-----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, Bvka5UjHVbo2IKBCWsSoGejryz7BNjsi+dyCceaMc1ngKh3fY13qNjb+47eQBmtM gHKsFYX5mV+Gema60ck4cQ== 0000018540-95-000168.txt : 19951119 0000018540-95-000168.hdr.sgml : 19951119 ACCESSION NUMBER: 0000018540-95-000168 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWESTERN ELECTRIC POWER CO CENTRAL INDEX KEY: 0000092487 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 720323455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03146 FILM NUMBER: 95589980 BUSINESS ADDRESS: STREET 1: 428 TRAVIS ST CITY: SHREVEPORT STATE: LA ZIP: 71156 BUSINESS PHONE: 3182222141 10-Q 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) COMBINED QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____to_____ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-1443 Central and South West Corporation 51-0007707 (A Delaware Corporation) 1616 Woodall Rodgers Freeway Dallas, Texas 75202-1234 (214) 777-1000 0-346 Central Power and Light Company 74-0550600 (A Texas Corporation) 539 North Carancahua Street Corpus Christi, Texas 78401-2802 (512) 881-5300 0-343 Public Service Company of Oklahoma 73-0410895 (An Oklahoma Corporation) 212 East 6th Street Tulsa, Oklahoma 74119-1212 (918) 599-2000 1-3146 Southwestern Electric Power Company 72-0323455 (A Delaware Corporation) 428 Travis Street Shreveport, Louisiana 71156-0001 (318) 222-2141 0-340 West Texas Utilities Company 75-0646790 (A Texas Corporation) 301 Cypress Street Abilene, Texas 79601-5820 (915) 674-7000 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Common Stock Outstanding at November 3, 1995 Shares Central and South West Corporation 192,397,599 Central Power and Light Company 6,755,535 Public Service Company of Oklahoma 9,013,000 Southwestern Electric Power Company 7,536,640 West Texas Utilities Company 5,488,560 This combined Form 10-Q is separately filed by Central and South West Corporation, Central Power and Light Company, Public Service Company of Oklahoma, Southwestern Electric Power Company and West Texas Utilities Company. Information contained herein relating to any individual Registrant is filed by such Registrant on its own behalf. Each other Registrant makes no representation as to information relating to the other Registrants. 2 CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES INDEX TO QUARTERLY REPORT ON FORM 10-Q SEPTEMBER 30, 1995 Page Number GLOSSARY OF TERMS 3-4 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. (Unaudited) Central and South West Corporation and Subsidiary Companies 5 Consolidated Statements of Income 6 Consolidated Balance Sheets 7-8 Consolidated Statements of Cash Flows 9 Results of Operations 10-13 Central Power and Light Company 14 Statements of Income 15 Balance Sheets 16-17 Statements of Cash Flows 18 Results of Operations 19-21 Public Service Company of Oklahoma 22 Consolidated Statements of Income 23 Consolidated Balance Sheets 24-25 Consolidated Statements of Cash Flows 26 Results of Operations 27-29 Southwestern Electric Power Company 30 Statements of Income 31 Balance Sheets 32-33 Statements of Cash Flows 34 Results of Operations 35-37 West Texas Utilities Company 38 Statements of Income 39 Balance Sheets 40-41 Statements of Cash Flows 42 Results of Operations 43-45 Index to Notes to Financial Statements 46 Notes to Financial Statements 47-54 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 55-57 PART II - OTHER INFORMATION Item 1. Legal Proceedings. 58-61 Item 2. Changes in Securities. Inapplicable Item 3. Defaults Upon Senior Securities. Inapplicable Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable Item 5. Other Information. 61-62 Item 6. Exhibits and Reports on Form 8-K. 63-64 Signatures. 65 3 GLOSSARY OF TERMS The following abbreviations or acronyms used in this text are defined below: Abbreviation or Acronym Definition AFUDC........................ Allowance for Equity and Borrowed Funds Used During Construction ALJ.......................... Administrative Law Judge ANI.......................... American Nuclear Insurance Burlington Northern.......... Burlington Northern Railroad Company Court of Appeals............. Court of Appeals, Third District of Texas, Austin, Texas CPL.......................... Central Power and Light Company, Corpus Christi, Texas CPL 1995 Agreement........... Settlement Agreement filed by CPL with the Texas Commission to settle certain CPL regulatory matters CSW.......................... Central and South West Corporation, Dallas, Texas CSW Credit................... CSW Credit, Inc., Dallas, Texas CSW International............ CSW International, Inc., Dallas, Texas, a wholly owned subsidiary of CSW CSW Suit..................... Suit filed by CSW against El Paso in the United States Bankruptcy Court in Austin, Texas CSW System................... Central and South West Corporation and subsidiaries CSW (UK)..................... CSW (UK) plc, a public limited company organized in the United Kingdom which is wholly owned, indirectly through subsidiaries, by CSW International CSW UK Investments........... CSW UK Investments, an unlimited company organized in the United Kingdom which is wholly owned, indirectly through subsidiaries, by CSW International CSWE......................... CSW Energy, Inc., Dallas, Texas CWIP......................... Construction work in progress Electric Operating Companies. CPL, PSO, SWEPCO and WTU El Paso...................... El Paso Electric Company El Paso Suit................. Suit filed by El Paso against CSW in state district court in El Paso, Texas EPA.......................... Environmental Protection Agency ERCOT........................ Electric Reliability Council of Texas FMB.......................... First Mortgage Bonds HLP.......................... Houston Lighting & Power Company, the project manager of STP Kwh.......................... Kilowatt-hour Merger....................... The proposed merger whereby El Paso would become a wholly owned subsidiary of CSW Merger Agreement............. Agreement and Plan of Merger between El Paso and CSW, dated as of May 8, 1993, as amended MDEQ......................... Mississippi Department of Environmental Quality MGP.......................... Manufactured gas plant or coal gasification plant Mirror CWIP.................. Mirror Construction Work in Progress Mississippi Power............ Mississippi Power Company Mmbtu........................ Million Btu (British thermal unit) Mw........................... Megawatt NEIL......................... Nuclear Electric Insurance Limited North West Water............. North West Water plc, a water utility company organized in the United Kingdom Norweb....................... NORWEB plc, a regional electric company organized in the United Kingdom NRC.......................... Nuclear Regulatory Commission Oklaunion.................... Oklaunion Power Station Unit No. 1 PCB.......................... Polychlorinated Biphenyl PCRB......................... Pollution Control Revenue Bonds PRP.......................... Potentially Responsible Party PSO.......................... Public Service Company of Oklahoma, Tulsa, Oklahoma PURA......................... Public Utility Regulatory Act of the State of Texas Registrants.................. CSW, CPL, PSO, SWEPCO and WTU Restructuring................ Restructuring undertaken by the CSW System in November 1993 RFP.......................... Rate Filing Package SEC.......................... Securities and Exchange Commission SEEBOARD..................... SEEBOARD plc, a regional electric company organized in the United Kingdom STP.......................... South Texas Project nuclear electric generating station SWEPCO....................... Southwestern Electric Power Company, Shreveport, Louisiana Texas Commission............. Public Utility Commission of Texas Texas Energy Partners........ A public limited company organized in the United Kingdom owned indirectly 50% by CSW and 50% by Houston Industries, Inc., through wholly owned subsidiaries 4 GLOSSARY OF TERMS (continued) The following abbreviations or acronyms used in this text are defined below: Abbreviation or Acronym Definition Transok...................... Transok, Inc. and subsidiaries, Tulsa, Oklahoma TSCA......................... Toxic Substance Control Act of 1976 Westinghouse................. Westinghouse Electric Corporation WTU.......................... West Texas Utilities Company, Abilene, Texas WTU Settlement and Agreement. Stipulation and Agreement to settle certain WTU regulatory matters 5 CSW CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. 6 CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 REVENUES (millions, except per share amounts) Electric $ 933 $ 951 $2,221 $2,409 Gas 139 110 409 398 Other diversified 15 1 36 25 1,087 1,073 2,666 2,832 OPERATING EXPENSES AND TAXES Fuel and purchased power 305 338 797 918 Gas purchased for resale 76 5 224 223 Gas extraction and marketing 28 2 80 69 Other operating 140 149 398 445 Charges for terminated Merger -- -- 42 -- Maintenance 36 3 114 125 Depreciation and amortization 94 8 280 265 Taxes, other than Federal income 54 5 140 153 Federal income taxes 87 8 64 150 820 834 2,139 2,348 OPERATING INCOME 267 239 527 484 OTHER INCOME AND DEDUCTIONS Mirror CWIP liability amortization 10 1 31 51 Other 11 1 45 25 21 2 76 76 INCOME BEFORE INTEREST CHARGES 288 266 603 560 INTEREST CHARGES Interest on long-term debt 60 5 172 164 Interest on short-term debt and other 25 2 77 52 85 7 249 216 NET INCOME 203 189 354 344 Preferred stock dividends 14 14 NET INCOME FOR COMMON STOCK $ 199 $ 184 $ 340 $ 330 AVERAGE COMMON SHARES OUTSTANDING 191.9 189.6 191.4 189.1 EARNINGS PER SHARE OF COMMON STOCK $ 1.04 $ 0.97 $ 1.78 $ 1.75 DIVIDENDS PAID PER SHARE OF COMMON STOCK $ 0.43 $ 0.425 $ 1.29 $ 1.275 The accompanying notes to consolidated financial statements as they relate to CSW are an integral part of these statements. 7 CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) ASSETS (Millions) PLANT Electric Utility Production $ 5,851 $ 5,802 Transmission 1,442 1,377 Distribution 2,641 2,539 General 807 764 Construction work in progress 441 412 Nuclear fuel 164 161 Total electric 11,346 11,055 Gas 840 798 Other diversified 17 15 12,203 11,868 Less - Accumulated depreciation 4,146 3,870 8,057 7,998 CURRENT ASSETS Cash and temporary cash investments 61 27 Accounts receivable 1,006 837 Materials and supplies, at average cost 169 162 Electric fuel inventory, substantially at average cost 133 118 Gas inventory/products for resale 28 23 Under-recovered fuel costs -- 54 Accumulated deferred income taxes 34 2 Prepayments and other 52 42 1,483 1,265 DEFERRED CHARGES AND OTHER ASSETS Deferred plant costs 515 516 Mirror CWIP asset 314 322 Other non-utility investments 328 394 Income tax related regulatory assets, net 278 216 Other 321 274 1,756 1,722 $ 11,296 $ 10,985 The accompanying notes to consolidated financial statements as they relate to CSW are an integral part of these statements. 8 CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) CAPITALIZATION AND LIABILITIES (Millions) CAPITALIZATION Common stock: $3.50 par value $ 673 $ 667 Authorized shares: 350.0 million Outstanding shares: September 30, 1995: 192.3 million December 31, 1994: 190.6 million Paid-in capital 597 561 Retained earnings 1,914 1,824 Total Common Stock Equity 3,184 3,052 Preferred stock Not subject to mandatory redemption 292 292 Subject to mandatory redemption 34 35 Long-term debt 3,001 2,940 TOTAL CAPITALIZATION 6,511 6,319 CURRENT LIABILITIES Long-term debt and preferred stock due within twelve months 32 7 Short-term debt 758 910 Short-term debt - CSW Credit, Inc. 786 573 Accounts payable 253 286 Accrued taxes 167 111 Accrued interest 70 61 Refund due customers 22 -- Over-recovered fuel costs 35 21 Other 124 138 2,247 2,107 DEFERRED CREDITS Income taxes 2,111 2,048 Investment tax credits 309 320 Mirror CWIP liability and other 118 191 2,538 2,559 $ 11,296 $ 10,985 The accompanying notes to consolidated financial statements as they relate to CSW are an integral part of these statements. 9 CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1995 1994 OPERATING ACTIVITIES (Millions) Net Income $ 354 $ 344 Non-cash Items Included in Net Income Depreciation and amortization 312 298 Deferred income taxes and investment tax credit (41) 49 Mirror CWIP liability amortization (31) (51) Charges for terminated Merger 42 -- Regulatory assets established for previously incurred Restructuring charges (34) -- Changes in Assets and Liabilities Accounts receivable (185) (57) Over- and under-recoveries of fuel 68 13 Accounts payable (24) (72) Accrued taxes 56 79 Refund due customers 22 -- Accrued restructuring charges (4) (28) Other (30) (45) 505 530 INVESTING ACTIVITIES Capital expenditures and acquisitions (339) (414) Non-affiliated accounts receivable collections (81) (124) CSWE projects 37 (25) Other (3) (10) (386) (573) FINANCING ACTIVITIES Common stock sold 42 35 Proceeds from issuance of long-term debt 337 147 Retirement of long-term debt (8) (2) Reacquisition of long-term debt (255) (14) Redemption of preferred stock -- (33) Change in short-term debt 61 137 Payment of dividends (262) (255) (85) 15 NET CHANGE IN CASH AND CASH EQUIVALENTS 34 (28) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 27 62 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61 $ 34 SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $ 225 $ 194 Income taxes paid $ 68 $ 40 The accompanying notes to consolidated financial statements as they relate to CSW are an integral part of these statements. 10 CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES Set forth below is information concerning the consolidated results of operations for CSW for the three and nine month periods ending September 30, 1995. For information concerning the results of operations for each of the Electric Operating Companies, see the discussions below under the heading RESULTS OF OPERATIONS following the financial statements of each of the Electric Operating Companies. RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased to $199 million for the third quarter of 1995 compared to $184 million for the third quarter of 1994. Earnings per share increased to $1.04 from $0.97. Third quarter 1995 earnings increased due to higher non-fuel electric revenues and lower operating and maintenance expenses. Partially offsetting these factors were lower Mirror CWIP earnings, higher interest expense and higher depreciation and amortization expense. Operating Revenues. Operating revenues increased 1% to $1,087 million in the third quarter of 1995 from $1,073 million in the third quarter of 1994. This increase reflects higher gas revenues and non-fuel electric revenues offset partially by decreased electric fuel revenues. Gas revenues increased $29 million or 26% to $139 million due to higher gas sales volumes which was offset in part by lower gas prices. Electric revenues decreased 2% or $18 million as compared to the third quarter of 1994 primarily as a result of recording a $21 million reserve for a base rate refund pursuant to the WTU Settlement and Agreement in addition to the lower fuel revenues that resulted from the lower average unit fuel costs as discussed below. These decreases were partially offset by higher non-fuel revenues resulting from higher sales. Total retail Kwh sales increased 3.7% in the third quarter of 1995 as compared to the third quarter of 1994. Residential, commercial and industrial sales increased 6.7%, 3.4% and 1.0%, respectively. Increased usage, primarily by residential customers, contributed to the Kwh sales growth. Fuel and Purchased Power. Fuel and purchased power expense decreased 10% to $305 million in the third quarter of 1995 from $338 million in the third quarter of 1994, due primarily to a $30 million reduction in fuel expense. Fuel expense was lower due primarily to a decrease in the average unit cost of fuel to $1.51 per Mmbtu in the third quarter of 1995 from $1.74 per Mmbtu in the third quarter of 1994, reflecting lower gas, lignite and coal prices. Gas Purchased for Resale. Gas purchased for resale increased 43% to $76 million in the third quarter of 1995 from $53 million in the third quarter of 1994 due to an increase in gas sales volumes which was partially offset by a decrease in the average cost of gas. Other Operating. Other operating expense decreased 6% to $140 million during the third quarter of 1995 from $149 million during the third quarter of 1994. This decrease was due primarily to the recognition of a regulatory asset established in accordance with the WTU Settlement and Agreement for previously recorded charges incurred during the Restructuring, partially offset by higher transmission expenses at the Electric Operating Companies as a result of a new transmission facility. Maintenance. Maintenance decreased 8% to $36 million in the third quarter of 1995 from $39 million in the third quarter of 1994. This decrease was due primarily to lower levels of maintenance 11 CSW RESULTS OF OPERATIONS (continued) COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994 (continued) resulting from the postponement of previously scheduled plant maintenance in the third quarter of 1995 and storm damage that occurred in the third quarter of 1994. Depreciation and Amortization. Depreciation and amortization increased 6% from $89 million in the third quarter of 1994 to $94 million in the third quarter of 1995 due primarily to increases in all classes of depreciable plant. Other Income and Deductions. Mirror CWIP liability amortization decreased 41% to $10 million in the third quarter of 1995 from $17 million in the third quarter of 1994. In accordance with the original liability amortization schedule agreed upon in the settlement of its rate cases in 1990 and 1991, CPL is amortizing its Mirror CWIP liability in declining amounts over the years 1991 through 1995. Interest on Long-Term Debt. Interest on long-term debt increased $4 million or 7% during the third quarter of 1995 as compared to the third quarter of 1994 due to higher levels of long-term debt outstanding. Interest on Short-Term Debt and Other. Interest on short- term debt and other increased $4 million or 19% during the third quarter of 1995 as compared to the third quarter of 1994 due to higher levels of short-term borrowings and higher short-term interest rates. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased 3% to $340 million during the first nine months of 1995 from $330 million during the first nine months of 1994. Earnings per share increased to $1.78 from $1.75, reflecting higher electric non-fuel revenues due to greater customer usage and an increase in customers. Also contributing to increased earnings were lower operating and maintenance expenses and prior year tax adjustments. Partially offsetting these factors were the establishment of a $42 million reserve for deferred merger and acquisition costs associated with CSW's termination of the El Paso Merger in June 1995, lower earnings from Mirror CWIP, increased interest expense and the impact of the CPL 1995 Agreement. See NOTE 2. Litigation and Regulatory Proceedings for information related to the CPL 1995 Agreement. Operating Revenues. Operating revenues decreased 6% to $2,666 million during the nine months ended September 30, 1995 from $2,832 million during the nine months ended September 30, 1994. This decrease reflects a $62 million disallowance of fuel under-recovery and a $50 million base rate refund recorded in the first quarter of 1995 as a result of the CPL 1995 Agreement, as well as a $21 million reserve for a base rate refund as a result of the WTU Settlement and Agreement. In addition, fuel revenues were lower in the first nine months of 1995 as compared to the first nine months of 1994 due to lower average unit fuel costs as discussed below. These decreases were offset in part by increased non-fuel revenues resulting from a 2.9% increase in total retail Kwh sales in the first nine months of 1995 as compared to the first nine months of 1994. Residential, commercial and industrial sales increased 3.6%, 2.6% and 2.6%, respectively, during the nine months ended September 30, 1995, due to increased usage and residential and commercial customer growth. Gas revenues increased 3% to $409 million during the first nine months of 1995 from $398 million during the first nine months of 1994. This increase was due to increased gas sales volumes, transportation volumes and other gas revenues, partially offset by lower gas 12 CSW RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (continued) prices. Other diversified revenues increased $11 million or 44% to $36 million for the first nine months of 1995 from $25 million for the first nine months of 1994 due primarily to two CSWE projects that went into operation during the second and third quarter of 1994 and increased factoring revenues at CSW Credit. Fuel and Purchased Power. Fuel and purchased power expense decreased 13% to $797 million during the nine months ended September 30, 1995 from $918 million during the nine months ended September 30, 1994, due primarily to a $110 million reduction in fuel expense. Fuel expense was lower due primarily to a decrease in the average unit cost of fuel to $1.57 per Mmbtu in the first nine months of 1995 from $1.86 per Mmbtu in the first nine months of 1994, reflecting lower gas and lignite prices and increased use of less costly nuclear fuel. Gas Extraction and Marketing. Gas extraction and marketing expenses increased $11 million or 16% to $80 million during the nine months ended September 30, 1995 as compared to the comparable period in 1994. The increase was due to higher natural gas liquids sales volumes. Other Operating. Other operating expense decreased 11% to $398 million during the nine months ended September 30, 1995 from $445 million during the nine months ended September 30, 1994. This decrease was primarily due to the recognition of $34 million in regulatory assets established in accordance with the CPL 1995 Agreement and the WTU Settlement and Agreement for previously recorded charges incurred during the Restructuring. Charges for Terminated Merger. CSW recorded a $42 million charge for the establishment of a reserve for deferred merger and acquisition costs as a result of CSW's termination of the Merger in June 1995. See Part II - Other Information - Item 1. for information related to the termination of the Merger and litigation arising in connection therewith. Maintenance. Maintenance decreased 9% to $114 million during the nine months ended September 30, 1995 from $125 million during the nine months ended September 30, 1994. This decrease was due primarily to storm damage experienced in 1994 and nuclear maintenance incurred in 1994 while STP was out of service. Depreciation and Amortization. Depreciation and amortization increased 6% from $265 million to $280 million due primarily to increases in all classes of depreciable plant. Taxes, Other than Federal Income. Taxes, other than Federal income decreased 8% to $140 million during the nine months ended September 30, 1995 from $153 million during the nine months ended September 30, 1994. This decrease was due primarily to lower ad valorem tax expense as a result of a true-up of prior year estimates. Federal Income Taxes. Federal income taxes decreased $86 million during the first nine months of 1995 compared to the first nine months of 1994. This decrease was due to a $34 million reduction of deferred Federal income taxes resulting from the CPL 1995 Agreement, a $23 million reduction of deferred Federal income taxes due to prior year tax adjustments at the Electric Operating Companies, a $7 million reduction of deferred Federal income taxes resulting from the WTU Settlement and Agreement and lower 13 CSW RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (continued) pre-tax income. See NOTE 6. Federal Income Taxes for additional information related to the tax adjustments. Other Income and Deductions. Mirror CWIP liability amortization decreased 39% to $31 million during the nine months ended September 30, 1995 from $51 million during the nine months ended September 30, 1994. In accordance with the original liability amortization schedule agreed upon in the settlement of its rate cases in 1990 and 1991, CPL is amortizing its Mirror CWIP liability in declining amounts over the years 1991 through 1995. Other income increased $20 million to $45 million during the nine months ended September 30, 1995 from $25 million during the nine months ended September 30, 1994. This increase was due primarily to $10 million of previously deferred factoring income pursuant to the CPL 1995 Agreement, increased interest income of $5 million as well as a $3 million pre-tax gain on PSO's sale of non-utility fiber optic telecommunication property during the first quarter of 1995. Interest on Long-Term Debt. Interest on long-term debt increased $8 million or 5% as a result of higher levels of long- term debt outstanding. Interest on Short-Term Debt and Other. Interest on short- term debt and other increased $25 million to $77 million in the first nine months of 1995 from $52 million during the first nine months of 1994. This increase reflects higher levels of short- term borrowing and higher short-term interest rates. 14 CPL CENTRAL POWER AND LIGHT COMPANY PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. 