such Bank. (d) If any Bank reasonably determines at any time that any applicable law or governmental rule, regulation, order or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Bank based on the existence of such Bank's Commitment hereunder or its obligations hereunder or under any Letter of Credit, then promptly upon receipt of a written demand from such Bank meeting the requirements of this Sec. 2.5(d), Resources shall pay such Bank such addi- tional amounts as shall be required to compensate such Bank for the increased cost to such Bank as a result of such increase in capital for the first Compensation Period (as defined below). After the initial written demand for payment in respect of this Sec. 2.5(d) is delivered to Resources by such Bank, written demand for payment may be submitted for each Compensation Period thereafter that this Agreement remains in effect as to such Bank. Each such written demand shall (i) specify (a) the event pursuant to which such Bank is entitled to claim the additional amount, (b) the date on which the event occurred and became applicable to the Bank and (c) the Compensation Period for which the amount is due and (ii) set out in reasonable detail the basis and computation of such additional amount. The period for which the additional amounts may be claimed by such Bank (the "Compensation Period") shall be the lesser of (x) the number of days actually elapsed since the date the event occurred and became applicable to such Bank or (y) 90 days. Payments made by Resources to any Bank in respect of this Sec. 2.5(d) shall be made on the last day of the Compensation Period specified in each written demand with a final payment to be made on the date of termination of this Agreement as to such Bank. Provided that each Bank acts reasonably and in good faith and uses averaging and attribution methods which are reasonable in determining any additional amounts due under this Sec. 2.5(d), such Bank's determination of compensation owing under this Sec. 2.5(d) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. No Bank shall be entitled to compensation under this Sec. 2.5(d) for any costs incurred with respect to any date unless it shall have notified Resources that it will demand compensation for such costs not more than 60 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs. (e) Each Bank agrees that, upon the occurrence of any event giving rise to the operation of Sec. 2.5(d) with respect to such Bank, such Bank shall, if requested by Resources, designate another Applicable Lending Office for any Loans affected by such event with the objective of eliminating, avoiding or mitigating the consequence of the event giving rise to the operation of such section; provided that such Bank and its Applicable Lending Office shall not, in the sole judgment of such Bank, suffer any economic, legal or regulatory disadvantage. Nothing in this Sec. 2.5(e) shall affect or postpone any of the obligations of Resources or the right of any Bank provided in Sec. 2.5(d). SECTION 3. Payments. 3.1 Payments on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, if a payment of principal has been so extended, interest shall be payable on such principal at the applicable rate during such extension. 3.2 Voluntary Prepayments. Resources shall have the right to prepay the Loans in whole or in part, without premium or penalty, from time to time pursuant to this Sec. 3.2 on the following terms and conditions: (i) Resources shall give the Agent at the Payment Office at least 3 Business Days' prior written notice or telephonic notice (confirmed in writing) of its intent to prepay such Loans, which notice shall specify the amount of such prepayment and the specific Borrowing to be prepaid, which notice the Agent shall promptly transmit to each of the Banks; (ii) each prepayment shall be in an integral multiple of $500,000 and not less than $10,000,000 (or, if less, the amount then remaining outstanding in respect of the Borrowing being prepaid); (iii) each prepayment in respect of Loans made pursuant to one Borrowing shall be applied pro rata among the Banks on the basis of such Loans, except as otherwise provided in Sec. 2.5; (iv) at the time of any prepayment, Resources shall pay all interest accrued on the principal amount of said prepayment and, if Resources prepays any Eurodollar Loan on any day other than the last day of an Interest Period applicable thereto, Resources shall compensate the Banks for losses sustained as a result of such prepayment to the extent and as provided in Sec. 1.8. 3.3 Method and Place of Payment, Etc. Except as expressly provided herein, all payments under this Agreement shall be made to the Agent for the ratable account of the Banks not later than Noon (New York time) on the date when due and shall be made in freely transferable U.S. dollars and in immediately available funds at the Payment Office (if such payment is made in respect of principal of or interest on any Eurodollar Loan, for the account of such non-U.S. office of the Agent as the Agent may from time to time direct). Unless the Agent shall have been notified by Resources prior to the date on which any payment to be made by Resources hereunder is due that Resources does not intend to remit such payment, the Agent may, at its discretion, assume that Resources has remitted such payment when so due and the Agent may, at its discretion and in reliance upon such assumption, make available to each Bank (for the account of its applicable lending office) on such payment date an amount equal to such Bank's share of such assumed payment. If Resources has not in fact remitted such payment to the Agent, each Bank shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Bank together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Bank to the date such amount is repaid to the Agent at a rate per annum equal to the Federal Funds Rate. On the commencement date of each Interest Period and on each date occurring two Business Days prior to an Interest Payment Date, the Agent shall notify Resources of the amount of interest and/or fees due at the end of such Interest Period or on such Interest Payment Date (assuming, in the case of Base Rate Loans, that there is no change in the rate of the applicable Base Rate Loan); provided, however, that failure to so notify Resources shall not affect Resources's obligation to make any such payments. 3.4 Net Payments. All payments under this Agreement shall be made without set-off or counterclaim and in such amounts as may be necessary in order that all such payments of principal and interest in connection with Loans (after deduction or withholding for or on account of (i) any present or future taxes, levies, imposts, duties or other charges of whatsoever nature imposed by any government or any political subdivision or taxing authority thereof, other than any tax (except such taxes referred to in clause (ii) below) on or measured by the net income of a Bank pursuant to the income tax laws of the jurisdiction where such Bank's principal or lending office is located or in which such Bank maintains a place of business (collectively the "Taxes") and (ii) deduction of an amount equal to any taxes on or measured by the net income payable by any such Bank with respect to the amount by which the payments required to be made by this Sec. 3.4 exceed the amount otherwise specified to be paid under this Agreement) shall not be less than the amounts otherwise specified to be paid under this Agreement. A certificate as to any additional amounts payable to any Bank under this Sec. 3.4 submitted to Resources by such Bank shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to each deduction or withholding for or on account of any Taxes, Resources shall promptly furnish to each Bank such certificates, receipts and other documents as may be required (in the judgment of such Bank) to establish any tax credit to which such Bank may be entitled. SECTION 4. Conditions Precedent. 