15 CENTRAL POWER AND LIGHT COMPANY STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (Thousands) ELECTRIC OPERATING REVENUES $358,790 $364,044 $810,597 $960,442 OPERATING EXPENSES AND TAXES Fuel 87,606 94,015 223,670 260,091 Purchased power 4,409 9,834 11,436 39,682 Other operating 52,578 58,510 133,567 168,191 Maintenance 12,842 15,050 44,744 52,778 Depreciation and amortization 37,552 35,455 111,924 104,695 Taxes, other than Federal income 20,426 18,811 50,423 60,128 Federal income taxes 39,295 36,307 3,677 66,802 254,708 267,982 579,441 752,367 OPERATING INCOME 104,082 96,062 231,156 208,075 OTHER INCOME AND DEDUCTIONS Mirror CWIP liability amortization 10,250 17,000 30,750 51,000 Allowance for equity funds used during construction 630 492 515 468 Other 2,199 (40) 12,773 1,350 13,079 17,452 44,038 52,818 INCOME BEFORE INTEREST CHARGES 117,161 113,514 275,194 260,893 INTEREST CHARGES Interest on long-term debt 32,082 28,567 89,176 83,199 Interest on short-term debt and other 3,991 2,830 15,340 9,218 Allowance for borrowed funds used during construction (1,150) (760) (3,566) (1,857) 34,923 30,637 100,950 90,560 NET INCOME 82,238 82,877 174,244 170,333 Preferred stock dividends 3,535 3,385 10,899 10,484 NET INCOME FOR COMMON STOCK $ 78,703 $ 79,492 $163,345 $159,849 The accompanying notes to financial statements as they relate to CPL are an integral part of these statements. 16 CENTRAL POWER AND LIGHT COMPANY BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) ASSETS (Thousands) ELECTRIC UTILITY PLANT Production $ 3,090,843 $ 3,070,005 Transmission 457,729 451,050 Distribution 854,724 828,350 General 219,695 216,888 Construction work in progress 192,372 142,724 Nuclear fuel 164,176 161,152 4,979,539 4,870,169 Less - Accumulated depreciation and amortization 1,509,089 1,400,343 3,470,450 3,469,826 CURRENT ASSETS Cash 1,469 642 Special deposits 824 668 Accounts receivable 46,679 29,865 Materials and supplies, at average cost 68,709 66,209 Fuel inventory, at average cost 22,301 22,916 Accumulated deferred income taxes 16,743 -- Under-recovered fuel costs -- 54,126 Prepayments and other 5,070 2,316 161,795 176,742 DEFERRED CHARGES AND OTHER ASSETS Deferred STP costs 488,314 488,987 Mirror CWIP asset 314,309 321,825 Income tax related regulatory assets, net 348,669 288,444 Other 95,763 76,875 1,247,055 1,176,131 $ 4,879,300 $ 4,822,699 The accompanying notes to financial statements as they relate to CPL are an integral part of these statements. 17 CENTRAL POWER AND LIGHT COMPANY BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) CAPITALIZATION AND LIABILITIES (Thousands) CAPITALIZATION Common stock: $25 par value $ 168,888 $ 168,888 Authorized shares: 12,000,000 Issued and Outstanding shares: 6,755,535 Paid-in capital 405,000 405,000 Retained earnings 885,811 857,466 Total Common Stock Equity 1,459,699 1,431,354 Preferred stock 250,351 250,351 Long-term debt 1,517,887 1,466,393 TOTAL CAPITALIZATION 3,227,937 3,148,098 CURRENT LIABILITIES Long-term debt due within twelve months 526 723 Advances from affiliates 144,614 161,320 Accounts payable 56,544 75,051 Accrued taxes 70,698 59,386 Accumulated deferred income taxes -- 13,812 Accrued interest 38,351 24,681 Over-recovered fuel costs 7,067 -- Other 21,812 31,476 339,612 366,449 DEFERRED CREDITS Accumulated deferred income taxes 1,141,361 1,087,317 Investment tax credits 154,191 158,533 Mirror CWIP liability and other 16,199 62,302 1,311,751 1,308,152 $ 4,879,300 $ 4,822,699 The accompanying notes to financial statements as they relate to CPL are an integral part of these statements. 18 CENTRAL POWER AND LIGHT COMPANY STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1995 1994 OPERATING ACTIVITIES (Thousands) Net Income $ 174,244 $ 170,333 Non-cash Items Included in Net Income Depreciation and amortization 129,827 124,829 Deferred income taxes and investment tax credits (41,244) 28,370 Mirror CWIP liability amortization (30,750) (51,000) Regulatory asset established for previously incurred Restructuring charges (20,652) -- Allowance for equity funds used during construction (515) (468) Changes in Assets and Liabilities Accounts receivable (16,814) 14,769 Fuel inventory 615 (7,410) Accounts payable (18,507) (13,712) Accrued taxes 11,312 34,297 Over- and under-recovered fuel costs 61,193 (21,857) Accrued restructuring charges (2,451) (8,637) Other (11,028) (2,563) 235,230 266,951 INVESTING ACTIVITIES Construction expenditures (112,868) (121,636) Allowance for borrowed funds used during construction (3,566) (1,857) (116,434) (123,493) FINANCING ACTIVITIES Proceeds from issuance of long-term debt 297,851 99,190 Reacquisition of long-term debt (253,278) (618) Retirement of long-term debt -- (459) Retirement of preferred stock -- (27,021) Change in advances from affiliates (16,706) (140,862) Payment of dividends (145,836) (75,620) (117,969) (145,390) NET CHANGE IN CASH AND CASH EQUIVALENTS 827 (1,932) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 642 2,435 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,469 $ 503 SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $ 81,377 $ 71,543 Income taxes paid $ 25,280 $ 2,547 The accompanying notes to financial statements as they relate to CPL are an integral part of these statements. 19 CENTRAL POWER AND LIGHT COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock decreased to $78.7 million during the third quarter of 1995 from $79.5 million in the third quarter of 1994. The decrease was due primarily to reduced Mirror CWIP liability amortization and higher interest expense partially offset by decreased operating expenses and increased non-fuel revenues. Electric Operating Revenues. Total revenues decreased to $358.8 million during the third quarter of 1995 from $364.0 million during the third quarter of 1994 due primarily to a $13.6 million reduction in fuel revenue resulting from the lower average unit fuel costs and purchased power as discussed below. Partially offsetting the decrease in fuel revenue was an $8.7 million increase in non-fuel revenue resulting from a 4% increase in retail Kwh sales and a 28% increase in lower margin sales for resale. The increase in Kwh sales was attributable to increased usage per customer as well as customer growth. Fuel. Fuel expense decreased 7% to $87.6 million during the third quarter of 1995 from $94.0 million during the third quarter of 1994. The decrease in fuel expense was due primarily to a 22% decrease in the average unit cost of fuel from $1.67 per Mmbtu in the third quarter of 1994 to $1.31 per Mmbtu in the third quarter of 1995. The decrease in the average unit cost of fuel resulted from the expiration of higher priced gas contracts that were replaced with lower cost spot market natural gas and the renegotiation of a coal contract. The decrease in the cost of fuel was partially offset by a 14% increase in generation. Purchased Power. Purchased power decreased $5.4 million during the third quarter of 1995 as compared to the third quarter of 1994 due primarily to an unscheduled outage at a fossil-fueled generating plant during the third quarter of 1994. Other Operating. Other operating expense decreased $5.9 million, or 10%, during the third quarter of 1995 as compared to the third quarter of 1994. This decrease was due primarily to lower insurance costs and decreased employee related benefits, partially offset by higher transmission expenses resulting from a new transmission facility. Maintenance. Maintenance expense decreased $2.2 million, or 15%, during the third quarter of 1995 as compared to the third quarter of 1994 due primarily to decreased production and distribution maintenance expense as a result of the postponement of previously scheduled plant maintenance and a change in capitalization policy. Depreciation and Amortization. Depreciation and amortization increased $2.1 million, or 6%, during the third quarter of 1995 as compared to the third quarter of 1994 as a result of an increase in depreciable property and the amortization of regulatory assets associated with the CPL 1995 Agreement. Taxes, Other than Federal Income. Taxes, other than Federal income increased $1.6 million, or 9%, in the third quarter of 1995 as compared to the third quarter of 1994 due primarily to a state franchise tax refund in 1994 partially offset by lower ad valorem taxes in 1995. Federal Income Taxes. Federal income taxes increased $3.0 million, or 8%, in the third quarter of 1995 as compared to the third quarter of 1994 due primarily to an increase in pre-tax income. 20 CPL RESULTS OF OPERATIONS (continued) COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994 (continued) Other Income and Deductions. Mirror CWIP liability amortization decreased $6.8 million in the third quarter of 1995 as compared to the third quarter of 1994. In accordance with the original liability amortization schedule agreed upon in the settlement of its rate cases in 1990 and 1991, CPL is amortizing its Mirror CWIP liability in declining amounts over the years 1991 through 1995. Other income was higher in the third quarter of 1995 when compared to the third quarter of 1994 due primarily to the recognition of factoring income pursuant to the CPL 1995 Agreement. Interest Charges. Interest on long-term debt increased $3.5 million in the third quarter of 1995 as compared to the third quarter of 1994 as a result of increased long-term debt outstanding. Interest on short-term debt and other increased $1.2 million in the third quarter of 1995 as compared to the third quarter of 1994 as a result of higher levels of short-term debt outstanding at higher interest rates. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased 2% to $163.3 million during the first nine months of 1995 from $159.8 million in the first nine months of 1994 due primarily to increased non-fuel revenue, decreased maintenance and prior year tax adjustments. The increase was partially offset by decreased Mirror CWIP liability amortization and higher depreciation and interest expense as well as the effects of the CPL 1995 Agreement. See NOTE 2. Litigation and Regulatory Proceedings for additional information related to the CPL 1995 Agreement. Electric Operating Revenues. Total revenues decreased $149.8 million, or 16%, during the first nine months of 1995 as compared to the first nine months of 1994 due primarily to a $50.0 million base rate refund and a $62.3 million disallowance of under-recovered fuel costs resulting from the CPL 1995 Agreement. Under the CPL 1995 Agreement, CPL provided customers a one-time base rate refund of $50.0 million. Furthermore, CPL did not charge customers for $62.3 million in replacement power costs associated with the STP outage. Also contributing to the decrease in revenue was a $67.0 million decrease in fuel revenue resulting from the lower average unit fuel costs and purchased power as discussed below. Partially offsetting the decrease in fuel revenue was a $29.4 million increase in non-fuel revenue resulting from a 7% increase in Kwh sales. The increase in sales was attributable to increased usage per customer, customer growth and a new contract with an existing wholesale customer. Fuel. Fuel expense decreased $36.4 million, or 14%, during the first nine months of 1995 as compared to the first nine months of 1994. The decrease in fuel expense was due primarily to a 28% decrease in the average unit cost of fuel from $1.88 per Mmbtu for the first nine months of 1994 to $1.35 per Mmbtu for the first nine months of 1995. The decrease in the average unit cost of fuel resulted from the expiration of higher priced gas contracts that were replaced with lower cost spot market natural gas, the renegotiation of a coal contract and increased usage of lower unit cost nuclear fuel. The decrease in the cost of fuel was partially offset by an 18% increase in generation. Purchased Power. Purchased power decreased $28.2 million during the first nine months of 1995 as compared to the first nine months of 1994 due to increased generation at STP, which replaced power 21 CPL RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (continued) that had been purchased during the first half of 1994 when STP was out of service and an unscheduled outage at a fossil-fueled generating plant during the third quarter of 1994. Other Operating. Other operating expense decreased $34.6 million, or 21%, during the first nine months of 1995 as compared to the first nine months of 1994. The decrease was due primarily to the recognition of a $20.7 million regulatory asset established in accordance with the CPL 1995 Agreement for previously recorded charges incurred during the Restructuring and the reversal of $4.3 million in rate case costs pursuant to the agreement. Also contributing to the decrease was a reduction in employee related costs. Maintenance. Maintenance expense decreased $8.0 million, or 15%, during the first nine months of 1995 as compared to the first nine months of 1994 due primarily to lower nuclear maintenance expenses than were incurred during 1994 while STP was out of service and the postponement of previously scheduled plant maintenance. Distribution maintenance also decreased due to a change in capitalization policy. Depreciation and Amortization. Depreciation and amortization increased $7.2 million, or 7%, during the first nine months of 1995 as compared to first nine months of 1994 as a result of increased depreciable property and the amortization of regulatory assets associated with the CPL 1995 Agreement. Taxes, Other than Federal Income. Taxes, other than Federal income decreased $9.7 million during the first nine months of 1995 as compared to the first nine months of 1994 due primarily to lower ad valorem tax expense resulting from a true-up of prior year estimates. Federal Income Taxes. Federal income taxes decreased $63.1 million in the first nine months of 1995 as compared to the first nine months of 1994 due primarily to the reduction of $34.3 million of deferred income taxes in accordance with the CPL 1995 Agreement, prior year tax adjustments and lower pre-tax income. See NOTE 6. Federal Income Taxes for additional information related to the tax adjustments. Other Income and Deductions. Mirror CWIP liability amortization decreased $20.3 million during the first nine months of 1995 as compared to the first nine months of 1994. In accordance with the original liability amortization schedule agreed upon in the settlement of its rate cases in 1990 and 1991, CPL is amortizing its Mirror CWIP liability in declining amounts over the years 1991 through 1995. Other income was higher in the first nine months of 1995 when compared to 1994 due primarily to the recognition of factoring income pursuant to the CPL 1995 Agreement. Interest Charges. Interest on long-term debt increased $6.0 million during the first nine months of 1995 as compared to the first nine months of 1994 as a result of increased long-term debt outstanding. Interest on short-term debt and other increased $6.1 million during the first nine months of 1995 when compared to the first nine months of 1994 as a result of higher levels of short-term debt outstanding at higher interest rates and the recognition of interest expense associated with over-recovered fuel. 22 PSO PUBLIC SERVICE COMPANY OF OKLAHOMA PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. 23 PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (Thousands) ELECTRIC OPERATING REVENUES $232,156 $246,378 $542,215 $578,517 OPERATING EXPENSES AND TAXES Fuel 76,434 105,258 209,895 246,805 Purchased power 6,220 5,256 16,614 28,093 Other operating 28,241 32,881 86,201 92,696 Maintenance 8,716 10,275 23,778 27,719 Depreciation and amortization 16,916 15,679 49,981 46,686 Taxes, other than Federal income 10,549 10,384 24,322 24,971 Federal income taxes 26,556 19,449 31,682 28,115 173,632 199,182 442,473 495,085 OPERATING INCOME 58,524 47,196 99,742 83,432 OTHER INCOME AND DEDUCTIONS Allowance for equity funds used during construction 641 151 1,180 390 Other (853) 411 2,363 519 (212) 562 3,543 909 INCOME BEFORE INTEREST CHARGES 58,312 47,758 103,285 84,341 INTEREST CHARGES Interest on long-term debt 7,398 7,399 22,196 22,196 Interest on short-term debt and other 1,352 759 4,888 2,972 Allowance for borrowed funds used during construction (1,120) (403) (2,442) (1,063) 7,630 7,755 24,642 24,105 NET INCOME 50,682 40,003 78,643 60,236 Preferred stock dividends 204 204 612 612 NET INCOME FOR COMMON STOCK $ 50,478 $ 39,799 $ 78,031 $ 59,624 The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. 24 PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) ASSETS (Thousands) ELECTRIC UTILITY PLANT Production $ 925,006 $ 902,602 Transmission 358,514 346,433 Distribution 699,033 668,346 General 162,067 150,898 Construction work in progress 84,045 96,133 2,228,665 2,164,412 Less - Accumulated depreciation and amortization 909,731 859,894 1,318,934 1,304,518 CURRENT ASSETS Cash 3,097 5,453 Accounts receivable 18,864 21,531 Materials and supplies, at average cost 41,713 39,888 Fuel inventory, at LIFO cost 26,464 17,820 Accumulated deferred income taxes 7,125 6,670 Prepayments and other 1,865 7,889 99,128 99,251 DEFERRED CHARGES AND OTHER ASSETS 57,687 61,345 $1,475,749 $1,465,114 The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. 25 PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) CAPITALIZATION AND LIABILITIES (Thousands) CAPITALIZATION Common stock: $15 Par value $ 157,230 $ 157,230 Authorized shares: 11,000,000 Issued shares: 10,482,000 Outstanding shares: 9,013,000 Paid-in capital 180,000 180,000 Retained earnings 162,300 124,269 Total Common Stock Equity 499,530 461,499 Preferred stock 19,826 19,826 Long-term debt 378,876 402,752 TOTAL CAPITALIZATION 898,232 884,077 CURRENT LIABILITIES Long-term debt due within twelve months 25,000 -- Advances from affiliates 43,308 55,160 Payables to affiliates 17,613 27,876 Accounts payable 31,616 59,899 Payables to customers 24,289 22,655 Accrued taxes 40,054 17,356 Accrued interest 10,618 8,867 Other 16,732 15,157 209,230 206,970 DEFERRED CREDITS Accumulated deferred income taxes 283,028 281,139 Investment tax credits 46,919 49,011 Income tax related regulatory liabilities, net 16,685 18,611 Other 21,655 25,306 368,287 374,067 $1,475,749 $1,465,114 The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. 26 PUBLIC SERVICE COMPANY OF OKLAHOMA CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1995 1994 OPERATING ACTIVITIES (Thousands) Net Income $ 78,643 $ 60,236 Non-cash Items Included in Net Income Depreciation and amortization 54,256 50,471 Deferred income taxes and investment tax credits (2,584) 1,637 Allowance for equity funds used during construction (1,180) (390) Changes in Assets and Liabilities Accounts receivable 2,667 15,613 Fuel inventory (8,644) 8,328 Prepayments and other 6,024 (9,997) Accounts payable (27,936) 4,812 Accrued taxes 22,698 24,238 Accrued restructuring charges (727) (6,449) Other 5,300 (7,512) 128,517 140,987 INVESTING ACTIVITIES Construction expenditures (70,942) (86,360) Allowance for borrowed funds used during construction (2,442) (1,063) Other (5,024) (1,397) (78,408) (88,820) FINANCING ACTIVITIES Changes in advances from affiliates (11,852) (21,389) Payment of dividends (40,613) (27,612) (52,465) (49,001) NET CHANGE IN CASH AND CASH EQUIVALENTS (2,356) 3,166 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,453 2,429 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,097 $ 5,595 SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $ 21,393 $ 17,906 Income taxes paid $ 20,949 $ 10,106 The accompanying notes to consolidated financial statements as they relate to PSO are an integral part of these statements. 27 PUBLIC SERVICE COMPANY OF OKLAHOMA RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased 27% to $50.5 million during the third quarter of 1995 from $39.8 million during the third quarter of 1994. The increase resulted primarily from an increase in non-fuel revenue and a reduction in operating and maintenance expenses. Electric Operating Revenues. Electric operating revenues decreased 6% to $232.2 million during the third quarter of 1995 from $246.4 million during the third quarter of 1994. The decreased revenues were due primarily to a $23.5 million reduction in fuel revenues resulting from lower average unit fuel costs as discussed below, offset in part by a 3% increase in retail Kwh sales attributable to increased weather-related demand and customer growth. Fuel. Fuel expense decreased 27% to $76.4 million during the third quarter of 1995 as compared to $105.3 million during the third quarter of 1994. This decrease was due primarily to a reduction in previously over-recovered fuel costs, as well as a reduction in average unit fuel costs from $1.88 per Mmbtu in 1994 to $1.70 per Mmbtu in 1995. The decrease in average unit fuel costs was primarily attributable to a reduction in the spot market price of natural gas. Purchased Power. Purchased power increased 18% to $6.2 million during the third quarter of 1995 from $5.3 million during the third period of 1994 due primarily to increased purchases of economy energy. Other Operating Expenses. Other operating expenses decreased 14% to $28.2 million during the third quarter of 1995 from $32.9 million in the third quarter of 1994. The decrease was due primarily to the accrual of additional expenses in the third quarter of 1994 related to the estimated costs of the Restructuring and decreased employee related expenses in the third quarter of 1995. Maintenance Expenses. Maintenance expenses decreased 15% to $8.7 million during the third quarter of 1995 from $10.3 million in the third quarter of 1994 due primarily to overhead line maintenance activities required as a result of storms occurring during the third quarter of 1994. Depreciation and Amortization. Depreciation and amortization expenses increased 8% to $16.9 million during the third quarter of 1995 from $15.7 million in the third quarter of 1994 due primarily to increases in depreciable plant. Federal Income Taxes. Federal income taxes increased 37% to $26.6 million during the third quarter of 1995 from $19.4 million as compared to the third quarter of 1994 primarily as a result of higher pre-tax income. Other Income and Deductions - Other. Other income and deductions - other decreased $1.3 million during the third quarter of 1995 as compared to the third quarter of 1994 primarily as a result of an adjustment to reallocate parent company tax benefits. See NOTE 6. Federal Income Taxes for additional information related to this tax adjustment. 28 PSO RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased 31% to $78.0 million for the nine months ended September 30, 1995 from $59.6 million for the nine months ended September 30, 1994. The increase resulted primarily from an increase in non-fuel revenue, a sale of non-utility fiber optic telecommunication property during the first quarter of 1995, decreased operating and maintenance expenses and prior year tax adjustments. Electric Operating Revenues. Electric operating revenues decreased 6% to $542.2 million during the first nine months of 1995 from $578.5 million during the first nine months of 1994 due primarily to a $46.3 million reduction in fuel revenues resulting from lower average unit fuel costs as discussed below offset in part by an increase in non-fuel revenue. Fuel. Fuel expense decreased approximately 15% to $209.9 million during the first nine months of 1995 as compared to $246.8 million in the same period of 1994. This decrease was due primarily to a reduction in the over-recovery of fuel costs, as well as a reduction in average fuel costs from $1.91 per Mmbtu in 1994 to $1.76 per Mmbtu in 1995. The decrease in average fuel costs was attributable to the settlement of certain coal transportation litigation and a reduction in the spot market price of natural gas. Such decreases were partially offset by a 4% increase in Kwh generation and the reversal in 1994 of prior year accruals for potential liabilities related to coal transportation. See Part II - OTHER INFORMATION - Item 1. Legal Proceedings for additional information related to pending coal transportation litigation. Purchased Power. Purchased power decreased 41% to $16.6 million during the first nine months of 1995 from $28.1 million as compared to the same period of 1994 due primarily to decreased purchases of economy energy. Other Operating Expenses. Other operating expenses decreased 7% to $86.2 million for the first nine months of 1995 from $92.7 million for the same period of 1994. The decrease was due primarily to the accrual of additional expenses in 1994 related to the estimated costs of the Restructuring and decreased employee related expenses in the first nine months of 1995. Maintenance Expenses. Maintenance expenses decreased 14% to $23.8 million for the nine months ended September 30, 1995 from $27.7 million for the same period of 1994. Maintenance expenses were higher in the third quarter of 1994 than 1995 due primarily to overhead line maintenance activities required as a result of storms occurring during the third quarter of 1994. Depreciation and Amortization. Depreciation and amortization expense increased 7% to $50.0 million during the first nine months of 1995 from $46.7 million in the first nine months of 1994 due primarily to increases in depreciable plant. Federal Income Taxes. Federal income taxes increased 13% to $31.7 million during the first nine months of 1995 from $28.1 million during the same period of 1994 primarily as a result of higher pre-tax income, offset in part by prior year tax adjustments. See NOTE 6. Federal Income Taxes for additional information related to the tax adjustments. 29 PSO RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (continued) Other Income and Deductions - Other. Other income and deductions - other increased $1.8 million during the first nine months of 1995 as compared to the same period of 1994 primarily as a result of a $2.7 million pre-tax gain on the sale of non- utility fiber optic telecommunication property during the first quarter of 1995, offset in part by an adjustment to reallocate parent company tax benefits. See NOTE 6. Federal Income Taxes for additional information related to this tax adjustment. Interest on Short-term Debt and Other. Short-term debt and other increased $1.9 million during the first nine months of 1995 as compared to the same period of 1994 due primarily to higher levels of short-term debt outstanding at higher short-term interest rates. 30 SWEPCO SOUTHWESTERN ELECTRIC POWER COMPANY PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. 31 SOUTHWESTERN ELECTRIC POWER COMPANY STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (Thousands) ELECTRIC OPERATING REVENUES $266,268 $245,331 $648,468 $647,386 OPERATING EXPENSES AND TAXES Fuel 101,811 93,229 243,655 267,732 Purchased power 4,074 6,893 13,806 15,502 Other operating 32,533 29,431 90,482 86,724 Maintenance 10,849 9,846 31,665 29,777 Depreciation and amortization 20,853 20,077 61,496 59,717 Taxes, other than Federal income 13,676 13,265 36,748 38,969 Federal income taxes 22,592 19,286 35,271 34,022 206,388 192,027 513,123 532,443 OPERATING INCOME 59,880 53,304 135,345 114,943 OTHER INCOME AND DEDUCTIONS Allowance for equity funds used during construction 1,430 789 3,535 2,193 Other (1,056) 510 396 1,877 374 1,299 3,931 4,070 INCOME BEFORE INTEREST CHARGES 60,254 54,603 139,276 119,013 INTEREST CHARGES Interest on long-term debt 10,986 10,978 33,423 32,691 Interest on short-term debt and other 2,235 2,234 7,919 5,368 Allowance for borrowed funds used during construction (1,440) (463) (4,134) (1,288) 11,781 12,749 37,208 36,771 NET INCOME 48,473 41,854 102,068 82,242 Preferred stock dividends 854 840 2,472 2,521 NET INCOME FOR COMMON STOCK $ 47,619 $ 41,014 $ 99,596 $ 79,721 The accompanying notes to financial statements as they relate to SWEPCO are an integral part of these statements. 32 SOUTHWESTERN ELECTRIC POWER COMPANY BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) ASSETS (Thousands) ELECTRIC UTILITY PLANT Production $1,407,422 $1,401,418 Transmission 430,002 385,113 Distribution 769,103 733,707 General 229,729 213,563 Construction work in progress 131,252 149,508 2,967,508 2,883,309 Less - Accumulated depreciation and amortization 1,090,374 1,026,751 1,877,134 1,856,558 CURRENT ASSETS Cash 446 1,296 Accounts receivable 44,915 54,344 Materials and supplies, at average cost 29,408 28,109 Fuel inventory, at average cost 65,822 61,701 Accumulated deferred income taxes 5,196 6,592 Prepayments and other 17,163 13,071 162,950 165,113 DEFERRED CHARGES AND OTHER ASSETS 57,471 57,536 $2,097,555 $2,079,207 The accompanying notes to financial statements as they relate to SWEPCO are an integral part of these statements. 33 SOUTHWESTERN ELECTRIC POWER COMPANY BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) CAPITALIZATION AND LIABILITIES (Thousands) CAPITALIZATION Common stock: $18 par value $ 135,660 $ 135,660 Authorized shares: 7,600,000 Issued and Outstanding shares: 7,536,640 Paid-in capital 245,000 245,000 Retained earnings 324,059 297,462 Total Common Stock Equity 704,719 678,122 Preferred stock Not subject to mandatory redemption 16,032 16,032 Subject to mandatory redemption 33,578 34,828 Long-term debt 594,650 595,833 TOTAL CAPITALIZATION 1,348,979 1,324,815 CURRENT LIABILITIES Long-term debt and preferred stock due within twelve months 6,300 5,270 Advances from affiliates 63,065 81,868 Accounts payable 42,360 50,138 Over-recovered fuel cost 10,516 12,200 Customer deposits 11,263 13,075 Accrued taxes 46,790 12,495 Accrued interest 13,469 17,175 Other 25,386 30,615 219,149 222,836 DEFERRED CREDITS Accumulated deferred income taxes 369,376 365,441 Investment tax credits 77,434 81,023 Income tax related regulatory liabilities, net 39,518 44,836 Other 43,099 40,256 529,427 531,556 $2,097,555 $2,079,207 The accompanying notes to financial statements as they relate to SWEPCO are an integral part of these statements. 34 SOUTHWESTERN ELECTRIC POWER COMPANY STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1995 1994 OPERATING ACTIVITIES (Thousands) Net Income $102,068 $ 82,242 Non-cash Items Included in Net Income Depreciation and amortization 69,269 66,860 Deferred income taxes and investment tax credits (3,576) 1,549 Allowance for equity funds used during construction (3,535) (2,193) Changes in Assets and Liabilities Accounts receivable 9,429 (46,050) Fuel inventory (4,121) 11,710 Accounts payable (7,778) 12,339 Accrued taxes 34,295 32,578 Accrued interest (3,706) (4,050) Over- and under-recovered fuel cost (1,684) 8,786 Accrued restructuring charges (519) (6,666) Other (4,181) 18,405 185,961 175,510 INVESTING ACTIVITIES Construction expenditures (79,261) (94,715) Allowance for borrowed funds used during construction (4,134) (1,288) Other (5,064) (3,160) (88,459) (99,163) FINANCING ACTIVITIES Change in advances from affiliates (18,803) (22,714) Retirement of long-term debt (3,262) (1,559) Reacquisition of long-term debt -- (1,713) Redemption of preferred stock (50) (1,200) Payment of dividends (76,237) (49,522) (98,352) (76,708) NET CHANGE IN CASH AND CASH EQUIVALENTS (850) (361) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,296 6,723 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 446 $ 6,362 SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $ 39,402 $ 39,141 Income taxes paid $ 21,598 $ 13,030 The accompanying notes to consolidated financial statements as they relate to SWEPCO are an integral part of these statements. 35 SOUTHWESTERN ELECTRIC POWER COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased 16% to $47.6 million during the third quarter of 1995 from $41.0 million during the third quarter of 1994. The increase was due primarily to an increase in non-fuel revenue resulting from higher sales partially offset by an increase in other operating and maintenance expenses and a prior period tax adjustment to reallocate parent company tax benefits. Electric Operating Revenues. Electric operating revenues increased $21.0 million to $266.3 million during the third quarter of 1995 from $245.3 million during the third quarter of 1994 due primarily to a $12.8 million increase in non-fuel revenue. The increase in non-fuel revenue was attributable to a 14% increase in Kwh sales resulting from weather-related demand and customer growth. Also contributing to the increase in revenue was an $8.2 million increase in fuel revenue attributable to an increase in generation partially offset by the lower average unit fuel costs as discussed below. Fuel. Fuel expense increased 9% to $101.8 million during the third quarter of 1995 when compared to the third quarter of 1994 due primarily to a 19% increase in generation offset in part by a decrease in the average unit fuel cost from $1.74 per Mmbtu in 1994 to $1.56 per Mmbtu in 1995. The decrease in average unit fuel cost was due primarily to the settlement of coal contract litigation with fuel suppliers and a decrease in the spot market price of natural gas. Purchased Power. Purchased power expense decreased $2.8 million, or 41%, during the third quarter of 1995 when compared to the third quarter of 1994 due primarily to a decrease in economy purchases. Other Operating. Other operating expenses increased $3.1 million, or 11%, during the third quarter of 1995 when compared to the third quarter of 1994 due primarily to higher transmission expenses as a result of a new transmission facility and a reduction in 1994 of the original estimated cost of the Restructuring partially offset by decreased compensation expense and outside services. Maintenance. Maintenance increased $1.0 million, or 10%, during the third quarter of 1995 when compared to the third quarter of 1994 due primarily to an increase in power plant and general plant maintenance partially offset by decreased miscellaneous distribution line maintenance. Federal Income Taxes. Federal income taxes increased 17% to $22.6 million during the third quarter of 1995 from $19.3 million during the third quarter of 1994 due primarily to higher pre-tax income. Other Income and Deductions - Other. Other income and deductions - other decreased $1.6 million during the third quarter of 1995 when compared to the third quarter of 1994 primarily as a result of an adjustment to reallocate parent company tax benefits. See NOTE 6. Federal Income Taxes for additional information related to this tax adjustment. Allowance for Equity and Borrowed Funds Used During Construction. AFUDC increased $1.6 million during the third quarter of 1995 when compared to the third quarter of 1994 due primarily to an increase in CWIP balances accruing AFUDC and a prior period true-up. 36 SWEPCO RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased 25% to $99.6 million during the nine months ended September 30, 1995 from $79.7 million during the nine months ended September 30, 1994. This increase was due primarily to an increase in non-fuel revenue partially offset by increases in other operating and maintenance expenses as well as interest on short-term debt and other. Electric Operating Revenues. Electric operating revenues increased $1.1 million to $648.5 million during the first nine months of 1995 when compared to the first nine months of 1994 due primarily to a $30.3 million increase in non-fuel revenues. The increase in non-fuel revenue was attributable to a 5% increase in retail Kwh sales resulting from weather-related demand and customer growth. The increase in non-fuel revenues was offset in part by a $29.2 million decrease in fuel revenue due to lower average fuel costs as discussed below. Fuel. Fuel expense decreased 9% to $243.7 million during the first nine months of 1995 when compared to the first nine months of 1994 due primarily to a decrease in the average unit cost of fuel from $1.79 per Mmbtu in 1994 to $1.61 per Mmbtu in 1995. The decrease in the average unit fuel cost was due primarily to the settlement of coal contract litigation with fuel suppliers and a decrease in the spot market price of natural gas. Purchased Power. Purchased power expense decreased $1.7 million, or 11%, during the first nine months of 1995 as compared to the first nine months of 1994 due primarily to an 11% decrease in purchased Kwh partially offset by contractual terms with a third party that call for increased operating reserves and on- peak capacity. Other Operating. Other operating expenses increased $3.8 million, or 4%, during the first nine months of 1995 when compared to the first nine months of 1994 due primarily to higher transmission expenses as a result of a new transmission facility and higher employee medical costs. Also contributing to the increase was a reduction in 1994 of the original estimated cost of the Restructuring. The increase was partially offset by decreased compensation expenses and outside services expense during 1995. Maintenance. Maintenance increased $1.9 million, or 6%, in the first nine months of 1995 from $29.8 million during the first nine months of 1994 due primarily to increased power plant maintenance. The increase was partially offset by a decrease in overhead line maintenance that resulted from an ice storm that impacted SWEPCO's distribution system during the first nine months of 1994. Taxes, Other than Federal Income. Taxes, other than Federal income decreased $2.2 million, or 6%, during the first nine months of 1995 when compared to the first nine months of 1994 due primarily to a decrease in ad valorem taxes partially offset by an increase in state franchise taxes and gross receipts taxes. Federal Income Taxes. Federal income taxes increased $1.2 million, or 4%, to $35.3 million during the first nine months of 1995 from $34.0 million during the first nine months of 1994 due primarily to higher pre-tax income, partially offset by prior year tax adjustments. See NOTE 6. Federal Income Taxes for additional information related to the tax adjustments. 37 SWEPCO RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (continued) Other Income and Deductions - Other. Other income and deductions - other decreased $1.5 million during the first nine months of 1995 when compared to the first nine months of 1994 due primarily to an adjustment to reallocate parent company tax benefits. See NOTE 6. Federal Income Taxes for additional information related to this tax adjustment. Interest on Short-Term Debt and Other. Interest expense on short-term debt and other increased $2.6 million, or 48%, during the first nine months of 1995 when compared to the first nine months of 1994 due primarily to higher levels of short-term debt outstanding at higher short-term interest rates. Allowance for Equity and Borrowed Funds Used During Construction. AFUDC increased $4.2 million during the first nine months of 1995 when compared to the first nine months of 1994 due primarily to increased CWIP balances accruing AFUDC and a prior period true-up. WEST TEXAS UTILITIES COMPANY PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. 39 WEST TEXAS UTILITIES COMPANY STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (Thousands) ELECTRIC OPERATING REVENUES $ 87,178 $109,348 $245,148 $275,683 OPERATING EXPENSES AND TAXES Fuel 29,963 32,609 90,891 103,337 Purchased power 4,373 2,386 8,198 4,424 Other operating 2,959 17,603 34,520 50,939 Maintenance 3,133 3,679 10,130 11,465 Depreciation and amortization 8,147 7,904 24,264 23,561 Taxes, other than Federal income 6,108 5,773 17,448 16,933 Federal income taxes 2,063 11,407 6,183 15,592 56,746 81,361 191,634 226,251 OPERATING INCOME 30,432 27,987 53,514 49,432 OTHER INCOME AND DEDUCTIONS Allowance for equity funds used during construction 150 67 260 70 Other (618) 609 316 1,708 (468) 676 576 1,778 INCOME BEFORE INTEREST CHARGES 29,964 28,663 54,090 51,210 INTEREST CHARGES Interest on long-term debt 5,297 4,744 15,435 13,871 Interest on short-term debt and other 833 746 2,987 2,532 Allowance for borrowed funds used during construction (187) (98) (512) (202) 5,943 5,392 17,910 16,201 NET INCOME 24,021 23,271 36,180 35,009 Preferred stock dividends 66 84 198 386 NET INCOME FOR COMMON STOCK $ 23,955 $ 23,187 $ 35,982 $ 34,623 The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. 40 WEST TEXAS UTILITIES COMPANY BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) ASSETS (Thousands) ELECTRIC UTILITY PLANT Production $ 427,804 $ 427,736 Transmission 195,452 194,402 Distribution 318,339 308,905 General 82,617 73,938 Construction work in progress 32,385 23,257 1,056,597 1,028,238 Less - Accumulated depreciation and amortization 383,317 364,383 673,280 663,855 CURRENT ASSETS Cash 3,784 2,501 Accounts receivable 28,489 23,165 Materials and supplies, at average cost 16,807 16,519 Fuel inventory, at average cost 8,180 9,229 Coal inventory, at LIFO cost 10,664 6,442 Accumulated deferred income taxes 5,048 3,068 Prepayments and other 2,854 1,091 75,826 62,015 DEFERRED CHARGES AND OTHER ASSETS Deferred Oklaunion costs 26,298 26,914 Restructuring charges related regulatory asset 13,213 -- Other 29,214 26,111 68,725 53,025 $ 817,831 $ 778,895 The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. 41 WEST TEXAS UTILITIES COMPANY BALANCE SHEETS September 30, December 31, 1995 1994 (Unaudited) CAPITALIZATION AND LIABILITIES (Thousands) CAPITALIZATION Common stock: $25 par value $137,214 $137,214 Authorized shares: 7,800,000 Issued and Outstanding shares: 5,488,560 Paid-in capital 2,236 2,236 Retained earnings 141,486 132,504 Total Common Stock Equity 280,936 271,954 Preferred stock 6,291 6,291 Long-term debt 249,518 210,047 TOTAL CAPITALIZATION 536,745 488,292 CURRENT LIABILITIES Long-term debt due within twelve months 650 650 Advances from affiliates 12,232 46,315 Accounts payable 24,657 35,407 Accrued taxes 8,786 7,452 Accrued interest 7,881 4,394 Over-recovered fuel costs 8,159 1,586 Refund due customers 22,335 -- Other 3,192 2,743 87,892 98,547 DEFERRED CREDITS Accumulated deferred income taxes 143,385 146,146 Investment tax credits 30,891 31,882 Income tax related regulatory liabilities, net 14,215 9,217 Other 4,703 4,811 193,194 192,056 $817,831 $778,895 The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. 42 WEST TEXAS UTILITIES COMPANY STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1995 1994 OPERATING ACTIVITIES (Thousands) Net Income $ 36,180 $ 35,009 Non-cash Items Included in Net Income Depreciation and amortization 25,288 24,925 Deferred income taxes and investment tax credits (734) 3,298 Regulatory asset established for previously incurred Restructuring charges (13,213) -- Allowance for equity funds used during construction (260) (70) Changes in Assets and Liabilities Accounts receivable (5,324) 827 Accounts payable (10,816) (31,087) Accrued taxes 1,334 4,093 Over- and under-recovered fuel costs 6,573 (72) Accrued restructuring charges (388) (3,282) Refunds due customers 22,335 -- Other (1,997) (6,772) 58,978 26,869 INVESTING ACTIVITIES Construction expenditures (31,931) (29,844) Other (1,841) (1,054) (33,772) (30,898) FINANCING ACTIVITIES Proceeds from issuance of long-term debt 39,411 39,354 Reacquisition of long-term debt (2,053) (12,127) Retirement of preferred stock -- (4,700) Change in advances from affiliates (34,083) 2,977 Payment of dividends (27,198) (20,454) (23,923) 5,050 NET CHANGE IN CASH AND CASH EQUIVALENTS 1,283 1,021 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,501 706 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,784 $ 1,727 SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $ 12,548 $ 11,511 Income taxes paid $ 14,155 $ 12,720 The accompanying notes to financial statements as they relate to WTU are an integral part of these statements. 43 WEST TEXAS UTILITIES COMPANY RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased 3% to $24.0 million during the third quarter of 1995 from $23.2 million in the third quarter of 1994. This increase was due primarily to lower other operating expense as well as the initial effects of the WTU Settlement and Agreement. See NOTE 2. Litigation and Regulatory Proceedings for information related to the WTU Settlement and Agreement. Electric Operating Revenues. Electric operating revenues decreased 20% in the third quarter of 1995 as compared to the third quarter of 1994. The decrease was attributable primarily to the recording of a $21 million reserve for a base rate refund pursuant to the WTU Settlement and Agreement. Under the WTU Settlement and Agreement, WTU is providing customers a one-time base rate refund of $21 million during the billing months of October and November 1995. Excluding the effects of the provision for base rate refund, electric operating revenues remained stable for the third quarter of 1995 as compared to the third quarter of 1994. Fuel. Fuel expense decreased $2.6 million, or 8%, during the third quarter of 1995 as compared to the third quarter of 1994 due primarily to a decrease in average unit fuel costs to $1.55 per Mmbtu in 1995 from $1.65 per Mmbtu in 1994. The decrease in unit fuel costs resulted from a decrease in the per unit cost of natural gas, which was due to lower spot gas market prices. Purchased Power. Purchased power increased $2.0 million during the third quarter of 1995 as compared to the third quarter of 1994 primarily as a result of additional energy purchases made during the third quarter of 1995 required to serve the increased load resulting from the addition of a wholesale customer and increased economy purchases. Other Operating. Other operating expenses decreased $14.6 million, or 83%, during the third quarter of 1995 as compared to the third quarter of 1994. The decrease was primarily due to recording a $13.2 million regulatory asset in accordance with the WTU Settlement and Agreement for previously recorded costs associated with the Restructuring as well as the accrual in 1994 of additional expenses related to the estimated costs of the Restructuring. Federal Income Taxes. Federal income taxes decreased $9.3 million, or 82%, during the third quarter of 1995 as compared to the third quarter of 1994 due primarily to a reduction of $6.9 million of deferred income taxes in accordance with the WTU Settlement and Agreement and lower pre-tax income. Other Income and Deductions - Other. Other income and deductions - other decreased $1.2 million in the third quarter of 1995 as compared to the third quarter of 1994 due primarily to an adjustment to reallocate parent company tax benefits. See NOTE 6. Federal Income Taxes for additional information related to this tax adjustment. Interest on Long-Term Debt. Interest charges on long-term debt increased 12% to $5.3 million during the third quarter of 1995 from $4.7 million in the third quarter of 1994 due to higher levels of long-term debt outstanding. 44 WTU RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 Net Income for Common Stock. Net income for common stock increased 4% to $36.0 million during the first nine months of 1995 from $34.6 million in the first nine months of 1994. The increase was due primarily to decreased other operating and maintenance expenses as well as the initial effects of the WTU Settlement and Agreement. See NOTE 2. Litigation and Regulatory Proceedings for information related to the WTU Settlement and Agreement. Electric Operating Revenues. Electric operating revenues decreased $30.5 million, or 11%, in the first nine months of 1995 as compared to the first nine months of 1994. This decrease was attributable primarily to the recording of a $21 million reserve for a base rate refund pursuant to the WTU Settlement and Agreement. Under the WTU Settlement and Agreement, WTU is providing customers a one-time base rate refund of $21 million during the billing months of October and November 1995. Excluding the effects of the provision for base rate refund, electric operating revenues decreased 3% due primarily to an 8% decrease in fuel revenues related to the lower average unit fuel prices as discussed below. Fuel. Fuel expense decreased $12.4 million, or 12%, for the first nine months of 1995 as compared to the first nine months of 1994 due primarily to a 7% decrease in average unit fuel costs from $1.91 per Mmbtu in 1994 to $1.77 per Mmbtu in 1995. The decrease in unit fuel costs was due primarily to lower spot gas market prices. Purchased Power. Purchased power increased $3.8 million during the first nine months of 1995 when compared to the first nine months of 1994 primarily as a result of additional energy purchases made during the third quarter of 1995 required to serve the increased load resulting from the addition of a wholesale customer and from increased economy purchases. Other Operating. Other operating expenses decreased $16.4 million, or 32%, in the first nine months of 1995 as compared to the first nine months of 1994 due primarily to the recognition of a $13.2 million regulatory asset in accordance with the WTU Settlement and Agreement for previously recorded charges associated with the Restructuring as well as the accrual of additional expenses in 1994 related to the estimated costs of the Restructuring. Maintenance. Maintenance expenses decreased by $1.3 million, or 12%, during the first nine months of 1995 as compared to the first nine months of 1994. This decrease was due primarily to higher transmission and distribution substation maintenance expenses incurred as a result of substation transformer failures which occurred in 1994 but not in 1995. Federal Income Taxes. Federal income taxes decreased $9.4 million, or 60%, during the first nine months of 1995 as compared to the first nine months of 1994 due primarily to the reduction of $6.9 million of deferred income taxes in accordance with the WTU Settlement and Agreement, prior year tax adjustments and lower pre-tax income. See NOTE 6. Federal Income Taxes for additional information related to the tax adjustments. Other Income and Deductions - Other. Other income and deductions - other decreased $1.4 million during the first nine months of 1995 as compared to the first nine months of 1994 due primarily to an adjustment to reallocate parent company tax benefits. See NOTE 6. Federal Income Taxes for additional information related to this tax adjustment. 45 WTU RESULTS OF OPERATIONS (continued) COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (continued) Interest on Long-Term Debt. Interest charges on long-term debt increased 11% to $15.4 million during the first nine months of 1995 from $13.9 million in the first nine months of 1994 due to higher levels of long-term debt outstanding. 