4.1 Conditions to Effectiveness. On the Closing Date: (a) Opinion of Counsel for Resources. The Agent shall have received from the General Counsel of Resources or Senior Counsel for PPLC a favorable opinion, in sufficient copies for each of the Banks and the Fronting Bank and dated the Closing Date (which the Agent will forward to the Banks and the Fronting Bank), substantially in the form of Exhibit A hereto. (b) Opinion of Counsel for the Agent. The Agent shall have received in sufficient counterparts for each of the Banks and the Fronting Bank and dated the Closing Date (which the Agent will forward to the Banks and the Fronting Bank), an opinion of Cravath, Swaine & Moore, special counsel for the Agent, addressed to the Agent, the Fronting Bank and the Banks, with respect to the enforceability of this Agreement against Resources. (c) Documentation and Proceedings. All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement (including resolutions of the Board of Directors of Resources and certificates as to the incumbency of the officers signing this Agreement or any certificate delivered in connection herewith) shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all documents that it has requested, such documents where appropriate to be certified by proper corporate or governmental authorities. (d) Agreement. The Agent shall have received from each of the Banks, the Fronting Bank and Resources a duly executed and delivered counterpart hereof. (e) The conditions set forth in Sec. 4.2 (other than Sec. 4.2(c)) shall have been satisfied. 4.2 Conditions to Each Loan and Each Issuance of a Letter of Credit. The obligation of each Bank to make each Loan (excluding any conversions of one Type of Loan to another Type pursuant to Sec. 2.5(b)) and of the Fronting Bank to issue each Letter of Credit to Resources hereunder is subject, at the time of the making of each such Loan and the issuance of each such Letter of Credit (except as hereinafter indicated), to the satisfaction of the following conditions, with the making of each such Loan and the issuance of each such Letter of Credit constituting a representation and warranty by Resources that the conditions specified in Sections 4.2(a) and (b) below are then satisfied: (a) No Default. At the time of the making of each such Loan and the issuance of each such Letter of Credit and after giving effect thereto, there shall exist no Default or Event of Default. (b) Representations and Warranties. At the time of the making of each such Loan and the issuance of each such Letter of Credit and after giving effect thereto, all representations and warranties contained in Sec. 7 hereof shall be true and correct with the same force and effect as though such representations and warranties had been made as of such time. (c) Notice of Borrowing. The Agent shall have received Notice of Borrowing as required by Sec. 1.2 or, in the case of the issuance of a Letter of Credit, the Fronting Bank and the Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Sec. 1A(b). (d) No Adverse Change. Since December 31, 1995, there shall have been no change in the business, assets, financial condition or operations of Resources and its Subsidiaries taken as a whole which materially and adversely affects the ability of Resources to perform any of its obligations hereunder. SECTION 5. Covenants. While this Agreement is in effect and until the Total Commitment has been terminated, all obligations hereunder and under the Notes shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, Resources agrees that: 5.1 Financial Statements. It will furnish to each Bank: (a) within 120 days after the end of each of its fiscal years (i) an auditors' report, including a balance sheet as at the close of such fiscal year and statements of income, shareowners' common equity and cash flows for such year for Resources and its consolidated Subsidiaries prepared in conformity with GAAP, with an opinion expressed by Price Waterhouse LLP or other independent auditors of recognized standing selected by Resources and (ii) a balance sheet as at the close of such fiscal year and statements of income, shareholders common equity and cash flows for such year for Resources; (b) within 60 days after the end of each of the first three quarters in each of Resources's fiscal years, a balance sheet as at the close of such quarterly period and statements of income, shareowners' common equity and cash flows for such quarterly period for (i) Resources and (ii) Resources and its consolidated Subsidiaries, in the case of the statements for Resources and its consolidated Subsidiaries, prepared in conformity with GAAP; (c) within 120 days after the end of each of its fiscal years, a copy of each of Resources's and PPLC's Form 10-K Report to the Securities and Exchange Commission ("SEC") and within 60 days after the end of each of the first three quarters in each of Resources's fiscal years, a copy of each of Resources's and PPLC's Form 10-Q Report to the SEC; (d) from time to time, with reasonable promptness, such further information regarding Resources's business, affairs and financial condition as such Bank and the Fronting Bank may reasonably request; and (e) upon acquiring knowledge of the existence of a Default or Event of Default, Resources will promptly deliver to each Bank and the Fronting Bank a certificate of a financial officer of Resources specifying: (i) the nature of such Default or Event of Default, (ii) the period of the existence thereof, and (iii) the actions that Resources proposes to take with respect thereto. The financial statements required to be furnished pursuant to clauses (a) and (b) above, shall be accompanied by a certificate of a principal financial officer of Resources to the effect that no Default or Event of Default has occurred and is continuing. 5.2 Mergers. It will not merge or consolidate (other than a merger or consolidation under which Resources is the surviving corporation) with any Person. It will not sell, transfer or otherwise dispose of any common stock of PPLC or stock convertible into common stock of PPLC or of all or substantially all of its other assets, except in the case of such other assets, in the ordinary course of its business. 5.3 Ratings. It will use its best efforts to promptly notify the Banks upon obtaining knowledge of any change in, or cessation of, ratings of PPLC's First Mortgage Bonds by Moody's or S&P. 5.4 Indebtedness. It will not incur, create or suffer to exist any Indebtedness if, after giving effect thereto, the aggregate amount of Indebtedness of Resources (including any Indebtedness outstanding hereunder) would exceed $1,000,000,000 at any time outstanding. 