46 NOTES TO THE CONDENSED FINANCIAL STATEMENTS INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT Note 1 Principles of Preparation CSW, CPL, PSO, SWEPCO, WTU Note 2 Litigation and Regulatory Proceedings CSW, CPL, SWEPCO, WTU Note 3 Dividends CSW, CPL, PSO, SWEPCO, WTU Note 4 CSW Earnings and Dividends Per Share of CSW Common Stock Note 5 Commitments and Contingent Liabilities CSW, CPL, PSO, SWEPCO Note 6 Federal Income Taxes CSW, CPL, PSO, SWEPCO, WTU 47 NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Principles of Preparation The condensed financial statements of the Registrants included herein have been prepared by each Registrant pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although each Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Registrant's combined Annual Report on Form 10-K for the year ended December 31, 1994 and the Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995. The unaudited financial information furnished herewith reflects all adjustments which are, in the opinion of management of such Registrant, necessary for a fair statement of the results of operations for the interim periods. Information for quarterly periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors. Certain financial statement items for prior years have been reclassified to conform to the 1995 presentation. 2. Litigation and Regulatory Proceedings See the Registrants' combined Annual Report on Form 10-K for the year ended December 31, 1994 and Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995 for additional discussion of litigation and regulatory proceedings. Reference is also made to Part II-OTHER INFORMATION-Item 1. Legal Proceedings for additional discussion of litigation matters. CPL Rate Proceedings Dockets No. 12820 and 13126 On April 5, 1995, CPL reached an agreement in principle with other parties to pending regulatory proceedings involving base rate, fuel and prudence issues relating to STP. On May 16, 1995, CPL filed the CPL 1995 Agreement with the Texas Commission. Pursuant to the CPL 1995 Agreement, base rate refunds, fuel refunds and the reduction of CPL's fuel factors were implemented on an interim basis during the summer of 1995. Under the CPL 1995 Agreement, CPL provided customers a one-time base rate refund of $50 million. In addition, CPL refunded approximately $30 million in over-recovered fuel costs through April 1995. Furthermore, CPL did not charge customers for $62.25 million in replacement power costs and related interest primarily associated with the 1993-1994 STP outage. The CPL 1995 Agreement did not result in any ongoing change in base rate levels and provided that there would be no new rate review requests filed prior to September 28, 1995. CPL also reduced its fuel factors, effective in July 1995, by approximately $55 million on an annual basis due to projections of lower fuel costs. Hearings on the CPL 1995 Agreement were held on July 19, 1995, and the final written Texas Commission order approving the CPL 1995 Agreement was received on October 4, 1995. 48 Details of the items in the CPL 1995 Agreement and the estimated 1995 total earnings impact for CPL including certain accounting provisions, are set forth in the table below: Pre-tax After-tax (millions) Base rate refund $(50.0) $(32.5) Fuel disallowance (62.3) (40.5) Wholesale fuel refund (3.2) (2.1) Current flowback of excess deferred Federal income taxes 34.3 34.3 Capitalization of previously expensed Restructuring and rate case costs 27.6 17.9 Recognition of factoring income 16.1 10.5 Amortization, interest and other (6.6) (4.4) CPL Rate Review Request On November 6, 1995, CPL filed with the Texas Commission a request to increase its base rates by $71 million and reduce its annual retail fuel factors by $17 million. The net effect of these proposals is an increase of $54 million or 4.6% of total retail revenues on an annual basis. CPL is not seeking interim rate relief but reserves its right to implement bonded rates in May 1996, the earliest date provided by law. CPL also is seeking to reconcile $229 million of fuel costs incurred during the period July 1, 1994 through June 30, 1995. If the requested increase and other treatments are approved, CPL will commit to not increasing its base rates prior to January 1, 2001, subject to certain force majeure events. A final decision on the rate request is anticipated from the Texas Commission in the fourth quarter of 1996. CPL is requesting this review as a result of its increasing costs since 1991, including the effects of the expiration of the Mirror CWIP liability amortization at the end of 1995, which occurs in accordance with the original liability amortization schedule agreed upon in the settlement of its rate cases in 1990 and 1991. Also included in the request are CPL's proposals to accelerate recovery of nuclear and regulatory assets as a way to proactively address certain assets that could become "stranded" in a more competitive environment. CPL Deferred Accounting CPL was granted deferred accounting treatment for certain STP Unit 1 and 2 costs by Texas Commission orders issued in October 1990 and December 1990, respectively. In 1994, the Supreme Court of Texas sustained deferred accounting as an appropriate mechanism for the Texas Commission to use in preserving the financial integrity of CPL, but remanded CPL's case to the Court of Appeals to consider certain substantial evidence points of error not previously decided by the Court of Appeals given its prior determinations. On August 16, 1995, the Court of Appeals rendered its opinion in the remand proceeding and affirmed the Texas Commission's order in all respects. CPL believes that the language of the Supreme Court of Texas' opinion suggests that the appropriateness of allowing deferred accounting may again be reviewed under a financial integrity standard in the first case in which the deferred STP costs will begin being recovered through rates. If the courts decide that subsequent review under the financial integrity standard is required, that review would be conducted in a remand of the STP Unit 1 and 2 orders. Pending the ultimate resolution of CPL's deferred accounting issues, CPL is unable to predict how its deferred accounting orders will ultimately be resolved by the Texas Commission. 49 If CPL's deferred accounting matters are not favorably resolved, CSW and CPL could experience a material adverse effect on their respective results of operations and financial condition. While CPL's management is unable to predict the ultimate outcome of these matters, management believes CPL will receive approval of its deferred accounting orders or will be successful in renegotiation of its rate orders, so that there will be no material adverse effect on CSW's or CPL's results of operation or financial condition For additional information on CPL's deferred accounting proceedings, see CSW's and CPL's combined Annual Report on Form 10-K for the year ended December 31, 1994 and Combined Quarterly Report on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995. CPL Civil Penalties In October 1995, the NRC notified HLP of a Notice of Violation and proposed penalties totaling $160,000 related to events that occurred at STP in May 1992. The Notice of Violation and penalties reflect the NRC's belief that certain STP employees were terminated as a result of raising safety concerns with the NRC. The Notice of Violation was the result of a Department of Labor decision and order in April 1995 and is awaiting final action by the Secretary of Labor. HLP is not required to reply to the NRC's Notice of Violation or pay the penalties pending the Secretary of Labor's final decision. The NRC indicated that the proposed civil penalties reflect minimum penalties allowed because of improvements made to the STP Employee Concerns Program since 1992. CPL's share of any penalty that is ultimately paid would be approximately 25%, reflecting its ownership interest in STP. SWEPCO Fuel Factor Proceedings Docket No. 14819 On October 6, 1995, SWEPCO filed a petition, designated as Docket No. 14819, with the Texas Commission to revise its fixed fuel factors for the recovery of fuel and purchased power costs. SWEPCO is experiencing an over-recovery of fuel costs based on its current factors which became effective in July 1994. SWEPCO is proposing to revise its fixed fuel factors with the first billing cycle of January 1996. If approved, the proposed fixed fuel factors would decrease SWEPCO's fuel and purchased power revenues by approximately $4.8 million on an annual basis. SWEPCO also requested authority to make an interim refund of $7.1 million of cumulative over-recovery of fuel and purchased power costs that existed as of June 1995. SWEPCO anticipates receiving a final order in the fourth quarter of 1995. WTU Regulatory Proceedings Rate Proceeding Docket No. 13369, Appeal of Docket No. 7510 and Deferred Accounting Proceeding No. 13949 WTU had been the subject of several regulatory matters. Such matters, which covered a variety of issues, included the following: (i) current rate proceeding and fuel reconciliation before the Texas Commission in Docket No. 13369; (ii) Writ of Error to the Supreme Court of Texas - review of WTU's 1987 Texas rate case on Docket No. 7510; and (iii) the Texas Commission's proceeding on remand in Docket No. 13949 regarding deferred accounting treatment for Oklaunion Power Station Unit No. 1 originally authorized in the Texas Commission's Docket No. 7289. On September 6, 1995, WTU announced that it had entered into a settlement in principle with major parties to settle these pending regulatory proceedings. On September 25, 1995, the WTU Settlement and Agreement was filed with the Texas Commission in Docket No. 13369. The WTU Settlement and Agreement has been signed by ten of the twelve parties, and the two non-signing parties have not contested the WTU Settlement and Agreement. 50 The WTU Settlement and Agreement is a unified package that includes: (i) a Texas retail base rate reduction of approximately $13.5 million effective retroactive to October 1, 1994 (approximately $5.7 million of which has been in effect since that time on an interim basis); (ii) a $21 million retail refund which is not attributed to any specific causes but is inclusive of all claims related to the three dockets and the retroactive base rate reduction impact; (iii) reduced fixed fuel factors of approximately 2%; (iv) various rate and accounting treatments including a reasonable return on equity for WTU of 11.375%; and (v) a retail base rate freeze until October 1, 1998, subject to certain force majeure provisions. The WTU Settlement and Agreement is expected to impact WTU's results of operations for the next several years, reducing annual earnings by approximately $8 million after-tax beginning in 1996. Details of the items with significant earnings impact, including certain accounting treatments, are set forth in the table below for 1995 and 1996: 1995 1996 Pre-tax After-tax Pre-tax After-tax (millions) Refund to retail customers $(21.0) $(13.7) $ -- $ -- Effect of retail rate reduction (1.7) (1.1) (7.6) (4.9) Current flowback of property related excess deferred federal income taxes 6.9 6.9 -- -- Five year flowback of non-property related excess deferred Federal income taxes 0.1 0.1 0.5 0.5 Capitalization and amortization of previously expensed Restructuring costs 13.2 8.6 (1.9) (1.2) Accelerated amortization of deferred Oklaunion plant costs (accelerated from the remaining 31 to 7 years) -- -- (2.9) (2.3) Other amortization (0.2) (0.1) (0.8) (0.5) The WTU Settlement and Agreement also eliminated several significant risks that have been the subject of regulatory proceedings relating to deferred accounting and rates and will enable WTU's rates to remain at competitive levels for the foreseeable future. Notwithstanding the anticipated adverse impact on WTU's future results of operations, management believes that it was prudent to accept the WTU Settlement and Agreement in light of the uncertainty and expense of otherwise pursuing the pending regulatory proceedings. On September 27, 1995, the ALJs issued an interim order in Docket No. 13369 finding that beginning with the October 1995 billing month, interim implementation of the proposed rate reduction, refund and reduced fuel factors was appropriate. In addition, the ALJs approved on an interim basis, tariffs implementing the WTU Settlement and Agreement subject to refund or surcharge pending final order of the Texas Commission. On November 9, 1995, the Texas Commission voted to approve the order implementing the WTU Settlement and Agreement. The parties will now seek to have the appeal of Docket No. 7510, currently before the Supreme Court of Texas, remanded to the Texas Commission to obtain an order consistent with the WTU Settlement and Agreement. For additional information regarding WTU's regulatory matters, see CSW's and WTU's combined Annual Report on Form 10-K for the year ended December 31, 1994, Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995 and combined Current Reports on Form 8-K dated July 10, 1995 and September 6, 1995. 51 3. Dividends The Electric Operating Companies' mortgage indentures, as amended and supplemented, contain certain restrictions on the use of their retained earnings for cash dividends on their common stock. These restrictions do not limit the ability of CSW to pay dividends to its shareholders. At September 30, 1995, approximately $1.5 billion of the subsidiary companies' retained earnings were available for payment of cash dividends by such subsidiaries to CSW. At September 30, 1995, the amount of retained earnings available for payment of cash dividends to CSW by the Electric Operating Companies was as follows: CPL - $754 million PSO - $160 million SWEPCO - $324 million WTU - $141 million 4. CSW Earnings and Dividends Per Share of Common Stock Earnings per share of common stock are computed by dividing net income for common stock by the average number of common shares outstanding for the respective periods. Dividends per common share reflect per share amounts paid during the periods. 5. Commitments and Contingent Liabilities Termination of El Paso Merger For information regarding the commitments and contingent liabilities relating to the termination of the Merger, reference is made to PART II - OTHER INFORMATION-Item 1. Legal Proceedings. Environmental Matters For information regarding environmental matters, reference is made to PART II - OTHER INFORMATION-Item 5. Other Information. CSWE Projects and Commitments CSWE, a wholly owned subsidiary of CSW, is authorized to develop various independent power and cogeneration facilities and to own and operate such non-utility projects, subject to regulatory approval. The table below summarizes CSWE's participation in projects:
Capacity Commercial (in Mw) Operation Ownership Thermal Project Location Total Sold Date Interest Host Host Utility Orange Cogen Polk County, FL 103 97 June 1995 50% Orange Juice Florida Power Corporation Processor Tampa Electric Company Ft. Lupton Ft. Lupton, CO 272 272 June 1994 50% Greenhouse Public Service Company of Colorado Mulberry Polk County, FL 117 110 August 1994 50% Distilled Florida Power Corporation Water Plant Brush II Brush, CO 68 68 January 1994 47% Greenhouse Public Service Company of Colorado Phillips Sweeny Sweeny, TX 300 90* April 1998 50% Refinery Undetermined* *The Phillips Sweeney project has the unexercised option to sell 90 Mw of capacity to Phillips Petroleum Company.
52 CSW and CSWE have provided loans and other credit support to these projects and certain development partnerships. The following table summarizes the investment and commitments in the projects at September 30, 1995: Letters of Credit Project Equity and Guarantees Loans (millions) Orange Cogen $ 4.6 $ 104.4 Ft. Lupton $ 44.0 57.0 Mulberry 74.7 Phillips Sweeny 3.0 Various developmental projects 9.0 50.0 CSWE has provided construction services to the Mulberry cogeneration facility through Dev-I, a wholly owned subsidiary of CSWE. Additionally, Dev-I entered into a fixed price contract of $14 million to construct the Mulberry thermal host. At September 30, 1995, the thermal host was substantially completed for an aggregate cost of approximately $43 million. On November 2, 1995, CSWE reached an agreement and settlement with its business partner regarding the $29 million cost overruns for the Mulberry thermal host. These negotiations also resulted in a change in the business partner for the Mulberry and Orange project. Under the terms of the settlement, the newly admitted partner paid to CSWE 50%, or $52.2 million, of the outstanding obligations of the Orange facility and assumed 50%, or $2.3 million, of the Letters of Credit and guarantees of the project. Concurrently, CSWE contributed as partners capital the remaining debt of $52.2 million to Orange Cogeneration. On the same date, the Mulberry project obtained term financing and CSWE's credit support was reduced from $74.7 million to $32.3 million. CPL's Nuclear Insurance In connection with the licensing and operation of STP, the owners have purchased the maximum limits of nuclear liability insurance, as required by law, and have executed indemnification agreements with the NRC in accordance with the financial protection requirements of the Price-Anderson Act. The Price-Anderson Act, a comprehensive statutory arrangement providing limitations on nuclear liability and governmental indemnities, is in effect until August 1, 2002. The limit of liability under the Price-Anderson Act for licensees of nuclear power plants is $8.92 billion per incident, effective as of January 1995. The owners of STP are insured for their share of this liability through a combination of private insurance amounting to $200 million and a mandatory industry-wide program for self-insurance totaling $8.72 billion. The maximum amount that each licensee may be assessed under the industry-wide program of self-insurance following a nuclear incident at an insured facility is $75.5 million per reactor, which may be adjusted for inflation, plus a five percent charge for legal expenses, but not more than $10 million per reactor for each nuclear incident in any one year. CPL and each of the other STP owners are subject to such assessments, which CPL and other owners have agreed will be allocated on the basis of their respective ownership interests in STP. For purposes of these assessments, STP has two licensed reactors. The owners of STP currently maintain on-site decontamination liability and property damage insurance in the amount of $2.75 billion provided by ANI and NEIL. Policies of insurance issued by ANI and NEIL stipulate that policy proceeds must be used first to pay decontamination and clean-up costs before being used to cover direct losses to property. Under project agreements, CPL and the other owners of STP will share the total cost of decontamination liability and property insurance for STP, including premiums and assessments, on a pro rata basis, according to each owner's respective ownership interest in STP. 53 CPL purchases, for its own account, a NEIL I Business Interruption and/or Extra Expense policy. This insurance will reimburse CPL for extra expenses incurred, up to $1.3 million per week, for replacement generation or purchased power as the result of a covered accident that shuts down production at STP for more than 21 weeks. The maximum amount recoverable for Unit 1 is $86.0 million and for Unit 2 is $86.0 million. CPL is subject to an additional assessment up to $1.6 million for the current policy year in the event that losses as a result of a covered accident at a nuclear facility insured under the NEIL I policy exceeds the accumulated funds available under the policy. On August 28, 1994, CPL filed a claim under the NEIL I policy relating to the 1993 - 1994 outage at STP Units 1 and 2. NEIL is currently reviewing the claim. CPL management is unable to predict the ultimate outcome of this matter. PSO's PCB Cases For information regarding the commitments and contingent liabilities relating to the PSO's PCB cases, reference is made to PART II - OTHER INFORMATION-Item 1. Legal Proceedings. SWEPCO's Henry W. Pirkey Power Plant In connection with the lignite mining contract for its Henry W. Pirkey Power Plant, SWEPCO has agreed, under certain conditions, to assume the obligations of the mining contractor. As of September 30, 1995, the maximum SWEPCO would have to assume is $72.5 million. The maximum amount may vary as the mining contractor's need for funds fluctuates. The contractor's actual obligation outstanding as of September 30, 1995 was approximately $61.1 million. 6. Federal Income Taxes CSW files a consolidated Federal income tax return and participates in a tax sharing agreement with its subsidiaries. Total income taxes (income taxes included in Operating Expenses and Taxes as well as Other Income and Deductions) differ from the amounts computed by applying the statutory income tax rates to income before taxes for a number of reasons. The tax implications of the CPL 1995 Agreement and the WTU Settlement and Agreement whereby the flowback of unprotected excess deferred income taxes was accelerated contributed to the difference as did adjustments that were made to eliminate tax obligations that no longer exist. These differences, as well as other differences between the statutory rate and the effective tax rate, are as follows: Three Months Nine Months Ended Ended September % September % 30, 1995 30, 1995 CSW ($ in millions) Tax at statutory rates $103.3 35.0% $147.1 35.0% Differences: Amortization of ITC (4.0) (1.4)% (11.0) (2.6)% Mirror CWIP (2.7) (0.9)% (8.1) (1.9)% CPL 1995 Agreement -- --% (34.3) (8.2)% WTU Settlement and Agreement (6.9) (2.3)% (6.9) (1.6)% Tax balance adjustments -- --% (23.4) (5.6)% Prior period adjustments/Other (3.7) (1.2) (0.7) (0.1)% $86.0 29.2% $62.7 15.0% 54 Three Months Nine Months Ended Ended September % September % 30, 1995 30, 1995 CPL ($ in thousands) Tax at statutory rates $42,182 35.0% $62,424 35.0% Differences: Amortization of ITC (1,447) (1.2)% (4,342) (2.4)% Mirror CWIP (2,711) (2.2)% (8,132) (4.6)% CPL 1995 Agreement -- --% (34,289) (19.2)% Tax balance adjustments -- --% (12,893) (7.3)% Other 258 0.2% 1,341 0.8% $38,282 31.8% $4,109 2.3% PSO ($ in thousands) Tax at statutory rates $27,243 35.0% $38,741 35.0% Differences: Amortization of ITC (697) (0.9)% (2,092) (1.9)% Tax balance adjustments -- --% (3,624) (3.3)% Adjustment for allocation of parent company tax benefits 1,264 1.6% 1,264 1.1% Prior period adjustments/Other (656) (0.8)% (2,243) (1.9)% $27,154 34.9% $32,046 29.0% SWEPCO ($ in thousands) Tax at statutory rates $25,246 35.0% $47,925 35.0% Differences: Amortization of ITC (1,552) (2.1)% (3,590) (2.6)% Tax balance adjustments -- --% (6,253) (4.6)% Adjustment for allocation of parent company tax benefits 2,342 3.2% 2,342 1.7% Other (2,378) (3.3)% (5,565) (4.0)% $23,658 32.8% 34,859 25.5% WTU ($ in thousands) Tax at statutory rates $9,458 35.0% $15,029 35.0% Differences: Amortization of ITC (330) (1.2)% (991) (2.3)% WTU Settlement and Agreement (6,859) (25.4)% (6,859) (16.0)% Tax balance adjustments -- --% (663) (1.5)% Adjustment for allocation of parent company tax benefits 1,247 4.6% 1,247 2.9% Other (514) (1.9)% (1,004) (2.4)% $3,002 11.1% $6,759 15.7% 55 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Registrants' combined Annual Report on Form 10-K for the year ended December 31, 1994 and Combined Quarterly Reports on Form 10- Q for the quarters ended March 31, 1995 and June 30, 1995. Reference is also made to each Registrant's unaudited Financial Statements and related Notes to Financial Statements included herein. The information included therein should be read in conjunction with, and is essential in understanding, the following discussion and analysis. Results of Operations Reference is made to PART I-FINANCIAL INFORMATION - Item 1. Financial Statements for each of the Registrants' Results of Operations. Capital Requirements, Liquidity and Financing Construction and Capital Expenditures Construction expenditures for the CSW System for the nine months ended September 30, 1995 were $335 million. Such expenditures for the Electric Operating Companies totaled $112.9 million, $70.9 million, $79.3 million and $31.9 million, for CPL, PSO, SWEPCO and WTU, respectively. Construction expenditures for the CSW System were primarily for improvements to existing production, transmission and distribution facilities, as well as enhancements by Transok of existing gas gathering and transmission systems. The improvements are required to meet the needs of new customers and to satisfy the changing requirements of existing customers. The CSW System anticipates that the majority of all funds required for construction for the remainder of the year will be provided from internal sources. Short-Term Financing The CSW System uses short-term debt to meet fluctuations in working capital requirements and other interim capital needs. The Registrants, together with other members of the CSW System, have established a money pool to coordinate short-term borrowings and to make borrowings outside the money pool through CSW's issuance of commercial paper. As of September 30, 1995, CSW had two revolving credit facilities totaling $1.2 billion to back up its commercial paper program. Long-Term Financing The CSW System is committed to maintaining financial flexibility by maintaining a strong capital structure and favorable securities ratings which help to assure future access to capital markets when required. CSW, in order to strengthen its capital structure and support growth from time to time, may issue additional shares of its common stock. At September 30, 1995, the capitalization ratios of each of the Registrants were as follows: Common Preferred Long-Term Equity Stock Debt CSW 49% 5% 46% CPL 45% 8% 47% PSO 56% 2% 42% SWEPCO 52% 4% 44% WTU 52% 1% 47% CPL Financings On July 19, 1995, CPL sold to underwriters $200 million of 6 5/8% FMB, Series KK, due July 1, 2005. The proceeds were principally used to redeem $139.2 million of 9 3/8% FMB, Series 56 Z, due December 1, 2019. The remainder of the proceeds were used to repay short-term debt, to provide working capital and for other general corporate purposes. On July 27, 1995, CPL sold to underwriters $100.6 million of 6.1% PCRB, Series 1995, due July 1, 2028. The proceeds were used to redeem two separate outstanding PCRB issues, $68.9 million of 10 1/8%, Series 1984 PCRB, due October 15, 2014 and $31.8 million of 9 3/4%, Series U FMB (secures Series 1985A collateralized PCRB), due July 1, 2015. On November 2, 1995, CPL sold to underwriters $40.9 million of floating rate PCRB, Series 1995, due November 1, 2015. The initial rate for the Series 1995 Bonds was set in a daily mode at 3.60%. The new bonds are enhanced by a letter of credit. The proceeds will be used to refund CPL's outstanding $7.4 million of 7 1/8%, Series 1974A, due June 1, 2004 and $33.5 million of 6%, Series 1977, due November 1, 2007. WTU Financings On October 24, 1995, WTU sold to underwriters $80 million of 6 3/8% FMB, Series U, due October 1, 2005. The proceeds will be used for the December 1, 1995 scheduled redemption of $53.3 million of 9 1/4% FMB, Series O, due December 1, 2019, to repay short-term debt, to provide working capital and for other general corporate purposes. SEEBOARD Tender Offer On November 6, 1995, CSW, indirectly through CSW (UK), announced its intention to commence a $2.52 billion cash tender offer in the United Kingdom for all of the outstanding shares of capital stock of SEEBOARD. Immediately following announcement of the tender offer, CSW (UK) commenced open market purchases of shares of SEEBOARD's capital stock. As of November 8, 1995, CSW (UK) had acquired approximately 27% of the outstanding shares of capital stock of SEEBOARD. The tender offer has received the recommendation of SEEBOARD's board of directors and is conditioned upon the satisfaction, prior to closing, of certain customary conditions, including non-referral of the transaction to the Monopolies and Mergers Commission. Assuming the tender offer is successful and all necessary conditions are satisfied, CSW expects that the transaction will be consummated during the first quarter of 1996. The tender offer price is subject to reduction to reflect the distribution by SEEBOARD to its shareholders of its ownership interest in the National Grid Company. CSW has committed to contribute to CSW (UK) up to $850 million to complete the tender offer. CSW expects to obtain such funds through the proceeds of borrowings under a $850 million senior credit agreement entered into on November 6, 1995 for that purpose and through internally generated funds. Borrowings under the credit agreement are unsecured and mature on November 6, 2000, subject to prepayment by CSW at any time. As of November 9, 1995, CSW had notified the banks party to the credit agreement that it intended to borrow approximately $680 million under the credit agreement to fund, indirectly through CSW (UK), open market purchases of capital stock of SEEBOARD. CSW (UK) intends to obtain the remaining amounts necessary to complete the tender offer, approximately $1.67 billion, from capital contributions or loans to be made to CSW (UK) by its sole shareholder, CSW UK Investments, which has arranged a senior secured credit facility for that purpose. Neither CSW nor CSW International has guaranteed or otherwise has recourse for amounts borrowed by CSW UK Investments under the credit facility. SEEBOARD is a retail electric company headquartered in Crawley, West Sussex, and has a distribution territory that covers approximately 6,000 square miles and extends from the 57 outlying areas of London to the English Channel. SEEBOARD serves approximately 2 million customers, approximately 80% of which are residential and commercial and approximately 20% of which are industrial. For the year ended March 31, 1995, SEEBOARD had electricity sales of 17.6 billion kwh and a profit before tax of approximately $224 million on revenues of approximately $1.9 billion. SEEBOARD is also involved in certain non-regulated activities, including electrical contracting and retailing, gas supply and electricity generation. CSW believes that SEEBOARD will be a positive addition to its existing business due to, among other reasons, its strong management, excellent financial characteristics and innovative growth strategies. The earnings of SEEBOARD have been converted into U.S. dollar amounts for illustrative purposes only at an exchange rate of 1.00 pound = $1.5788, which was the prevailing rate of exchange at the close of business on November 3, 1995, the business day prior to the announcement of the tender offer. Regulatory Matters Reference is made to NOTE 2. Litigation and Regulatory Proceedings for a discussion of CPL, SWEPCO and WTU regulatory matters. Competition Amendments to PURA, the legal foundation of electric regulation in Texas, became effective on September 1, 1995. Among other things, the amendments deregulate the wholesale bulk power market in ERCOT, permit pricing flexibility for utilities facing competitive challenges, provide for a market-driven integrated resource planning process and mandate comparable open access transmission service. PURA also requires that the Texas Commission adopt a rule on comparable open transmission access by March 1, 1996. In conjunction with this rulemaking proceeding (Docket No. 14045), Texas Commission Chairman Pat Wood issued a proposal on September 6, 1995, for the purpose of maximizing competition in the ERCOT wholesale bulk power market. The proposal calls for the functional unbundling of integrated utilities where distribution entities could purchase their power requirements from any generator or set of generators in ERCOT. Those generators which are currently regulated would be deregulated after provisions are in place to recover stranded costs. The proposal has been assigned to a separate proceeding (Docket No. 15000), but the Texas Commission has not yet developed a schedule for pursuing this docket. CSW expects this docket to provide the vehicle for the Texas Commission and other interested parties to develop positions on industry restructuring before the Texas Legislature convenes in January 1997. Litigation Relating to Termination of El Paso Merger For information regarding the commitments and contingent liabilities relating to the termination of the Merger, reference is made to PART II-OTHER INFORMATION-Item 1. Legal Proceedings. 58 PART II - OTHER INFORMATION For background and earlier developments relating to Part II information reference is made to each Registrants' combined Annual Report on Form 10-K for the year ended December 31, 1994 and Combined Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995 and June 30, 1995. Item 1. Legal Proceedings. Litigation Relating to Termination of El Paso Merger In May 1993, CSW entered into a Merger Agreement pursuant to which El Paso would emerge from bankruptcy as a wholly owned subsidiary of CSW. El Paso is an electric utility company headquartered in El Paso, Texas, which had filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code on January 8, 1992. On June 9, 1995, CSW sent a letter to El Paso declining to extend the termination date under the Merger Agreement as requested by El Paso and terminating the Merger Agreement. CSW's June 9, 1995 letter also informed El Paso that it was revoking the Modified Third Amended Plan of Reorganization for the proposed Merger with El Paso by a contemporaneous filing with the United States Bankruptcy Court for the Western District of Texas, Austin Division, before which the El Paso bankruptcy reorganization proceeding is pending. On June 9, 1995, following CSW's notification that it was terminating the Merger and withdrawing the Modified Third Amended Plan of Reorganization, El Paso filed the El Paso Suit against CSW in state district court in El Paso, Texas, claiming breach of contract, breach of duty of good faith and fair dealing, breach of fiduciary duty, business disparagement, tortious interference with contract and fraud in the inducement. El Paso's suit seeks a $25 million termination fee from CSW, certain costs related to the Modified Third Amended Plan of Reorganization, additional unspecified damages, punitive damages, interest as permitted by law, reasonable attorneys fees and court costs. On June 15, 1995, CSW filed suit against El Paso in the United States Bankruptcy Court in Austin, Texas seeking a $25 million termination fee from El Paso due to El Paso's breaches of the Merger Agreement, at least $3.6 million in rate case expenses incurred by CSW on behalf of El Paso related to state regulatory merger proceedings and a declaratory judgment that CSW properly terminated the Merger Agreement. CSW also removed the El Paso Suit from state district court to the United States Bankruptcy Court in El Paso, Texas and requested that the action be transferred to the United States Bankruptcy Court in Austin, Texas, the bankruptcy court that has jurisdiction over El Paso's bankruptcy case. The action has since been transferred to the United States Bankruptcy Court in Austin, Texas. On August 4, 1995, El Paso filed motions with the Austin bankruptcy court to remand the El Paso Suit back to the state district court in El Paso and abstain from hearing the CSW Suit. The bankruptcy court denied El Paso's motions, and in connection therewith the judge presiding over El Paso's bankruptcy proceeding recused himself from hearing the El Paso Suit and the CSW Suit. Both lawsuits have since been assigned to another judge of the United States Bankruptcy Court in Austin, Texas. A motion by CSW to consolidate the El Paso Suit and the CSW Suit is currently before the court. On October 19, 1995, El Paso filed motions (i) to withdraw the reference in the lawsuits from the United States Bankruptcy Court in Austin, Texas to the United States District Court for the Western District of Texas and (ii) to change venue in both lawsuits to the El Paso Division of the United States District Court for the Western District. No hearing has been set on these motions. CSW and El Paso have also recently filed separate status reports with the bankruptcy court. No trial date has been set for the lawsuits. 59 CSW believes that it has substantial defenses to the El Paso Suit and intends to defend the El Paso Suit, and to pursue the CSW Suit, vigorously. However, the outcome of the two lawsuits cannot presently be predicted. CPL's Westinghouse Litigation CPL and other owners of STP are plaintiffs in a lawsuit filed in October 1990 in District Court in Matagorda County, Texas against Westinghouse seeking damages and other relief. The suit alleges that Westinghouse supplied STP with defective steam generator tubes that are susceptible to stress corrosion cracking. Westinghouse filed an answer to the suit in March 1992 denying the plaintiffs' allegations. A jury trial commenced on July 5, 1995 in Bay City, Texas. Inspections detected early indications of stress corrosion cracking in steam generator tubes at STP. Management believes the steam generator tubes will continue to deteriorate. The STP owners have received competitive bids for procurement of Unit 1 and Unit 2 replacement steam generators based on delivery in 1999, and have entered into specific negotiations with the selected vendor. A revised damages report (based on selected bid) prepared by experts for the STP owners estimates that the replacement of the STP Unit 1 and Unit 2 steam generators will cost approximately $258 million in 1995 dollars, of which CPL's share would be approximately 25%. The estimated replacement cost of $258 million does not include replacement power costs, additional operating expenses and other costs that are being sought from Westinghouse in the pending litigation. Recoverability of these amounts and the steam generator replacement costs from Westinghouse is uncertain. However, management believes that the ultimate resolution of this matter will not have a material adverse effect on CSW's or CPL's results of operations or financial condition. PSO's Burlington Northern Transportation Contracts In June 1992, PSO filed suit in Federal District Court in Tulsa, Oklahoma, against Burlington Northern seeking declaratory relief under a long-term contract for the transportation of coal. In July 1992, Burlington Northern asserted counterclaims against PSO alleging that PSO breached the contract. The counterclaims sought damages in an unspecified amount. In December 1993, PSO amended its suit against Burlington Northern seeking damages and declaratory relief under federal and state antitrust laws. PSO and Burlington Northern filed motions for summary judgment on certain issues in the litigation. In March 1994, the court issued an order granting PSO's motions for summary judgment and denying Burlington Northern's motion. It was not necessary for the court to decide the federal and state antitrust claims raised by PSO. Judgment was rendered in favor of PSO by the United States District Court in May 1994. In June 1994, Burlington Northern appealed this judgment to the United States Court of Appeals for the Tenth Circuit. In April 1995, the Tenth Circuit entered an order reversing the District Court's decision in part and affirming the order in part. On May 2, 1995, PSO filed a petition for rehearing by the Tenth Circuit. The petition for rehearing was denied May 31, 1995 and the case was remanded to the District Court. Following remand of the case to the District Court, PSO reasserted its antitrust claims against Burlington Northern. Further proceedings are being conducted in the District Court on PSO's antitrust claims and Burlington Northern's contract counter claim. Management believes the ultimate resolution of this matter will not have a material adverse effect on CSW's or PSO's consolidated results of operations or financial condition. PSO's Burlington Northern Arbitration In May 1994, in a related arbitration, an arbitration panel made an award favorable to PSO concerning basic transportation rates under the coal transportation contract described above, and concerning the contract mechanism for adjustment of future transportation rates. These arbitrated issues were not involved 60 in the related lawsuit described above. Burlington Northern filed an action to vacate the arbitrated award in the District Court for Dallas County, Texas. PSO removed this action to the United States District for the Northern District of Texas, and filed a motion to either dismiss this action or have it transferred to the United States District Court for the Northern District of Oklahoma. Burlington Northern moved to remand the action to state court. In September 1994, the United States District Court for the Northern District of Texas denied Burlington Northern's motion to remand, and granted PSO's motion to transfer the action to the United States District Court for the Northern District of Oklahoma. Separately, PSO filed an action to confirm the arbitration award in the United States District Court for the Northern District of Oklahoma, and Burlington Northern filed a motion to dismiss this confirmation action. On December 6, 1994, the District Court entered an order denying Burlington Northern's motion to vacate the arbitration award, and granting PSO's motion to confirm the arbitration award. On December 29, 1994, the District Court entered judgment confirming the arbitration award, including a money judgment in PSO's favor of $16.4 million, with interest at 7.2% per annum compounded annually from December 21, 1994 until paid. In January 1995, Burlington Northern appealed the District Court's judgment to the United States Court of Appeals for the Tenth Circuit. On October 20, 1995, the Court of Appeals issued an order and judgment affirming the judgment of the District Court. The time within which Burlington Northern may file a petition for a Writ of Certiorari with the United States Supreme Court. PSO's PCB Cases As previously reported, PSO has been named defendant in complaints filed in state court in Oklahoma alleging, among other things, that some of the plaintiffs were contaminated with PCBs and other toxic by-products following transformer malfunctions. To date the complaints have totaled approximately $395 million, of which amount approximately one-third represents punitive damages. As a result of settlements with certain plaintiffs, some claims have been dismissed. The settlements have not had a material adverse effect on CSW's or PSO's consolidated results of operations or financial condition. Although management cannot predict the outcome of these proceedings, management believes that PSO has defenses to these claims and intends to pursue them vigorously. Moreover, management has reason to believe that PSO's insurance may cover some of these claims. Management also believes that the ultimate resolution of these cases will not have a material adverse effect on CSW's or PSO's consolidated results of operations or financial condition. PSO's Gas Purchase Contracts PSO has been named defendant in complaints filed in Federal and state courts of Oklahoma and Texas in 1984 through October 1995 by gas suppliers alleging claims arising out of certain gas purchase contracts. The plaintiffs seek relief through the filing dates as well as attorney's fees. In October 1995, complaints representing approximately $17 million were dismissed, certain of which resulted from settlements among the parties. Remaining complaints currently total approximately $11 million in actual damages, together with claims for punitive damages which, in compliance with pleading code requirements, are alleged to be in excess of $10,000. The settlements did not have a significant effect on PSO's consolidated results of operations. The remaining suits are in the preliminary stages. Management cannot predict the outcome of these proceedings. However, management believes that PSO has defenses to these complaints and intends to pursue them vigorously. Management also believes that the ultimate resolution of the remaining complaints will not have a material adverse effect on CSW's or PSO's consolidated results of operations or financial condition. Other CSW System Legal Claims and Proceedings The CSW System is party to various other legal claims and proceedings arising in the normal course of business. Management does not expect disposition of these matters to have a material 61 adverse effect on the Registrants' results of operations or financial condition. See NOTE 2. Litigation and Regulatory Proceedings for a discussion of each of the Electric Operating Companies regulatory matters. Item 5. Other Information. Environmental Matters CPL's Toxic Substances Control Act of 1976 As previously reported, under the TSCA, the storage, use and disposal, among other things, of PCBs are regulated. Violations of the TSCA may lead to fines and penalties. CPL was inspected by the EPA in 1992 and found to have TSCA record-keeping and other violations for PCBs. CPL negotiated a settlement, signed a consent agreement and, in September 1995, paid a penalty of approximately $76,000. CPL's Sol Lynn Superfund Site As previously reported, the Sol Lynn salvage yard was declared a Superfund site by the EPA after it was found to contain a number of contaminants including PCBs. Gulf States Utilities Company remediated the site for approximately $2 million and sought to recover a portion of the remediation costs from alleged PRPs, including CPL. In March 1995, CPL and Gulf States Utilities Company reached an agreement pursuant to which CPL agreed to pay $50,000 as its share of remediation costs. On September 30, 1995 the courts approved the settlement. PSO's PCB Storage Facilities As previously reported, PSO investigated and identified PCB contamination at one of its PCB storage facilities in Sand Springs, Oklahoma. PSO made proper notification to the EPA of the contamination that was caused by spills prior to the adoption of PCB spill regulations. PSO negotiated a remediation plan with the EPA. Remediation began in November 1994, and the remediation costs were $235,000. As part of the remediation plan, the EPA requested PSO to sample the land surrounding the PCB storage building site. The land includes an active PSO substation and a privately owned industrial area. Testing of the PSO property conducted during the third quarter of 1995 revealed minor contamination and the resulting clean was completed. PSO has not been able to get permission to test the adjoining industrial area. PSO Coal Mine Reclamation As previously reported, in August 1994, PSO received approval from the Wyoming Department of Environmental Quality to begin reclamation of a coal mine in Sheridan, Wyoming owned by Ash Creek Mining Company, a wholly owned subsidiary of PSO. Ash Creek Mining recorded a $3 million liability in 1993 for the estimated reclamation costs and subsequently accrued an additional $500,000 in August 1995. Actual reclamation work commenced in September 1995, with completion estimated in late 1996. Surveillance monitoring will continue for ten years after final reclamation. Management believes the ultimate resolution of this matter will not have a material adverse effect on CSW's or PSO's consolidated results of operations or financial condition. SWEPCO's Suspected MGP Sites in Texarkana, Texas and Arkansas and Shreveport, Louisiana As previously reported, SWEPCO owns a suspected former MGP site in Texarkana, Texas and Arkansas. The EPA ordered an initial investigation of this site, as well as a site in Shreveport, Louisiana, which is no longer owned by SWEPCO. The contractor who performed the investigations of these two sites recommended to the EPA that no further action be taken at this time. Also, an underground storage tank was discovered in place at the Texarkana site and it was leaking. SWEPCO removed the tank in early 1995 and has made a request for closure from the Arkansas Department of Pollution Control and Ecology based on soil and ground water quality results. 62 SWEPCO's Suspected Biloxi, Mississippi MGP Site As previously reported, SWEPCO has been notified by Mississippi Power that it may be a PRP at the former Biloxi MGP site formerly owned and operated by a predecessor of SWEPCO. SWEPCO is working with Mississippi Power to investigate the extent of contamination at this site. The MDEQ approved a site investigation work plan and, in January 1995, SWEPCO and Mississippi Power initiated sampling pursuant to that work plan. On an interim basis, SWEPCO and Mississippi Power are each paying fifty percent of the cost of implementing the site investigation work plan. That interim allocation is subject to a final allocation in the future. SWEPCO and Mississippi Power are investigating whether there are other PRPs at the Biloxi site. SWEPCO continues to work with Mississippi Power in conducting the site investigation of the Biloxi service center property and adjacent properties that may be impacted by either the former MGP operation and/or the historical service center operations. Contamination has been identified as the result of the investigation and SWEPCO and Mississippi Power are now in the process of completing a risk assessment that will be used to evaluate remediation alternatives for the site. A Remedial Investigation Report has been submitted to the MDEQ for review and comment. Norweb On September 28, 1995, Texas Energy Partners announced that it had commenced an offer, which was subsequently withdrawn, to acquire all of the outstanding ordinary shares of Norweb for approximately $2.7 billion. On October 3, 1995, in response to a higher bid for Norweb by North West Water, Texas Energy Partners increased its initial bid for Norweb to an aggregate of approximately $2.72 billion. On October 12, 1995, the day following North West Water's announcement that it had raised its offer for Norweb to approximately $2.83 billion, Texas Energy Partners announced that it had elected not to proceed with its takeover bid for Norweb. Board of Directors Elections CSW On October 18, 1995, Mr. Thomas H. Cruikshank was elected to the CSW board of directors. Mr. Cruikshank is currently chairman of the board of Halliburton Company, which is headquartered in Dallas, Texas. Mr. Cruikshank previously served as Halliburton's chief executive officer. CPL On October 27, 1995, Mr. John F. Brimberry was elected to the CPL board of directors. Mr. Brimberry is currently the president and chief executive officer of four independent insurance agencies located in south Texas. SWEPCO On October 23, 1995, Mrs. Maxine P. Sarpy was elected to the SWEPCO board of directors. Mrs. Sarpy currently serves in many capacities for a variety of organizations, including the Southern University Foundation Board, the Association for Community Training and the Auxiliary to the Louisiana Medical Association. 