5.5 Liens. It will not create, incur, or suffer to exist any Lien in or on the common stock of PPLC or on stock convertible into the common stock of PPLC (in either case, now or hereafter acquired) other than Permitted Liens. SECTION 6. Events of Default. Upon the occurrence of any of the following events (each an "Event of Default"): 6.1 Representations, Etc. Any certificate furnished by Resources to the Banks and the Fronting Bank pursuant hereto shall prove to have been incorrect in any material respect or any of the representations and warranties made by Resources herein or in connection herewith shall prove to have been incorrect in any material respect when made; or 6.2 Principal and Interest. Resources shall fail to make any payment of principal or interest on any Loan or any other payment payable by Resources hereunder (including the reimbursement of any L/C Disbursement) within 10 days of the due date thereof; or 6.3 Defaults by Resources or PPLC Under Other Agreements. Resources or PPLC shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in a principal amount in excess of $50,000,000 beyond any period of grace provided with respect thereto, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness in a principal amount in excess $50,000,000 beyond any period of grace provided with respect thereto if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf to cause, such Indebtedness to become due prior to its stated maturity; or 6.4 Judgments. Resources or PPLC shall fail within 60 days to pay, bond or otherwise discharge any judgment or order for the payment of money in excess of $25,000,000 that is not stayed on appeal or otherwise being appropriately contested in good faith; or 6.5 Bankruptcy, Etc. Resources shall commence a vol- untary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against Resources or such case is controverted but is not dismissed within 60 days after the commencement of the case; or Resources is not generally paying its debts as they become due; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of Resources or Resources commences any other proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insol- vency or liquidation or similar law of any jurisdiction whe- ther now or hereafter in effect relating to Resources or there is commenced against Resources any such proceeding which remains undismissed for a period of 60 days or Resources is adjudicated insolvent or bankrupt; or Resources fails to controvert in a timely manner any such case under the Bankruptcy Code or any such proceeding, or any order of relief or other order approving any such case or proceeding is entered; or Resources by any act or failure to act indicates its consent to, approval of or acquiescence in any such case or proceeding or in the appointment of any custodian or the like for it or any substantial part of its property or suffers any such appointment to continue undischarged or unstayed for a period of 60 days; or Resources makes a general assignment for the benefit of creditors; or any corporate action is taken by Resources for the purpose of effecting any of the foregoing; or 6.6 Other Covenants. Resources shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days after written notice thereof shall have been received by Resources from the Agent or the Required Banks; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, either or both of the following actions may be taken: (i) the Agent, at the direction of the Required Banks, shall by written notice to Resources, declare the principal of and accrued interest in respect of all of the outstanding Loans to be, whereupon the same and all other amounts due hereunder shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by Resources, anything contained herein to the contrary notwithstanding, and (ii) the Agent, at the direction of the Required Banks, shall by written notice to Resources, declare the Total Commitment terminated, whereupon the Commitment of each Bank and the obligation of each Bank to make its Loans hereunder shall terminate immediately and any accrued Facility Fee shall forthwith become due and payable without any other notice of any kind; provided that if an Event of Default described in Sec. 6.5 shall occur, the result which would otherwise occur only upon the giving of written notice by the Agent to Resources as specified in clauses (i) and (ii) above shall occur automatically without the giving of any such notice and without any instruction by the Required Banks to give such notice. SECTION 7. Representations and Warranties. In order to induce the Banks and the Fronting Bank to enter into this Agreement and to make the Loans and issue the Letters of Credit provided for herein, Resources makes the following representations and warranties to the Banks and the Fronting Bank: 7.1 Corporate Status. Resources is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform this Agreement and to borrow hereunder. 7.2 Authority; No Conflict. The making and performance by Resources of this Agreement have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument to which it is a party. 7.3 Legality, Etc. This Agreement constitutes the legal, valid and binding obligation of Resources enforceable in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of credi- tors' rights generally and by general equitable principles which may limit the right to obtain equitable remedies. 7.4 Financial Statements. The financial statements of (i) Resources and (ii) Resources and its consolidated Subsidiaries for the year ended as at December 31, 1995, furnished to the Banks, fairly present the financial position of Resources and Resources and its consolidated Subsidiaries, as the case may be, at December 31, 1995 and the results of their operations for the year then ended and, in the case of the statements for Resources and its consolidated Subsidiaries, were prepared in accordance with GAAP. Since that date there has been no adverse change in the business, assets, financial condition or operations of Resources which would materially and adversely affect the ability of Resources to perform any of its obligations hereunder. 7.5 Litigation. Except as disclosed in or contem- plated by Resources's Form 10-K Report to the SEC for the year ended December 31, 1995, furnished to the Banks, no litigation, arbitration or administrative proceeding is pending or, to the knowledge of Resources, threatened, which, if determined adversely to Resources, would materially and adversely affect the ability of Resources to perform any of its obligations under this Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of Resources, threatened which questions the validity of this Agreement. 7.6 No Violation. No part of the proceeds of the borrowings under this Agreement or of any Letter of Credit will be used, directly or indirectly, by Resources for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or for any other purpose which violates, or which conflicts with, the provisions of Regulations G, U or X of said Board of Governors. Resources is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any such "margin stock." 7.7 ERISA. There have not been any "reportable events," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to Resources. 7.8 Consents. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance of this Agreement by Resources, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans and are in full force and effect at the time of the making of each Loan. 7.9 Subsidiaries. The assets of all Subsidiaries of PPLC do not comprise in the aggregate more than 20% of the total consolidated assets of PPLC. 7.10 Investment Company Act. Neither Resources nor any Subsidiary thereof is an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended, in order not to be subject to the prohibitions of Section 7 of such Act. 7.11 Public Utility Holding Company Act. Resources is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, but is exempt from such Act (except for the provisions of Section 9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(1) thereof. 7.12 Tax Returns. Resources has filed or caused to be filed all Federal, state, local and foreign tax returns or materials required to have been filed by it and has paid or caused to be paid all taxes due and payable by it and all assessments received by it, except taxes that are being contested in good faith by appropriate proceedings and for which Resources shall have set aside on its books appropriate reserves with respect thereto in accordance with GAAP. SECTION 8. Agent. 8.1 Appointment. The Banks hereby appoint Chemical Bank as Agent (such term to include Agent acting as Agent) to act as herein specified. Each Bank and the Fronting Bank hereby irrevocably authorizes, and each assignee of any Bank or the Fronting Bank shall be deemed irrevocably to author- ize, the Agent to take such action on their behalf under the provisions of this Agreement and any instruments, documents and agreements referred to herein (such instruments, documents and agreements being herein referred to as the "Loan Documents") and to exercise such powers hereunder and thereunder as are specifically delegated to the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder, or under the Loan Documents, by or through its agents or employees. 8.2 Nature of Duties. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Bank or of the Fronting Bank. Nothing in this Agreement or any of the Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly set forth herein. Each Bank and the Fronting Bank shall make its own independent investigation of the financial condition and affairs of Resources and its Subsidiaries in connection with the making and the continuance of the Loans and the issuance of Letters of Credit hereunder and shall make its own appraisal of the creditworthiness of Resources; and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank or the Fronting Bank with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or the issuance of Letters of Credit or at any time or times thereafter. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible to any Bank or the Fronting Bank for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Sec. 8.3. 8.3 Rights, Exculpation, Etc. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be liable to any Bank or to the Fronting Bank for any action taken or omitted by it hereunder or under any of the Loan Documents, or in connection herewith or therewith, unless caused by its or their gross negligence or willful misconduct. The Agent shall not be responsible to any Bank or to the Fronting Bank for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the Loan Documents or the financial condition of Resources. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of Resources, or the existence or possible existence of any Default or Event of Default. The Agent may at any time request instructions from the Banks with respect to any actions or approvals which by the terms of this Agreement or any of the Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under this Agreement or any of the Loan Documents until it shall have received such instructions from the Required Banks. Without limiting the foregoing, no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder or under any of the Loan Documents in accordance with the instructions of the Required Banks. 8.4 Reliance. The Agent shall be entitled to rely upon any written notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper Person, and, with respect to all legal matters pertaining to this Agreement or any of the Loan Documents and its duties hereunder or thereunder, upon advice of counsel selected by it. 8.5 Indemnification. To the extent that the Agent is not reimbursed and indemnified by Resources, the Banks will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent, acting pursuant hereto, in any way relating to or arising out of this Agree- ment or any of the Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the Loan Documents, in proportion to their respective Commitments hereunder; provided, however, that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expen- ses or disbursements resulting from the Agent's gross negli- gence or wilful misconduct. The obligations of the Banks under this Sec. 8.5 shall survive the payment in full of outstanding Loans, the expiration of any Letter of Credit and the termination of this Agreement. 8.6 The Agent, Individually. With respect to its Commitment hereunder and the Loans made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Bank. The terms "Banks," "Required Banks" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Bank or one of the Required Banks. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with Resources as if it were not acting pursuant hereto. 8.7 Resignation by the Agent. The Agent may resign from the performance of all its functions and duties hereunder at any time by giving 15 Business Days' prior written notice to Resources and the Banks. Such resignation shall take effect upon the expiration of such 15 Business Day period or upon the earlier appointment of a successor. Upon any such resignation, the Required Banks shall appoint a successor Agent who shall be satisfactory to Resources and shall be an incorporated bank or trust company. In the event no such successor shall have been so appointed, then any notification, demand or other communication required or permitted to be given by the Agent on behalf of the Banks to Resources hereunder shall be sufficiently given if given by the Required Banks, and any notification, demand, other communication, document, statement, other paper or payment required to be made, given or furnished by Resources to the Agent for distribution to the Banks shall be sufficiently made, given or furnished if made, given or furnished by Resources directly to each Bank entitled thereto and, in the case of payments, in the amount to which each such Bank is entitled. All powers specifically delegated to the Agent by the terms hereof may be exercised by the Required Banks. SECTION 9. Miscellaneous. 9.1 Definitions. As used herein the following terms shall have the meanings herein specified and shall include in the singular number the plural and in the plural number the singular: "Affected Bank" shall have the meaning assigned that term in Sec. 2.5(c). "Agent" shall mean Chemical Bank and shall include (i) any successor corporation thereto by merger, consolidation or otherwise and (ii) any successor to the Agent appointed pursuant to Sec. 8.7. "Aggregate Credit Exposure" shall mean the aggregate amount of the Banks' Credit Exposures. "Agreement" shall mean this Revolving Credit Agreement, as it may from time to time be amended, supple- mented or otherwise modified. "Applicable Eurodollar Margin" shall have the meaning assigned that term in the definition of "Applicable Rate". "Applicable Facility Fee Percentage" shall have the meaning assigned that term in the definition of "Applicable Rate". "Applicable Lending Office" shall mean, with respect to each Bank, (i) such Bank's Base Rate Lending Office in the case of a Base Rate Loan and (ii) such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Loan. "Applicable Percentage" of any Bank at any time shall mean the percentage of the Total Commitment represented by such Bank's Commitment. In the event the Commitments shall have expired or been terminated, the Applicable Percentages shall be determined on the basis of the Commitments most recently in effect, but giving effect to assignments pursuant to Sec. 9.6. "Applicable Rate" shall mean and include the Applicable Facility Fee Percentage and Applicable Eurodollar Margin and at any time will be determined based on the highest Category set forth below in which PPLC's First Mortgage Bonds have been assigned ratings by both Moody's and S&P which meet both of the applicable criteria set forth below (the highest category being Category A). Applicable Applicable Facility Fee Eurodollar Criteria Percentage Margin Category A: A- or better and A3 or better .150% .250% Category B: BBB+ or better and Baa1 or better .200% .300% Category C: BBB or better and Baa2 or better .250% .300% Category D: BBB- or better and Baa3 or better .375% .300% Category E: BB+ or below or Ba1 or below .500% .750% "Bank" shall have the meaning assigned that term in the first paragraph in this Agreement. "Bankruptcy Code" shall have the meaning assigned that term in Sec. 6.5. "Base Rate" shall mean, for any day, a rate per annum equal to the higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate, each as in effect from time to time. "Base Rate Lending Office" means, with respect to each Bank, the office of such Bank specified as its "Base Rate Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to Resources and the Agent. "Base Rate Loan" shall mean any Loan during any period during which such Loan is bearing interest at the rates provided for in Sec. 2.1(a). "Borrowing" shall mean the incurrence of one Type of Loan from all the Banks on a given date, all of which Eurodollar Loans shall have the same Interest Period, pursuant to Sec. 1.2; provided, however, that Loans of a different Type extended by one or more Banks pursuant to Sec. 2.5(b) shall be considered a part of the related Borrowing. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day on which banks in New York City are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the London interbank Eurodollar market. "Capital Lease Obligations" of any person shall mean obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Closing Date" shall mean May 30, 1996. "Commitment", for each Bank, shall mean the amount specified opposite its name on Schedule I hereto, such Commitment to be reduced by the amount of any reduction thereto effected pursuant to Sec. 1.7 and/or Sec. 6. "Credit Exposure", for each Bank at any time, shall mean the aggregate principal amount at such time of all outstanding Loans of such Bank to Resources, plus the aggregate amount at such time of such Bank's L/C Exposure. "Default" shall mean any event, act or condition which with notice or lapse of time or both would constitute an Event of Default. "Eligible Transferee" shall mean and include a commercial bank, financial institution or other "accredited investor" (as defined in SEC Regulation D). "Eurodollar Lending Office" shall mean, with respect to each Bank, the office of such Bank specified as its "Eurodollar Lending Office" on the signature pages to the Agreement or such other office of such Bank as such Bank may from time to time specify as such to Resources and the Agent. "Eurodollar Loan" shall mean any loan during any period during which such Loan is bearing interest at the rates provided for in Sec. 2.1(b). "Event of Default" shall mean each of the Events of Default specified in Sec. 6. "Expiry Date" shall mean the date 364 days from the date hereof. "Facility Fee" shall have the meaning assigned that term in Sec. 1.6(a). "Federal Funds Rate" shall mean for any day, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent. "First Mortgagee Bonds" shall mean the first mortgage bonds issued by PPLC pursuant to its Mortgage and Deed of Trust dated as of October 1, 1945, as supplemented. "Fronting Bank Fees" shall have the meaning assigned to that term in Sec. 1.6(b). "GAAP" shall mean United States generally accepted accounting principles applied on a consistent basis. "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money, (b) all obligations of such person with respect to deposits or advances of any kind, (c) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien or property owned or acquired by such person, whether or not the obligations secured thereby have been assumed but shall not include any obligations that are without recourse to such person, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of Interest Rate Protection Agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements (the amount of any such obligation to be the amount that would be payable upon the acceleration, termination or liquidation thereof) and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. "Initial Banks" shall mean Chemical Bank and Citibank, N.A. "Interest Period" shall mean (a) as to any Eurodollar Loan, the period commencing on the date of such Loan and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as Resources may elect in a Notice of Borrowing or Notice of Conversion and (b) as to any Base Rate Loan, the period commencing on the date of such Loan and ending on the date 90 days thereafter or, if earlier, on the Expiry Date or the date of prepayment of such Loan. If any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period applicable to a Borrowing of Eurodollar Loans would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day. "Interest Rate Protection Agreement" shall mean any agreement providing for an interest rate swap, cap or collar, or for any other financial arrangement designed to protect against fluctuations in interest rates. "L/C Commitment" shall mean the commitment of the Fronting Bank to issue Letters of Credit pursuant to Sec. 1A. "L/C Disbursement" shall mean a payment or disbursement made by the Fronting Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all L/C Disbursements that have not yet been reimbursed at such time. The L/C Exposure of any Bank at any time shall mean its Applicable Percentage of the aggregate L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Sec. 1.6(b). "Letter of Credit" shall mean any letter of credit issued pursuant to Sec. 1A. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vender or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" shall have the meaning assigned that term in Sec. 1.1. "Loan Documents" shall have the meaning assigned that term in Sec. 8.1. "Moody's" shall mean Moody's Investors Service, Inc. or any successor thereto. "Notice of Borrowing" shall have the meaning assigned that term in Sec. 1.2. "Notice of Conversion" shall have the meaning assigned that term in Sec. 2.4(a). "Payment Office" shall mean the office of the Agent located at 270 Park Avenue, New York, New York 10017, or such other office as the Agent may hereafter designate in writing as such to the other parties hereto. "Permitted Liens" shall mean (a) Liens for taxes, assessments or governmental charges or levies to the extent not past due, or which are being contested in good faith in appropriate proceedings for which Resources has provided appropriate reserves for the payment thereof in accordance with GAAP; (b) pledges or deposits in the ordinary course of business to secure obligations under worker's compensation laws or similar legislation; (c) other pledges or deposits in the ordinary course of business (other than for borrowed monies) that, in the aggregate, are not material to Resources; (d) Liens imposed by law such as materialmen's, mechanics', carriers', workers' and repairmen's Liens and other similar Liens arising in the ordinary course of business for sums not yet due or currently being contested in good faith by appropriate proceedings; (e) attachment, judgment or other similar Liens arising in connection with court proceedings, provided that such Liens, in the aggregate, shall not exceed $50,000,000 at any one time outstanding, and (f) other Liens not otherwise referred to in the foregoing clauses (a) through (e) above, provided that such other Liens do not secure at any time obligations in an aggregate amount in excess of $100,000,000 at any time outstanding. "Persons" shall mean and include any individual, firm, corporation, association, trust or other enterprise or any governmental or political subdivision or agency, depart- ment or instrument thereof. "PPLC" shall mean Pennsylvania Power & Light Company, a Pennsylvania corporation that is a direct Subsidiary of Resources. "Prime Rate" shall mean the rate which Chemical Bank announces from time to time as its prime lending rate, such Prime Rate to change when and as such prime lending rate changes. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Chemical Bank may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Quoted Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period, the rate (rounded upwards to the nearest 1/16 of 1%) at which dollar deposits approximately equal in principal amount to the Agent's portion of such Eurodollar Loan and for a maturity comparable to such Interest Period are offered to the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 A.M. (London time) 2 Business Days prior to the commencement of such Interest Period, without any addition to such offered quotation to give effect to the reserve requirements established for Eurodollar transactions by Regulation D. "Register" shall have the meaning provided in 1.4(b). "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect or any successor to all or a portion thereof establishing reserve requirements. "Required Banks" shall mean Banks having Loans the outstanding principal amount of which aggregate (or, if no Loans are outstanding, Banks with Commitments aggregating) at least the majority of the aggregate outstanding principal amount of all Loans (or of the Total Commitment). "Resources" shall have the meaning assigned that term in the first paragraph of this Agreement. "SEC" shall have the meaning assigned that term in Sec. 5.1(c). "SEC Regulation D" shall mean Regulation D as promulgated under the Securities Act of 1933, as amended, as the same may be in effect from time to time." "S&P" shall mean Standard & Poor's Ratings Services, a Division of the McGraw-Hill Companies Inc. or any successor thereto. "Subsidiary" shall mean any company, partnership, association or other business entity in which Resources and its Subsidiaries now have or may hereafter acquire an aggregate of at least 50% of the voting stock or ownership interests. "Taxes" shall have the meaning assigned that term in Sec. 3.4. "Total Commitment" shall mean the aggregate of all the Commitments of all the Banks. "Type" shall mean any type of Loan, i.e., whether a Loan is a Base Rate Loan or a Eurodollar Loan. "Unaffected Bank" shall have the meaning assigned that term in Sec. 2.5(c). "written" or "in writing" shall mean any form of written communication or a communication by means of telex, telecopier device, telegraph or cable. 9.2 Accounting Principles. All statements to be prepared and determinations to be made under this Agreement, including (without limitation) those pursuant to Sec. 5, shall be prepared and made in accordance with generally accepted accounting principles applied on a basis consistent with the accounting principles reflected in the audited financial statements of Resources for the fiscal year ended December 31, 1995 referred to in Sec. 7.4, except for changes in accounting principles consistent with GAAP. 9.3 Exercise of Rights. Neither the failure nor delay on the part of any of the Banks or the Fronting Bank to exercise any right, power or privilege under this Agree- ment shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise there- of, or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Banks would otherwise have. No notice to or demand on Resources in any case shall entitle Resources to any other or further notice or demand in similar or other cir- cumstances or constitute a waiver of the right of the Banks or the Fronting Bank to any other or further action in any circumstances without notice or demand. 9.4 Amendment and Waiver. Neither this Agreement nor any other Loan Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by Resources and the Required Banks, provided that no such change, waiver, discharge or termination shall, without the consent of each Bank directly affected thereby, (i) extend the final scheduled maturity of any Loan, or reduce the rate or extend the time of payment of interest or Facility Fees thereon (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof (except to the extent repaid in cash), (ii) amend, modify or waive any provision of this Sec. 9.4, (iii) reduce the percentage specified in the definition of Required Banks or (iv) consent to the assignment or transfer by Resources of any of its rights and obligations under this Agreement; provided further, that no such change, waiver, discharge or termina- tion shall (x) increase the Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default shall not constitute an increase of the Commitment of any Bank) or (y) without the consent of the Agent, amend, modify or waive any provision of Sec. 9 as same applies to such Agent or any other provision as same relates to the rights or obligations of such Agent. 9.5 Expenses; Indemnification. (a) Resources agrees to pay all reasonable out-of-pocket expenses (i) of the Agent and the Fronting Bank incurred in connection with the preparation, execution, delivery, enforcement and administration (exclusive of any internal overhead expenses) of this Agreement and any and all agreements supplementary hereto and the making and repayment of the Loans, the issuance of the Letters of Credit and the payment of interest, including, without limitation, the reasonable fees and expenses of Cravath, Swaine & Moore, special counsel for the Agent, (ii) of each Initial Bank in connection with any assignments of Commitments or Loans hereunder and (iii) of the Agent, the Fronting Bank and each Bank incurred in connection with the enforcement of this Agreement, including, without limitation, the reasonable fees and expenses of any counsel for any of the Banks with respect to such enforcement. (b) Resources further agrees to pay, and to save the Agent, the Fronting Bank and the Banks harmless from all liability for, any stamp or other documentary taxes which may be payable in connection with Resources' execution or delivery of this Agreement, its borrowings hereunder or Letters of Credit, or its issuance of any notes or of any other instruments or documents provided for herein or deliv- ered or to be delivered by it hereunder or in connection herewith. (c) Resources agrees to indemnify the Agent, the Fronting Bank and each Bank and each of their respective affiliates, directors, officers and employees (each such person being called an "Indemnitee") against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent, the Fronting Bank or any Bank is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby. The direct or indirect application or proposed application of the proceeds of any Loan hereunder or the issuance of Letters of Credit and provided that such indemnification shall not extend to disputes solely among the Agent, the Fronting Bank and the Banks; and provided further that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (d) All obligations provided for in this Sec. 9.5 shall survive any termination of this Agreement. 9.6 Successors and Assigns. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that Resources may not assign or transfer any of its interests hereunder, except to the extent any such assignment results from the consummation of a transaction permitted under Sec. 5.2, without the prior written consent of the Banks and provided further that the rights of each Bank to transfer, assign or grant participations in its rights and/or obligations hereunder shall be limited as set forth below in this Sec. 9.6, provided that nothing in this Sec. 9.6 shall prevent or prohibit any Bank from pledging its rights under this Agreement and/or its Loans hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank. In order to facilitate such an assignment to a Federal Reserve Bank, Resources shall, at the request of the assigning Bank, duly execute and deliver to the assigning Bank a promissory note evidencing its Commitment or Loans made by the assigning Bank hereunder. (b) Each Bank shall have the right to transfer, assign or grant participations in all or any part of its remaining rights and obligations hereunder on the basis set forth below in this clause (b). (A) Assignments. Each Bank may assign all or a portion of its rights and obligations hereunder pursuant to this clause (b)(A) to (x) one or more Banks or any affiliates of any Bank or (y) one or more other Eligible Transferees, provided that (i) any such assignment pursuant to clause (y) above shall be in the aggregate amount of at least $5,000,000, (ii) after giving effect to any such assignment pursuant to clause (x) or (y) above, no Bank shall have a Commitment of less than $5,000,000 unless such Bank's Commitment is reduced to zero pursuant to such assignment, (iii) any assignment pursuant to clause (y), other than an assignment by an Initial Bank, shall require the consent of Resources, which consent shall not be unreasonably withheld, (iv) an Initial Lender shall not assign any percentage of its rights and obligations hereunder without the other Initial Lender assigning the same percentage of its rights and obligations hereunder, and provided further, that, so long as no Loans, together with interest thereon, shall be outstanding and no Default or Event of Default shall have occurred and then be continuing, Resources may at its option terminate the portion of such assigning Bank's Commitment proposed to be assigned pursuant to clause (y) above in lieu of consenting to such assignment, and the Total Commitment shall be reduced in the amount of such termination. Assignments or terminations of all or any portion of any Bank's Commitment pursuant to this clause (b)(A) will only be effective if the Agent shall have received a written notice from the assigning Bank and the assignee, or, in the case of a termination, Resources, and, in the case of an assignment (other than as assignment by an Initial Bank), payment of a nonrefundable assignment fee of $2,500 to the Agent by either the assigning Bank or the assignee. No later than five Business Days after its receipt of any written notice of assignment or termination, the Agent will record such assignment or termination, and the resultant effects thereof on the Commitment of the assigning or terminating Bank and, in the case of an assignment, the assignee, in the Register, at which time such assignment or termination shall become effective, provided that the Agent shall not be required to, and shall not, so record any assignment or termination in the Register on or after the date on which any proposed amendment, modification or supplement in respect of this Agreement has been circulated to the Banks for approval until the earlier of (x) the effectiveness of such amendment, modification or supplement in accordance with Sec. 9.4 or (y) 30 days following the date on which such proposed amendment, modification or supplement was circulated to the Banks. Upon the effectiveness of any assignment or termination pursuant to this clause (b)(A), (x) the assignee, in the case of an assignment, will become a "Bank" for all purposes of this Agreement and the other Loan Documents with a Commitment as so recorded by the Agent in the Register, and to the extent of such assignment or termination, the assigning or terminating Bank shall be relieved of its obligations hereunder with respect to the portion of its Commitment being assigned or terminated. (B) Participations. Each Bank may transfer, grant or assign participations in all or any part of such Bank's interests and obligations hereunder pursuant to this clause (b)(B) to any Eligible Transferee, provided that (i) such Bank shall remain a "Bank" for all purposes of this Agreement and the transferee of such participation shall not constitute a Bank hereunder and (ii) no participant under any such participation shall have any rights under the Agreement or other Loan Document or any rights to approve any amendment to or waiver of this Agreement or any other Loan Document except to the extent such amendment or waiver would (x) extend the final scheduled maturity of any of the Loans or the Commitment in which such participant is participating or (y) reduce the interest rate (other than as a result of waiving the applicability of any post-default increases in interest rates) or Facility Fee or other fees applicable to any of the Loans or Commitments in which such participant is participating or postpone the payment of any thereof. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Loan Documents (the participant's rights against the granting Bank in respect of such participation to be those set forth in the agreement with such Bank creating such participation) and all amounts payable by Resources hereunder shall be determined as if such Bank had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Sections 1.8 and 2.5 on the same basis as if it were a Bank but in no case shall be entitled to any amount greater than would have been payable had the Bank not sold such partici- pations. (c) Each Bank hereby represents, and each Person that becomes a Bank pursuant to an assignment permitted by the preceding clause (b)(A) will upon its becoming party to this Agreement represent, that it is an Eligible Transferee which makes loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, provided that, subject to the preceding clauses (a) and (b), the disposition of any promissory notes or other evidences of or interests in Loans held by such Bank shall at all times be within its exclusive control. 9.7 Notices, Requests, Demands. All notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made (i) in the case of notice by mail, when actually received, (ii) in the case of telex or telegraphic notice, when delivered to the telex or telegraph company and (iii) in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, in each case addressed to Resources, the Agent or the respective Bank, as the case may be, at their respective addresses shown below their signatures hereto or at such other address as such party may hereafter specify in writing to the others. No other method of giving notice is hereby precluded. 9.8 Survival of Representations and Warranties. All representations and warranties contained herein or otherwise made in writing by Resources in connection herewith shall survive the execution and delivery of this Agreement. 9.9 Governing Law. This Agreement and the rights and obligations of the parties under this Agreement (other than as relates to Letters of Credit) shall be governed by and construed and interpreted in accordance with the laws of the State of New York. Each Letter of Credit shall be governed by, and construed and interpreted in accordance with the laws or rules designated in such Letter of Credit, or if no such laws or rules are designated, the Uniform Customs and Practice for Documentary Credits (1993 revision), International Chamber of Commerce, publication no. 500 (the "Uniform Customs") and, as to matters not governed by the Uniform Customs, the laws of the State of New York. 9.10 Counterparts. This Agreement may be executed in any number of copies, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with Resources and the Agent. 9.11 Effectiveness. This Agreement shall become effective on the Closing Date. 9.12 Transfer of Office. (a) Each Bank may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Bank; provided that such Bank shall continue to bear all of its obligations under this Agreement; and provided further that Resources shall not be responsible for costs arising under Sec. 1.8, 2.5 or 3.4 resulting from any such transfer to the extent not otherwise applicable to such Bank prior to such transfer. (b) Upon a Bank becoming aware of any event which will entitle it to any additional amount pursuant to Sec. 2.5(a) or Sec. 3.4, such Bank shall take all reasonable steps (including but not limited to making, maintaining or funding the affected Loan through another office of such Bank) to avoid or reduce the additional amount payable by Resources; provided that, such steps will not result in any additional costs, liabilities or expenses (not reimbursable by Resources) to such Bank and are not otherwise inconsistent with the interests of such Bank determined in good faith. 9.13 Proration of Payments. The Banks agree among themselves that, with respect to all amounts received by them which are applicable to the payment of principal of or interest on the Loans, equitable adjustment will be made so that, in effect, all such amounts will be shared ratably among the Banks on the basis of the amounts then owed each of them in respect of such obligation, whether received by voluntary payment, by realization upon security, by the exercise of any right of set-off or bankers' lien, by counterclaim or cross action, under or pursuant to this Agreement or otherwise. Each of the Banks agrees that if it should receive any payment on its Loans of a sum or sums in excess of its pro rata portion, then the Bank receiving such excess payment shall purchase for cash from the other Banks an interest in the Notes of such Banks in such amount as shall result in a ratable participation by each of the Banks in the aggregate unpaid amount of all outstanding Loans then held by all of the Banks. If all or any portion of such excess payment is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. Resources agrees that any Bank so purchasing a participation from another Bank pursuant to this Sec. 9.13 may exercise all its rights of payment with respect to such participation as fully as if such Bank were the direct creditor of Resources in the amount of such participation. 9.14 Headings Descriptive. The headings of the various provisions of this Agreement are inserted for con- venience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. PP&L RESOURCES, INC., By /s/ R. E. Hill Name: R. E. Hill Title: Senior Vice President - Financial & Treasurer CHEMICAL BANK, Individually and as Agent and Fronting Bank By /s/ Ronald Potter Name: Ronald Potter Title: Managing Director CITIBANK, N.A. By /s/ Paul T. Addison Name: Paul T. Addison Title: Attorney in Fact Name of Bank and Address Eurodollar Lending for Notices Base Rate Lending Office Office CHEMICAL BANK Same as Name of Bank Same as Name of Bank 270 Park Avenue New York, NY 10017 Att: Jaimin Patel Fax: (212) 270-5007 CITIBANK N.A. Same as Name of Bank Same as Name of Bank 399 Park Avenue New York, NY Att: Anita Brickell Fax: (212) 832-9137 SCHEDULE I CHEMICAL BANK $ 150,000,000 CITIBANK, N.A. 150,000,000 Total Commitment $300,000,000 EXHIBIT A OPINION OF COUNSEL FOR Resources The opinion of Counsel for Resources, referred to in Sec. 4.1(b) of the Agreement shall be to the effect that (terms used herein shall have the meanings specified therefor in the Agreement): 1. Resources is duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, and has the corporate power to make and perform the Agreement and to borrow under the Agreement. 2. The making and performance by Resources of the Agreement, have been duly authorized by all necessary corporate action and do not and will not violate any provision of law or regulation, or any decree, order, writ or judgment, or any provision of its charter or by-laws, or result in the breach of or constitute a default under any indenture or other agreement or instrument known to such counsel to which Resources is a party. 3. The Agreement constitutes the legal, valid and binding obligation of Resources enforceable in accordance with its terms except to the extent limited by bankruptcy, insolvency or reorganization laws or by other laws relating to or affecting the enforceability of creditors' rights generally and by general equitable principles. 4. Except as disclosed in or contemplated by Resources's Form 10-K Report to the Securities and Exchange Commission for the year 1995, no litigation, arbitration or administrative proceeding is pending or, to the knowledge of such counsel, threatened, which, if determined adversely to Resources, would materially and adversely affect the ability of Resources to perform any of its obligations under the Agreement. There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of such counsel, threatened which questions the validity of the Agreement. 5. Resources is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. 6. There have not been any "reportable events," as that term is defined in Section 4043 of the Employee Retirement Income Security Act of 1974, as amended, which would result in a material liability to Resources. 7. No authorization, consent or approval from governmental bodies or regulatory authorities is required for the making and performance of the Agreement by Resources or for the borrowings thereunder, except such authorizations, consents and approvals as have been obtained prior to the making of any Loans and are in full force and effect. EX-27 3
UT This schedule contains summary financial information extracted from the consolidated statement of income, consolidated balance sheet, consolidated statement of cash flows for the form 10-Q dated September 30, 1996 and is qualified in its entirety by reference to such financial statements. 0000922224 PP&L RESOURCES, INC. 1,000,000 9-MOS DEC-31-1995 SEP-30-1996 PER-BOOK 7,044 557 758 1,268 0 9,627 2 1,563 1,138 2,703 295 171 2,832 219 0 0 0 0 134 80 3,193 9,627 2,173 193 1,549 1,742 431 10 441 164 277 21 256 201 0 632 1.60 1.60
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