63 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: (10) Material Contracts CSW - Credit Agreement dated as of November 6, 1995 among Central and South West Corporation and the Banks listed therein (Exhibit 10.1). (12) Computation of Ratio of Earnings to Fixed Charges CPL - (Exhibit 12.1) PSO - (Exhibit 12.3) SWEPCO - (Exhibit 12.4) WTU - (Exhibit 12.5) Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends CPL - (Exhibit 12.2) (27) Financial Data Schedules CSW - (Exhibit 27.1) CPL - (Exhibit 27.2) PSO - (Exhibit 27.3) SWEPCO - (Exhibit 27.4) WTU - (Exhibit 27.5) (b) CSW Current Reports filed on Form 8-K: Item 5. Other Events, reporting an ALJ recommendation regarding WTU deferred accounting, dated July 10, 1995. Item 5. Other Events, reporting developments in its regulatory matters, dated September 6, 1995. Item 5. Other Events, reporting CPL's intent to file a retail base rate review request in November 1995, dated September 27, 1995. Item 5. Other Events and Item 7. Financial Statements and Exhibits, reporting two joint offers by CSW and a partner to acquire Norweb, dated September 28, 1995. Item 5. Other Events, reporting the termination of CSW's and its partner's bid to acquire Norweb, dated October 12, 1995. CPL Current Reports filed on Form 8-K: Item 5. Other Events, reporting its intent to file a retail base rate review request in November 1995, dated September 27, 1995. Item 5. Other Events, providing unaudited financial information for the quarter and year ended September 30, 1995, in anticipation of a debt offering by CPL, dated October 19, 1995. PSO Current Reports filed on Form 8-K: No reports were filed for PSO. 64 SWEPCO Current Reports filed on Form 8-K: No reports were filed for SWEPCO. WTU Current Reports filed on Form 8-K: Item 5. Other Events, reporting an ALJ recommendation regarding deferred accounting, dated July 10, 1995. Item 5. Other Events, reporting developments in its regulatory matters, dated September 6, 1995. Item 5. Other Events, providing unaudited financial information for the quarter ended and year ended September 30, 1995, in connection with a debt offering by WTU, dated October 19, 1995. 65 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned Registrant shall be deemed to relate only to matters having reference to such Registrant or its subsidiaries. CENTRAL AND SOUTH WEST CORPORATION Date: November 10, 1995 /s/ Wendy G. Hargus Wendy G. Hargus Controller and Chief Accounting Officer (Principal Accounting Officer) CENTRAL POWER AND LIGHT COMPANY PUBLIC SERVICE COMPANY OF OKLAHOMA SOUTHWESTERN ELECTRIC POWER COMPANY WEST TEXAS UTILITIES COMPANY Date: November 10, 1995 /s/ R. Russell Davis R. Russell Davis Controller and Chief Accounting Officer (Principal Accounting Officer) EX-10.1 2 $850,000,000 CREDIT AGREEMENT dated as of November 6, 1995 among Central and South West Corporation, The Banks Listed Herein and Union Bank of Switzerland, as Agent Citibank, N.A. Credit Suisse Union Bank of Switzerland Co-Arrangers and Syndication Co-Agents Credit Suisse Documentation Agent TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . 1 1.2. Accounting Terms and Determinations. . . . . . . . . 12 1.3. Types of Borrowings. . . . . . . . . . . . . . . . . 12 ARTICLE 2 THE CREDITS 2.1. Commitments. . . . . . . . . . . . . . . . . . . . . 13 2.2. Loans. . . . . . . . . . . . . . . . . . . . . . . . 13 2.3. Notice of Borrowing. . . . . . . . . . . . . . . . . 13 2.4. Notice to Banks; Funding of Loans. . . . . . . . . . 13 2.5. Notes. . . . . . . . . . . . . . . . . . . . . . . . 14 2.6. Maturity of Loans. . . . . . . . . . . . . . . . . . 15 2.7. Interest Rates . . . . . . . . . . . . . . . . . . . 15 2.8. Fees . . . . . . . . . . . . . . . . . . . . . . . . 18 2.9. Termination and Reduction of Commitments . . . . . . 18 2.10. Method of Electing Interest Rates. . . . . . . . . . 19 2.11. Optional Prepayments . . . . . . . . . . . . . . . . 21 2.12. General Provisions as to Payments. . . . . . . . . . 21 2.13. Funding Losses . . . . . . . . . . . . . . . . . . . 22 2.14. Computation of Interest and Fees . . . . . . . . . . 22 2.15. Regulation D Compensation. . . . . . . . . . . . . . 23 ARTICLE 3 CONDITIONS 3.1. Initial Funding. . . . . . . . . . . . . . . . . . . 24 3.2. Borrowings . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE 4 REPRESENTATIONS AND WARRANTIES 4.1. Corporate Existence and Power. . . . . . . . . . . . 25 4.2. Corporate and Governmental Authorization; No Contravention. . . . . . . . . . . . . . . . . 25 4.3. Binding Effect . . . . . . . . . . . . . . . . . . . 26 4.4. Financial Information. . . . . . . . . . . . . . . . 26 4.5. Litigation . . . . . . . . . . . . . . . . . . . . . 27 4.6. Compliance with ERISA. . . . . . . . . . . . . . . . 27 4.7. Environmental Matters. . . . . . . . . . . . . . . . 28 4.8. Taxes. . . . . . . . . . . . . . . . . . . . . . . . 28 4.9. Subsidiaries . . . . . . . . . . . . . . . . . . . . 28 4.10. Full Disclosure. . . . . . . . . . . . . . . . . . . 29 4.11. No Defaults. . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 5 COVENANTS 5.1. Information. . . . . . . . . . . . . . . . . . . . . 29 5.2. Payment of Obligations . . . . . . . . . . . . . . . 31 5.3. Maintenance of Property; Insurance . . . . . . . . . 31 5.4. Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . 31 5.5. Compliance with Laws . . . . . . . . . . . . . . . . 32 5.6. Inspection of Property, Books and Records. . . . . . 32 5.7. Use of Proceeds. . . . . . . . . . . . . . . . . . . 32 5.8. Negative Pledge. . . . . . . . . . . . . . . . . . . 33 5.9. Transactions with Affiliates . . . . . . . . . . . . 34 5.10. Sale of Material Subsidiaries. . . . . . . . . . . . 35 5.11. Prohibition of Fundamental Changes.. . . . . . . . . 35 5.12. Minimum Consolidated Net Worth . . . . . . . . . . . 35 5.13. Syndication. . . . . . . . . . . . . . . . . . . . . 35 ARTICLE 6 DEFAULTS 6.1. Events of Default. . . . . . . . . . . . . . . . . . 36 6.2. Notice of Default. . . . . . . . . . . . . . . . . . 38 ARTICLE 7 THE AGENT 7.1. Appointment and Authorization. . . . . . . . . . . . 38 7.2. Agent and Affiliates . . . . . . . . . . . . . . . . 39 7.3. Action by Agent. . . . . . . . . . . . . . . . . . . 39 7.4. Consultation with Experts. . . . . . . . . . . . . . 39 7.5. Liability of Agent . . . . . . . . . . . . . . . . . 39 7.6. Indemnification. . . . . . . . . . . . . . . . . . . 40 7.7. Credit Decision. . . . . . . . . . . . . . . . . . . 40 7.8. Successor Agent. . . . . . . . . . . . . . . . . . . 40 7.9. Agent's Fee. . . . . . . . . . . . . . . . . . . . . 41 7.10. Co-Arrangers, etc. . . . . . . . . . . . . . . . . . 41 ARTICLE 8 CHANGE IN CIRCUMSTANCES 8.1. Basis for Determining Interest Rate Inadequate or Unfair . . . . . . . . . . . . . . . . . . . . 41 8.2. Illegality . . . . . . . . . . . . . . . . . . . . . 42 8.3. Increased Cost and Reduced Return. . . . . . . . . . 42 8.4. Taxes. . . . . . . . . . . . . . . . . . . . . . . . 44 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans. . . . . . . . . . . . . . . . . . . . 46 8.6. Replacement of Bank. . . . . . . . . . . . . . . . . 47 ARTICLE 9 MISCELLANEOUS 9.1. Notices. . . . . . . . . . . . . . . . . . . . . . . 49 9.2. No Waivers . . . . . . . . . . . . . . . . . . . . . 49 9.3. Expenses; Indemnification. . . . . . . . . . . . . . 50 9.4. Sharing of Set-Offs. . . . . . . . . . . . . . . . . 50 9.5. Amendments and Waivers . . . . . . . . . . . . . . . 51 9.6. Successors and Assigns . . . . . . . . . . . . . . . 51 9.7. Collateral . . . . . . . . . . . . . . . . . . . . . 53 9.8. Governing Law; Submission to Jurisdiction. . . . . . 53 9.9. Counterparts; Integration; Effectiveness . . . . . . 53 9.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . 54 EXHIBIT A - Note EXHIBIT B - Opinion of Special Counsel for the Borrower EXHIBIT C - Opinion of Special Counsel for the Agent and the Co-Arrangers EXHIBIT D - Assignment and Assumption Agreement AGREEMENT dated as of November 6, 1995 among CENTRAL AND SOUTH WEST CORPORATION, the BANKS listed on the signature pages hereof and UNION BANK OF SWITZERLAND, as Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1. Definitions. The following terms, as used herein, have the following meanings: "Adjusted CD Rate" has the meaning set forth in Section 2.7(b). "Administrative Questionnaire" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "Affiliate" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Borrower (a "Controlling Person") or (ii) any Person (other than the Borrower or a Subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Notwithstanding the foregoing, no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Borrower or any of its Subsidiaries. "Agent" means Union Bank of Switzerland, in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "Announcement Date" means the date of the press release or other public announcement by or on behalf of Bidco of the Offer. "Applicable Lending Office" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office and (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office. "Assessment Rate" has the meaning set forth in Section 2.7(b). "Assignee" has the meaning set forth in Section 9.6(c). "Availability Period" means the period commencing on and including the Effective Date and ending on and including the earlier of (i) the 180th day after the Announcement Date and (ii) July 2, 1996. "Bank" means each bank listed on the signature pages hereof, each Replacement Bank which becomes a Bank pursuant to Section 8.6, each Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective successors. "Base Rate" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "Base Rate Loan" means (i) a Loan which bears interest at the Base Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount which was a Base Rate Loan immediately before it became overdue. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Bidco" means CSW (UK) plc, a limited company incorporated in England and Wales. "Bidding Agreement" has the meaning set forth in the Facility Agreement. "Borrower" means Central and South West Corporation, a Delaware corporation, and its successors. "Borrower's 1994 Form 10-K" means the Borrower's annual report on Form 10-K for 1994, as filed with the Commission pursuant to the Securities Exchange Act of 1934. "Borrower's Latest Form 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended June 30, 1995, as filed with the Commission pursuant to the Securities Exchange Act of 1934. "Borrowing" has the meaning set forth in Section 1.3. "CD Base Rate" has the meaning set forth in Section 2.7(b). "CD Loan" means (i) a Loan which bears interest at a CD Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a CD Loan immediately before it became overdue. "CD Margin" means a rate per annum determined in accordance with the Pricing Schedule. "CD Rate" means a rate of interest determined pursuant to Section 2.7(b) on the basis of an Adjusted CD Rate. "CD Reference Banks" means the principal New York offices of Citibank, N.A., Credit Suisse and Union Bank of Switzerland. "Closing Date" means each date on or after the Effective Date on which Loans are made to the Borrower pursuant to a Notice of Borrowing. "Co-Arrangers" means Citibank, N.A., Credit Suisse and Union Bank of Switzerland, in their respective capacities as co-arrangers of the credit facility hereunder. "Commission" means the Securities and Exchange Commission, or any entity succeeding to its responsibilities under the Public Utility Holding Company Act of 1935, as amended. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.9. "Confidential Information Memorandum" has the meaning set forth in Section 5.13. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Net Worth" means at any date the consolidated common stock equity of the Borrower and its Consolidated Subsidiaries determined as of such date. "Debt" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations (and, for purposes of Section 5.8 and the definition of Material Debt, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (vii) all Debt of others Guaranteed by such Person. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, forward purchase, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Documentation Agent" means Credit Suisse, in its capacity as documentation agent of the credit facility hereunder. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "Domestic Lending Office" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "Domestic Loans" means CD Loans or Base Rate Loans or both. "Domestic Reserve Percentage" has the meaning set forth in Section 2.7(b). "Effective Date" means the date this Agreement becomes effective in accordance with Section 9.9. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof, in each case as in effect and applicable to the Borrower and its Subsidiaries at the time the representation in Section 4.7 is made or compliance with Section 5.5 is determined. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA Group" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "Euro-Dollar Business Day" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "Euro-Dollar Lending Office" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent. "Euro-Dollar Loan" means (i) a Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Borrowing or Notice of Interest Rate Election or (ii) an overdue amount which was a Euro-Dollar Loan immediately before it became overdue. "Euro-Dollar Margin" means a rate per annum determined in accordance with the Pricing Schedule. "Euro-Dollar Rate" means a rate of interest determined pursuant to Section 2.7(c) on the basis of a London Interbank Offered Rate. "Euro-Dollar Reference Banks" means the principal London offices of Citibank, N.A., Credit Suisse and Union Bank of Switzerland. "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.15. "Event of Default" has the meaning set forth in Section 6.1. "Facility Agreement" means the Facility Agreement dated on or about November 6, 1995, between Bidco, the Arrangers and Original Banks named therein and Credit Suisse, as Facility and Security Agent, as amended, supplemented or otherwise modified from time to time. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day; provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Union Bank of Switzerland on such day on such transactions as determined by the Agent. "Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or any combination of the foregoing. "Group of Loans" means at any time a group of Loans consisting of (i) all Loans which are Base Rate Loans at such time, (ii) all Euro-Dollar Loans having the same Interest Period at such time or (iii) all CD Loans having the same Interest Period at such time, provided that, if a Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part); provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "Indemnitee" has the meaning set forth in Section 9.3(b). "Initial Funding Date" means the first Closing Date. "Interest Period" means: (1) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall, subject to clause (c) below, be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and (c) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each CD Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in the applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Domestic Business Day shall, subject to clause (b) below, be extended to the next succeeding Domestic Business Day; and (b) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Domestic Loan or a Euro-Dollar Loan and "Loans" means Domestic Loans, Euro-Dollar Loans or any combination thereof. "London Interbank Offered Rate" has the meaning set forth in Section 2.7(c). "Material Debt" means Debt (other than the Notes) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding $25,000,000. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $25,000,000. "Material Subsidiary" means each Subsidiary which is a "public utility company" within the meaning of Section 2(a)(5) of the Public Utility Holding Company Act of 1935. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA (i) to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five-year period and (ii) which is covered by Title IV of ERISA. "Notes" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "Note" means any one of such promissory notes issued hereunder. "Notice of Borrowing" has the meaning set forth in Section 2.3. "Notice of Interest Rate Election" has the meaning set forth in Section 2.11. "Offer" has the meaning set forth in the Facility Agreement. "Parent" means, with respect to any Bank, any Person controlling such Bank. "Participant" has the meaning set forth in Section 9.6(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Pricing Schedule" means the Schedule attached hereto identified as such. "Prime Rate" means the rate of interest publicly announced by Union Bank of Switzerland in New York City from time to time as its Prime Rate. "Quarterly Date" means March 31, June 30, September 30 and December 31. "Reference Banks" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Replacement Bank" has the meaning set forth in Section 8.6. "Required Banks" means at any time Banks having more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing more than 50% of the aggregate unpaid principal amount of the Loans. "SEC Authorization Date" means December 31, 1997, the outside maturity date for bank borrowings by the Borrower specified by the Commission in its order adopted pursuant to the Public Utility Holding Company Act of 1935, as amended (Release No. 35-26156; International Series Release No. 743; 70-8423), as such order may be amended from time to time, or such later outside maturity date as may be established for such purpose by order of the Commission, a copy of which order shall be furnished promptly to the Agent. "Subsidiary" means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, "Subsidiary" means a Subsidiary of the Borrower. "Syndication Co-Agents" means Citibank, N.A., Credit Suisse and Union Bank of Switzerland, in their respective capacities as syndication co-agents of the credit facility hereunder. "Target" means SEEBOARD plc, a public limited company incorporated in England and Wales. "Termination Date" means the earlier of (i) the fifth anniversary of the Initial Funding Date and (ii) the SEC Authorization Date, or, if any such day is not a Euro- Dollar Business Day, the next preceding Euro-Dollar Business Day. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities (within the meaning of Section 4001(a)(16) of ERISA) under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "United States" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. SECTION 1.2. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Agent that the Borrower wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article 5 for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on the same date, all of which Loans are of the same type (subject to Article 8) and, except in the case of Base Rate Loans, have the same initial Interest Period. Borrowings are classified for purposes of this Agreement by reference to the pricing of Loans comprising such Borrowing (e.g., a "Fixed Rate Borrowing" is a Euro-Dollar Borrowing or a CD Borrowing and a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans). ARTICLE 2 THE CREDITS SECTION 2.1. Commitments. On the terms and subject to the conditions and relying upon the representations and warranties herein set forth each Bank agrees, severally and not jointly, to make Loans to the Borrower at any time and from time to time during the Availability Period in an aggregate principal amount not to exceed its Commitment. Amounts paid or prepaid in respect of the Loans may not be reborrowed. SECTION 2.2. Loans. Each Loan shall be made as part of a Borrowing consisting of Loans made by the Banks ratably in accordance with their respective Commitments; provided, however, that the failure of any Bank to make any Loan shall not relieve any other Bank of its obligation to lend hereunder (it being understood, however, that no Bank shall be responsible for the failure of any other Bank to make any Loan required to be made by such other Bank). SECTION 2.3. Notice of Borrowing. The Borrower shall give the Agent notice (a "Notice of Borrowing") not later than 12:00 Noon (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing; (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000; (iii) whether the Loans comprising such Borrowing are to bear interest initially at the Base Rate, a CD Rate or a Euro-Dollar Rate; and (iv) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.4. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 2:00 p.m. (New York City time) on the date of each Borrowing, each Bank shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.1. Unless the Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agent's aforesaid address. (c) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsection (b) of this Section and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and, to the extent such Bank has failed to do so within three Domestic Business Days of demand therefor by the Agent, the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount (together with interest thereon), for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.7 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. If the Borrower shall repay to the Agent such corresponding amount, such Bank's Loan included in such Borrowing shall be deemed not to have been made. This subsection (c) shall not limit any right of the Borrower pursuant to Section 8.6. SECTION 2.5. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.1(a), the Agent shall forward such Note to such Bank. Each Bank shall record the date, amount and type of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.6. Maturity of Loans. (a) Each Loan shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the Termination Date. SECTION 2.7. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable quarterly in arrears on each Quarterly Date and, with respect to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on each date a Base Rate Loan is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan shall, as a result of clause (2)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such CD Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the rate applicable to Base Rate Loans for such day and (ii) the sum of the CD Margin plus the Adjusted CD Rate applicable to such Loan at the date such payment was due. The "Adjusted CD Rate" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate __________ * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD Base Rate" applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "Domestic Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "Assessment Rate" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. Section 327.4(a) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "London Interbank Offered Rate" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than three months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.1 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day) and (ii) the sum of 2% plus the Euro-Dollar Margin for such day plus the London Interbank Offered Rate applicable to such Loan at the date such payment was due. (e) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.1 shall apply. SECTION 2.8. Fees. The Borrower shall pay to the Agent for the account of the Banks ratably a commitment fee of 0.30% per annum of the average daily unused amount of the Commitments from and including the date of this Agreement to but excluding the termination of the Commitments in their entirety. SECTION 2.9. Termination and Reduction of Commitments. (a) The Commitments shall be automatically terminated in their entirety at 5:00 p.m., New York City time, on the last day of the Availability Period (without prejudice to any rights that the Borrower may have against any Bank who fails to lend as required hereunder prior to the date of termination of the Commitments). Prior to the termination thereof in full, the Commitments shall be automatically permanently reduced on each Closing Date, immediately upon the funding of the Loans to be made on such Closing Date, by an amount equal to the aggregate principal amount of the Loans made on such date. (b) The Borrower may, upon three Domestic Business Days' notice to the Agent, in whole permanently terminate, or from time to time in part permanently reduce, the Commitments; provided, however, that each partial reduction of the Commitments pursuant to this clause (b) shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $25,000,000. (c) Each reduction in the Commitments hereunder shall be made ratably among the Banks in accordance with their respective Commitments. The Borrower shall pay to the Agent, for the account of the Banks, on each Closing Date and on the date of each other termination or reduction, the commitment fees on the amount of the Commitments so terminated or reduced accrued through the date of such termination or reduction. SECTION 2.10. Method of Electing Interest Rates. (a) The Loans included in each Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject in each case to the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to CD Loans as of any Domestic Business Day or to Euro-Dollar Loans as of any Euro-Dollar Business Day; (ii) if such Loans are CD Loans, the Borrower may elect to convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue such Loans as CD Loans for an additional Interest Period, subject to Section 2.13 in the case of any such conversion or continuation effective on any day other than the last day of the then current Interest Period applicable to such Loans; and (iii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or CD Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.13 in the case of any such conversion or continuation effective on any day other than the last day of the then current Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Agent not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted to Domestic Loans of the other type or are CD Rate Loans to be continued as CD Rate Loans for an additional Interest Period, in which case such notice shall be delivered to the Agent not later than 10:30 A.M. (New York City time) on the second Domestic Business Day before such conversion or continuation is to be effective). A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each $25,000,000 (or, if such remaining portion is comprised of Base Rate Loans, $10,000,000) or any larger multiple of $1,000,000. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans being converted are to be Fixed Rate Loans, the duration of the next succeeding Interest Period applicable thereto; and (iv) if such Loans are to be continued as CD Loans or Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Upon receipt of a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Agent shall promptly notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) An election by the Borrower to change or continue the rate of interest applicable to any Group of Loans pursuant to this Section shall not constitute a "Borrowing" subject to the provisions of Section 3.2. SECTION 2.11. Optional Prepayments. (a) Subject in the case of any Fixed Rate Borrowing to Section 2.13, the Borrower may, upon at least one Domestic Business Day's notice to the Agent, prepay any Group of Domestic Loans or upon at least three Euro-Dollar Business Days' notice to the Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $25,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the Banks included in such Group. (b) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.12. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 2:00 p.m. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address referred to in Section 9.1. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate. SECTION 2.13. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is converted (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.7(d), or if the Borrower fails to borrow, convert or prepay any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.4(a), 2.10(c) or 2.11(b) the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow, convert or prepay, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.14. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.15. Regulation D Compensation. For so long as any Bank maintains reserves against "Eurocurrency liabilities" (or any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of such Bank to United States residents), and as a result the cost to such Bank (or its Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar Loans is increased, then such Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such Bank at a rate per annum up to but not exceeding the excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Agent, in which case such additional interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least four Euro-Dollar Business Days after the giving of such notice and (y) shall furnish to the Borrower at least five Euro-Dollar Business Days prior to each date on which interest is payable on the Euro-Dollar Loans an officer's certificate setting forth the amount to which such Bank is then entitled under this Section (which shall be consistent with such Bank's good faith estimate of the level at which the related reserves are maintained by it). "Euro-Dollar Reserve Percentage" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). ARTICLE 3 CONDITIONS SECTION 3.1. Initial Funding. The obligation of any Bank to make a Loan on the Initial Funding Date shall be subject to the satisfaction of each of the following conditions: (a) the Agent shall have received a duly executed Note for the account of each Bank dated on or before the Initial Funding Date complying with the provisions of Section 2.5; (b) the Agent shall have received an opinion of Vinson & Elkins L.L.P., special counsel for the Borrower, substantially in the form of Exhibit B hereto; (c) the Agent shall have received an opinion of Cravath, Swaine & Moore, special counsel for the Agent and the Co-Arrangers, substantially in the form of Exhibit C hereto; and (d) the Agent shall have received (i) a copy of the certificate of incorporation, including all amendments thereto, of the Borrower, certified as of a recent date by the Secretary of State of the State of Delaware, and a certificate as to the good standing of the Borrower as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower dated on or after the Effective Date and on or prior to the Initial Funding Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Borrower, as in effect on the date of such certificate and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Borrower, authorizing the execution, delivery and performance by the Borrower of this Agreement and the Notes and the borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect as of the date of such certificate, (C) that the certificate of incorporation of the Borrower has not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer executing this Agreement, any Note or any other document delivered in connection herewith on behalf of the Borrower; and (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above. SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) the Agent shall have received a Notice of Borrowing as required by Section 2.3; (b) the fact that, immediately before and after such Borrowing, no Default described in clause (f) or (g) of Section 6.1 shall have occurred and be continuing; and (c) the fact that the representations and warranties of the Borrower contained in Sections 4.1, 4.2 and 4.3 shall be true in all material respects on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b) and (c) of this Section. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.1. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.2. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the corporate powers of the Borrower, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official, except for the order of the Commission contemplated by the definition of SEC Authorization Date, which, as of each Closing Date, has been obtained and is in full force and effect with respect to the Borrowings to be made on such Closing Date, and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement or instrument governing Debt of the Borrower or any of its Subsidiaries or of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any material asset of the Borrower or any of its Subsidiaries. SECTION 4.3. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Agreement and the Notes is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. SECTION 4.4. Financial Information. (a) The consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1994 and the related consolidated statements of income and cash flows for the fiscal year then ended, reported on by Arthur Andersen LLP and set forth in the Borrower's 1994 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of June 30, 1995 and the related unaudited consolidated statements of income and cash flows for the three months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such three-month period (subject to normal year-end adjustments). (c) Since June 30, 1995 there has been no material adverse change in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.5. Litigation. (a) Except for the matters disclosed in the Borrower's 1994 Form 10-K, the Borrower's Latest Form 10-Q and the Borrower's current report on Form 8-K dated September 6, 1995 (the "Disclosed Matters"), there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of this Agreement or the Notes. (b) Since the date of the latest filing with the Commission referred to in Section 4.5(a), there has been no development in the Disclosed Matters which is likely to materially and adversely affect the ability of the Borrower to perform its obligation under this Agreement and the Notes. SECTION 4.6. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.7. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Borrower and its Subsidiaries, in the course of which it identifies and evaluates liabilities and costs arising under or imposed by Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by Environmental Law, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees). On the basis of this review, the Borrower has no reason to conclude that such liabilities and costs arising under, including the costs of compliance with, Environmental Laws, are likely to have a material adverse effect on the business, financial condition or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole. SECTION 4.8. Taxes. The Borrower and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary, other than taxes which are not delinquent, and other than those contested in good faith and for which adequate reserves have been established in accordance with generally accepted accounting principles. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. SECTION 4.9. Subsidiaries. Each of the Borrower's corporate Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. Full Disclosure. All information (taken as a whole) heretofore furnished in writing by the Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Agent or any Bank (including, without limitation, all information used in the preparation of, or which forms part of, the Confidential Information Memorandum) will be, to the knowledge of the Borrower, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed, either in reports on Form 10-K, Form 10-Q or Form 8-K (or their equivalents) filed with the Commission or otherwise in writing to the Banks, any and all facts known to the Borrower which materially and adversely affect or may affect (to the extent the Borrower can now reasonably foresee), the business, financial condition or results of operations of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement. SECTION 4.11. No Defaults. On the Effective Date, no Default or Event of Default exists under this Agreement. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.1. Information. The Borrower will deliver to the Agent: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, the annual report of the Borrower and its Subsidiaries filed with the Commission on Form 10-K for such year; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, the quarterly report of the Borrower and its Subsidiaries filed with the Commission on Form 10-Q for such quarter; (c) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (e) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Form 8-K (or its equivalent) which the Borrower shall have filed with the Commission; (f) if and when any member of the ERISA Group (i) gives notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given notice of any such reportable event, a copy of the notice of such reportable event given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Section 4201, 4203 or 4204 of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated under Section 4241, 4245 or 4041A of ERISA, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or makes any amendment to any Plan which has resulted or which may reasonably be expected to result in the imposition of a lien or the posting of a bond or other security under Section 401(a)(29) or 412(n) of the Internal Revenue Code, or Section 302(f) or 307 of ERISA, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (g) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request. SECTION 5.2. Payment of Obligations. The Borrower will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with and to the extent required by generally accepted accounting principles, appropriate reserves for the accrual of any of the same. SECTION 5.3. Maintenance of Property; Insurance. (a) The Borrower will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. (b) The Borrower will, and will cause each of its Subsidiaries to, maintain (either in the name of the Borrower or in such Subsidiary's own name) with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts, against at least such risks and with no greater than such risk retention as are customarily maintained, insured against or retained, as the case may be, in the same general area by companies of established repute engaged in the same or a similar business; and will furnish to the Agent, upon reasonable request from the Agent, information presented in reasonable detail as to the insurance so carried. SECTION 5.4. Conduct of Business and Maintenance of Existence. The Borrower will continue, and will cause each Material Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Section 5.4 shall prohibit (i) the merger of a Subsidiary into the Borrower or the merger or consolidation of a Subsidiary with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, no Default shall have occurred and be continuing, (ii) the transfer of assets, rights, privileges, licenses, franchises or businesses from one Subsidiary to another Subsidiary or (iii) the termination of the corporate existence of any Subsidiary if the Borrower in good faith determines that such termination is in the best interest of the Borrower and is not materially disadvantageous to the Banks. SECTION 5.5. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity or fact of compliance therewith is contested in good faith by appropriate proceedings. SECTION 5.6. Inspection of Property, Books and Records. The Borrower will keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.7. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower solely to acquire, directly or indirectly, ordinary shares or subordinated debt of Bidco pursuant to the Bidding Agreement (the proceeds of such ordinary shares or subordinated debt of Bidco to be used by Bidco solely (i) to acquire ordinary shares of the Target, either in the open market, pursuant to the Offer or otherwise and (ii) to pay costs and expenses relating to the Offer). None of the proceeds of the Loans made under this Agreement will be used, directly or indirectly, for any purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board of Governors of the Federal Reserve System of the United States, including without limitation Regulation U. After giving effect to the consummation of the Offer and the financing thereof, "margin stocks" (as defined in Regulation U) will not constitute more than 25% of the assets of the Borrower and its Subsidiaries on a consolidated basis. SECTION 5.8. Negative Pledge. The Borrower will not create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing obligations in an aggregate amount not exceeding $25,000,000; (b) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset; provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (c) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower and not created in contemplation of such event; (d) any Lien existing on any asset prior to the acquisition thereof by the Borrower and not created in contemplation of such acquisition; (e) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses of this Section, provided that such Debt is not increased and is not secured by any additional assets; (f) Liens arising in the ordinary course of its business which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any obligation in an amount exceeding $25,000,000 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (g) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $25,000,000; (h) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or that are being contested in good faith and by appropriate proceedings if, unless the amount thereof is not material with respect to it or its financial condition, adequate reserves with respect thereto are maintained on the books of the Borrower in accordance with generally accepted accounting principles; (i) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings and Liens securing judgments but only to the extent for an amount and for a period not resulting in an Event of Default under Section 6.1(i) hereof; (j) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (k) deposits to secure the performance of bids, trade contracts (other than for Debt), leases, statutory obligations, surety bonds, appeal bonds with respect to judgments not exceeding $25,000,000, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (l) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of property or minor imperfections in title thereto that, in the aggregate, are not material in amount, and that do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower; and (m) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount at any date not to exceed 5% of Consolidated Net Worth. SECTION 5.9. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect, any transaction with, any Affiliate except on an arms-length basis on terms at least as favorable to the Borrower or such Subsidiary than could have been obtained from a third party who was not an Affiliate; provided that the foregoing provisions of this Section shall not prohibit any such Person from declaring or paying any lawful dividend or other payment ratably in respect of all of its capital stock of the relevant class so long as, after giving effect thereto, no Default shall have occurred and be continuing. SECTION 5.10. Sale of Material Subsidiaries. The Borrower will not and will not permit any Subsidiary to, at any time, sell or otherwise transfer, directly or indirectly, any capital stock of or other equity interest in any Material Subsidiary if, after giving effect thereto, such Material Subsidiary would no longer be a Subsidiary. SECTION 5.11. Prohibition of Fundamental Changes. The Borrower shall not: (a) enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); or (b) convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or substantially all of its business or property. Notwithstanding the foregoing provisions of this Section 5.11, the Borrower may merge or consolidate with any other Person if the Borrower is the surviving corporation or the surviving corporation assumes the liabilities of the Borrower by operation of law or otherwise. SECTION 5.12. Minimum Consolidated Net Worth. The Borrower shall not permit its Consolidated Net Worth to be less than $2,000,000,000 at any time SECTION 5.13. Syndication. The Borrower acknowledges that the Co-Arrangers intend promptly to commence to syndicate their Commitments or Loans in accordance with the provisions of Section 9.6. The Borrower agrees actively to assist the Co-Arrangers in achieving a syndication that is satisfactory to them and to the Borrower. Such assistance shall include but not be limited to (i) the preparation with the Co-Arrangers of a Confidential Information Memorandum and other marketing materials (collectively, the "Confidential Information Memorandum") and (ii) direct contact, including the hosting of one or more bank meetings, between senior management of the Borrower and its Subsidiaries (including, after consummation of the Offer, the Target) on the one hand, and potential Assignees and Participants on the other hand. ARTICLE 6 DEFAULTS SECTION 6.1. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal of any Loan or shall fail to pay within five days of the due date thereof any interest, any fees or any other amount payable hereunder; (b) the Borrower shall fail to observe or perform its obligations under Section 5.1(c), 5.7, 5.10, 5.11 or 5.12; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Agent at the request of any Bank; (d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) any event or condition shall occur which results in the acceleration of any Material Debt; (f) the Borrower or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (g) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Subsidiary under the federal bankruptcy laws as now or hereafter in effect; (h) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $25,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (i) judgments or orders for the payment of money in excess of $25,000,000 shall be rendered against the Borrower or any Subsidiary and such judgments or orders shall continue unsatisfied and unstayed for a period of 30 days; or (j) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Commission under said Act) of 30% or more of the outstanding shares of common stock of the Borrower; or, during any period of 12 consecutive calendar months, individuals (i) who were directors of the Borrower on the first day of such period, (ii) whose election or nomination to the board of directors of the Borrower was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of said board or (iii) whose election or nomination to said board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of said board, shall cease to constitute a majority of said board; then, and in every such event, the Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding more than 50% of the aggregate unpaid principal amount of the Loans, by notice to the Borrower declare the Loans (together with accrued interest thereon) to be, and the Loans (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause 6.1(f) or 6.1(g) above with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Loans (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.2. Notice of Default. The Agent shall give notice to the Borrower under Section 6.1(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE AGENT SECTION 7.1. Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.2. Agent and Affiliates. Union Bank of Switzerland shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Union Bank of Switzerland and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent. SECTION 7.3. Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6. SECTION 7.4. Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.5. Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance with its Commitment or, if the Commitments have terminated as a result of the making of Loans, the outstanding principal amount of its Loans, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.7. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent, any Co-Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent, any Co- Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.8. Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent subject to the approval of the Borrower. If no successor Agent shall have been so appointed and approved, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. Any retiring Agent shall refund any unearned portion of its administrative agency fee. SECTION 7.9. Agent's Fee. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent. SECTION 7.10. Co-Arrangers, etc. Nothing in this Agreement shall impose on any Co-Arranger, any Syndication Co-Agent or the Documentation Agent, in its capacity as such, any duties or obligations whatsoever. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any CD Loan or Euro-Dollar Loan: (a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of CD Loans or Euro-Dollar Loans, Banks having 50% or more of the aggregate principal amount of the affected Loans advise the Agent that the Adjusted CD Rate or the London Interbank Offered Rate, as the case may be, as determined by the Agent will not, together with any increased costs reimbursable by the Borrower hereunder, adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro- Dollar Loans, as the case may be, for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to continue or convert outstanding Loans as or into CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended and (ii) each outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 8.2. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to convert outstanding Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan to such day. SECTION 8.3. Increased Cost and Reduced Return. (a) If on or after the date hereof, any Loan or any obligation to make Loans, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement for which such Bank is entitled to compensation for the relevant Interest Period under Section 2.13), special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. Notwithstanding the foregoing subsections (a) and (b) of this Section 8.3, the Borrower shall only be obligated to compensate any Bank for any amount arising or accruing during (i) any time or period commencing not more than 90 days prior to the date on which such Bank notifies the Agent and the Borrower that it proposes to demand such compensation and identifies to the Agent and the Borrower the statute, regulation or other basis upon which the claimed compensation is or will be based and (ii) any time or period during which, because of the retroactive application of such statute, regulation or other such basis, such Bank did not know that such amount would arise or accrue. SECTION 8.4. Taxes. (a) For the purposes of this Section 8.4, the following terms have the following meanings: "Taxes" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note, and all penalties and interest with respect thereto, excluding (i) in the case of each Bank and the Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or in which its principal executive office is located, in which its Applicable Lending Office is located or in which it would be subject to tax due to some connection other than that created by this Agreement and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement. "Other Taxes" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies and all penalties and interest with respect thereto, which arise from the making of any payment pursuant to this Agreement or under any Note or from the execution or delivery of this Agreement or any Note. (b) Any and all payments by the Borrower to or for the account of any Bank or the Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 9.1, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes on amounts payable under this Section) paid by such Bank or the Agent (as the case may be). This indemnification shall be paid within 15 days after such Bank or the Agent (as the case may be) makes appropriate demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower and the Agent with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Borrower or the Agent with the appropriate form pursuant to Section 8.4(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.4(b) or (c) with respect to Taxes imposed by the United States; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps (at the expense of such Bank) as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank in its sole judgment. SECTION 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make, or convert outstanding Loans to, Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as (or continued as or converted into) CD Loans or Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks); and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid (or converted to a Base Rate Loan), all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. If such Bank notifies the Borrower that the circumstances giving rise to such notice no longer apply, the principal amount of each such Base Rate Loan shall be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first day of the next succeeding Interest Period applicable to the related CD Loans or Euro-Dollar Loans of the other Banks. SECTION 8.6. Replacement of Bank. (a) In the event that: (i) any Bank requests compensation pursuant to Section 8.3 or 8.4 hereof; (ii) the obligation of any Bank to make Euro- Dollar Loans or to continue, or to convert Base Rate Loans into, Euro-Dollar Loans shall be suspended pursuant to Section 8.2 hereof; (iii) any Bank becomes insolvent or fails to make any Loan in response to a timely Notice of Borrowing where the Required Banks have made the respective Loans to be made by them in response to such notice; or (iv) any Bank fails or refuses to agree to a request by the Borrower to amend or waive, or to grant any consent under, any provision of the Agreement under circumstances when such amendment, waiver or consent has been approved by the Required Banks, such amendment, waiver or consent requires the approval of all of the Banks to be effective and such failure or refusal is evidenced by (x) written objection by such Bank to any such request made to it by the Agent in writing describing such amendment, waiver or requested consent in principle, (y) failure by such Bank to respond in writing to any such request so made to it on or before the 15th Domestic Business Day after it receives such request, or (z) failure by such Bank to execute and deliver definitive documentation furnished to it by the Agent to effectuate any such amendment, waiver or consent on or before the 15th Domestic Business Day after it receives such documentation; then, so long as such condition exists, the Borrower may either: (1) designate another financial institution (such financial institution being herein called a "Replacement Bank") acceptable to the Agent (which acceptance will not be unreasonably withheld) and which is not an Affiliate of the Borrower, to assume such Bank's Commitment hereunder and to purchase the Loans of such Bank and such Bank's rights under this Agreement and the Note held by such Bank, all without recourse to or representation or warranty by, or expense to such Bank, for a purchase price equal to the outstanding principal amount of the Loans payable to such Bank plus any accrued but unpaid interest on such Loans and accrued but unpaid fees owing to such Bank plus any amounts payable to such Bank under Section 2.13 hereof calculated as if such purchase constituted a prepayment of Loans plus any other amounts payable to such Bank under this Agreement, and upon such assumption, purchase and substitution, and subject to the execution and delivery to the Agent by the Replacement Bank of documentation satisfactory to the Agent (pursuant to which such Replacement Bank shall assume the obligations of such original Bank under this Agreement), the Replacement Bank shall succeed to the rights and obligations of such Bank hereunder; or (2) with the prior written consent of the Required Banks, pay to such Bank the outstanding principal amount of the Loans payable to such Bank plus any accrued but unpaid interest on such Loans and accrued but unpaid fees owing to such Bank plus any amounts payable to such Bank under Section 2.13 hereof calculated as if such purchase constituted a prepayment of Loans. In the event that the Borrower exercises its rights under the preceding sentence, the Bank against which such rights are exercised shall no longer be a party hereto or have any rights or obligations hereunder; provided that the obligations of the Borrower to such Bank under Article 8 and Section 9.3 hereof with respect to events occurring or obligations arising before or as a result of such replacement shall survive such exercise. (b) If the Borrower exercises its rights under clause (2) of Section 8.6(a) hereof, the Borrower may, not later than 180 days after such exercise, designate a Replacement Bank acceptable to the Agent (which acceptance will not be unreasonably withheld) and which is not an Affiliate of the Borrower, to assume a Commitment or, if the Commitments have terminated, to make a Loan or Loans hereunder in an amount not greater than the Commitment or Loans, as the case may be, of the Bank against which such rights were exercised and, subject to the execution and delivery to the Agent by the Replacement Bank of documentation satisfactory to the Agent the Replacement Bank shall become party to this Agreement as a Bank. ARTICLE 9 MISCELLANEOUS SECTION 9.1. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (a) in the case of the Borrower or the Agent, at its address, facsimile number or telex number set forth on the signature pages hereof, (b) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (c) in the case of any party, such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article 2 or Article 8 shall not be effective until received. SECTION 9.2. No Waivers. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.3. Expenses; Indemnification. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent and each Co-Arranger, including reasonable fees and disbursements of Cravath, Swaine & Moore, special counsel for the Agent and the Co-Arrangers, in connection with the preparation of this Agreement, the syndication contemplated by Section 5.13, any waiver or consent hereunder or any amendment hereof or any Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent and each Bank, including (without duplication) the reasonable fees and disbursements of outside counsel and the allocated cost of inside counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to the Commitments, the Loans or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct. SECTION 9.4. Sharing of Set-Offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.5. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan, or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan, or any fees hereunder or for the scheduled termination of any Commitment or (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.6. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii), or (iv) of Section 9.5 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $15,000,000) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit C hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Agent, which shall not be unreasonably withheld; provided that if an Assignee is an affiliate of such transferor Bank or was a Bank immediately prior to such assignment, no such consent shall be required. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.4. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.3 or 8.4 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 9.7. Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.8. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.9. Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective upon receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it constituting delivery of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party). SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. CENTRAL AND SOUTH WEST CORPORATION, By /s/ Stephen J. McDonnell Name: Stephen J. McDonnell Title: Treasurer Address: 1616 Woodall Rodgers Freeway Dallas, TX 65202 Telex: Facsimile: (214) 777-3067 Commitments $283,333,333 CITIBANK, N.A., By /s/ Sandip Sen Name: Sandip Sen Title: Attorney-in-fact Address: 399 Park Avenue New York, NY 10043 Telex: Facsimile: (212) 793-6130 $283,333,333 CREDIT SUISSE, By /s/ David J. Worthington Name: David J. Worthington Title: Member of Senior Management Address: 633 West Fifth Street 64th Floor Los Angeles, CA 90071 Telex: 67227 Facsimile: (213) 955-8245 By /s/ Marilou Palenzuela Name: Marilou Palenzuela Title: Member of Senior Management $283,333,334 UNION BANK OF SWITZERLAND, By /s/ Michael F. Donohue, Jr. Name: Michael F. Donohue, Jr. Title: Managing Director Address: 299 Park Avenue New York, NY 10022 Telex: Facsimile: (212) 821-3383 By /s/ Bruce T. Richards Name: Bruce T. Richards Title: Managing Director _________________________ Total Commitments $850,000,000 UNION BANK OF SWITZERLAND, as Agent, By /s/ Michael F. Donohue, Jr. Name: Michael F. Donohue, Jr. Title: Managing Director Address: 299 Park Avenue New York, NY 10022 Telex: Facsimile: (212) 821-3383 By /s/ Bruce T. Richards Name: Bruce T. Richards Title: Managing Director PRICING SCHEDULE Each of "Euro-Dollar Margin" and "CD Margin" means, for any date, the rates set forth below in the row opposite such term and in the column corresponding to the "Pricing Level" that applies at such date: Level I Level II Level III CD Margin 0.425% 0.475% 0.625% Euro-Dollar 0.300% 0.350% 0.500% For purposes of this Schedule, the following terms have the following meanings: "D&P" means Duff & Phelps Credit Rating Co. or any successor thereto. "Level I Pricing" applies at any date if, at such date, the Borrower's commercial paper ratings achieve at least two of the following three ratings thresholds: (x) A-1 or higher by S&P, (y) P-1 or higher by Moody's or (z) D-1 or higher by D&P. "Level II Pricing" applies at any date if, at such date, (i) the Borrower's commercial paper ratings achieve at least two of the following three ratings thresholds: (x) A-2 or higher by S&P, (y) P-2 or higher by Moody's or (z) D-2 or higher by D&P and (ii) Level I Pricing does not apply. "Level III Pricing" applies at any date if, at such date, no other Pricing Level applies. "Moody's" means Moody's Investors Service, Inc. or any successor thereto. "Pricing Level" refers to the determination of which of Level I, Level II or Level III Pricing applies at any date. "S&P" means Standard & Poor's Ratings Service or any successor thereto. The credit ratings to be utilized for purposes of this Schedule are those assigned to the unsecured commercial paper of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. Exhibits EXHIBIT A - Note NOTE $[ ] New York, New York ___________ __, 199_ For value received, Central and South West Corporation, a Delaware corporation (the "Borrower"), promises to pay to the order of ______________________ (the "Bank"), for the account of its Applicable Lending Office, the lesser of (i) $[ ] and (ii) the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Union Bank of Switzerland, New York, New York. All Loans made by the Bank, the respective types thereof and all prepayments and repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Credit Agreement dated as of November 6, 1995 among Central and South West Corporation, the banks listed on the signature pages thereof and Union Bank of Switzerland, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. Central and South West Corporation By____________________ Name: Title: LOANS AND PAYMENTS OF PRINCIPAL __________________________________________________________________________ Amount Type Amount of of of Principal Notation Date Loan Loan Repaid Made By __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ __________________________________________________________________________ EXHIBIT B - Opinion of Special Counsel for the Borrower OPINION OF VINSON & ELKINS L.L.P. ________________, 199_ To the Banks and the Agent Referred to Below c/o Union Bank of Switzerland as Agent 299 Park Avenue New York, New York 10017 Dear Sirs: We have acted as special counsel to Central and South West Corporation (the "Borrower") in connection with the Credit Agreement (the "Credit Agreement") dated as of November 6, 1995 between the Borrower, the banks listed on the signature pages thereof and Union Bank of Switzerland, as Agent. Except as otherwise provided herein, terms defined in the Credit Agreement are used herein as defined therein. This opinion is being delivered pursuant to Section 3.1(b) of the Credit Agreement. In rendering the opinions expressed below, we have examined the following agreements, instruments and other documents: (a) the Credit Agreement; (b) the promissory notes executed and delivered by the Borrower under the Credit Agreement on the date hereof (the "Notes"); and (c) such records of the Borrower and such other documents as we have deemed necessary as a basis for the opinions expressed below. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies. When relevant facts were not independently established, we have relied upon statements of governmental officials and upon representations made in or pursuant to the Credit Agreement and certificates of appropriate representatives of the Borrower. In rendering the opinions expressed below, we have assumed, with respect to all of the documents referred to in this opinion letter, that (except, to the extent set forth in the opinions expressed below, as to the Borrower): (i) such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid and binding and enforceable obligations of, all of the parties to such documents; (ii) all signatories to such documents have been duly authorized; and (iii) all of the parties to such documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform such documents. Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that: 1. The Borrower is a corporation validly existing and in good standing under the laws of the State of Delaware and has all corporate powers required to carry on its business described in its Annual Report on Form 10-K for the year ended December 31, 1994 (the "10-K"). 2. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes, and the borrowings by the Borrower under the Credit Agreement, are within the corporate powers of the Borrower, have been duly authorized by all necessary corporate action on the part of the Borrower and require no action by or in respect of, or filing with, any governmental or regulatory authority or agency of the United States of America or the State of New York, except for the order of the Commission adopted pursuant to the Public Utility Holding Company Act of 1935, as amended (the "Act") (Release No. 35-26156; International Series Release No. 743; 70-8423) as amended by order of the Commission (Release No. 35-26383) (jointly called the "Order") which has been obtained and is in full force and effect, and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement or instrument governing Material Debt of the Borrower or of any material agreement, judgment, injunction, order, decree or other material instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower. 3. The Credit Agreement and the Notes constitute the legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Agreement and the Notes is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing. The foregoing opinions are subject to the following comments and qualifications: (A) The enforceability of Section 9.3 of the Credit Agreement may be limited by laws limiting the enforceability of provisions exculpating or exempting a party, or requiring indemnification of a party for, liability for its own action or inaction to the extent the action or inaction involves gross negligence, recklessness, willful misconduct or unlawful conduct. (B) The enforceability of provisions in the Credit Documents to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances. (C) We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Bank is located (other than the State of New York) that limit the interest, fees or other charges such Bank may impose and (ii) the second sentence of Section 9.8 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to any of the Credit Documents. (D) We express no opinion as to the enforceability of the following provisions set forth in the Credit Agreement: (i) provisions purporting to waive rights to notice, jury trial, or other rights or benefits that cannot be waived under applicable law; (ii) provisions providing that remedies are cumulative; and (iii) provisions that decisions by a party are conclusive. (E) With respect to our opinions expressed in paragraph 2 above, we have not undertaken any special examination of the files of the Borrower or any public records of judgments, injunctions, orders or decrees applicable to the Borrower. We have, with your permission, limited our review of (i) material agreements and material instruments to those agreements and instruments listed as material in the exhibit index in the 10-K and (ii) any Material Debt of the Borrower, judgments, injunctions, orders and decrees binding on the Borrower to those identified as such in the Certificate of an officer of the Borrower attached hereto. We express no opinion as to compliance with accounting or financial covenants or requirements contained in any of the aforesaid orders, decrees, Material Debt, material agreements or instruments. (F) In connection with the opinions expressed in paragraph 2 above, we note that the authority under the Order for recourse borrowings and investment by the Borrower and its subsidiaries in exempt wholesale generators (as defined in Section 32(e) of the Act) and foreign utility companies (as defined in Section 33(a) of the Act) is limited to 50% of the Borrower's "consolidated retained earnings" as determined in accordance with Rule 53(a)(1)(ii). The foregoing opinions are limited to matters involving the federal laws of the United States, the Delaware General Corporation Law and the law of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction. At the request of our client, this opinion letter is, pursuant to Section 3.1(b) of the Credit Agreement, provided to you by us in our capacity as counsel to the Borrower and may not be relied upon by any other Person (except that any Person that becomes a party to the Credit Agreement as a Bank after the date hereof may rely upon this opinion as if it were addressed to such Person as of the date hereof) or for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, our prior written consent. Very truly yours, EXHIBIT C - Opinion of Special Counsel for the Agent and the Co-Arrangers OPINION OF CRAVATH, SWAINE & MOORE ______________, 1995 Central and South West Corporation $850,000,000 Credit Agreement dated as of November 6, 1995 Ladies and Gentlemen: We have acted as special counsel to Union Bank of Switzerland, in its capacity as administrative agent (the "Agent"), and Citibank, N.A., Credit Suisse and Union Bank of Switzerland, in their respective capacities as Co- Arrangers, in connection with the preparation, execution and delivery of the Credit Agreement dated as of November 6, 1995 (the "Credit Agreement"), among Central and South West Corporation (the "Borrower"), the Banks named therein (the "Banks") and the Agent. In that connection, we have examined executed counterpart copies of the Credit Agreement and executed copies of the Notes. In rendering our opinion, we have with your consent assumed (i) the due authorization, execution and delivery of the Credit Agreement by each party thereto and (ii) the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies. Based upon the foregoing, we are of opinion that the Credit Agreement and the Notes constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws affecting creditors' rights generally from time to time in effect and to general equitable principles (including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing), regardless of whether such enforceability is considered in a proceeding in equity or at law. In addition, (i) we note that insofar as provisions contained in the Credit Agreement provide for indemnification, the enforcement thereof may be limited by public policy considerations, (ii) we express no opinion as to the last sentence of Section 9.4 of the Credit Agreement and (iii) we express no opinion as to the effect of the law of any jurisdiction other than the State of New York wherein any Bank may be located or wherein enforcement of the Credit Agreement or any Note may be sought that limits rates of interest legally chargeable or collectable. We are admitted to practice only in the State of New York and express no opinion as to matters governed by any laws other than the laws of the State of New York and the Federal laws of the United States of America. This opinion is being delivered to you pursuant to Section 3.1(c) of the Credit Agreement, and may not be relied upon by any other person without our prior written consent, except that any person that becomes a party to the Credit Agreement as a Bank after the date hereof may rely upon this opinion as if it were addressed to such person as of the date hereof. Very truly yours, The Agent and the Banks Referred to Above In care of Union Bank of Switzerland as Agent 299 Park Avenue New York, New York 10017 120A EXHIBIT D - Assignment and Assumption Agreement ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among (the "Assignor"), (the "Assignee"), CENTRAL AND SOUTH WEST CORPORATION (the "Borrower") and UNION BANK OF SWITZERLAND, as Agent (the "Agent"). WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Credit Agreement dated as of November 6, 1995 among the Borrower, the Assignor and the other Banks party thereto, as Banks, and the Agent (the "Credit Agreement"); [WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________;] WHEREAS, Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its [Commitment] [Loans] thereunder in an amount equal to $__________ (the "Assigned Amount"), and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: Section 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. Section 2. Assignment. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower and the Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement [with a Commitment in an amount equal to the Assigned Amount], and (ii) [the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount] and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. Section 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them. It is understood that commitment and/or facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. - -------- 1 Amounts should combine prinicpal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. [Section 4. Consent of the Borrower and the Agent. This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.6(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 9.6(c), the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] Section 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. Section 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. Section 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. By_________________________ Name: Title: By__________________________ Name: Title: CENTRAL AND SOUTH WEST CORPORATION By__________________________ Name: Title: UNION BANK OF SWITZERLAND By__________________________ Name: Title: EX-12.1 3 EXHIBIT 12.1 CENTRAL POWER AND LIGHT COMPANY RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995 (Thousands Except Ratio) (Unaudited) Operating Income $279,332 Adjustments: Federal income taxes 60,792 Provision for deferred Federal income taxes (42,955) Deferred investment tax credits (5,789) Other income and deductions 12,695 Allowance for borrowed and equity funds used during construction 5,447 Mirror CWIP amortization 47,750 Earnings $357,272 Fixed Charges: Interest on long-term debt $117,385 Interest on short-term debt and other 18,487 Fixed Charges $135,872 Ratio of Earnings to Fixed Charges 2.63 EX-12.2 4 EXHIBIT 12.2 CENTRAL POWER AND LIGHT COMPANY RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995 (Thousands Except Ratio) (Unaudited) Operating Income $279,332 Adjustments: Federal income taxes 60,792 Provision for deferred Federal income taxes (42,955) Deferred investment tax credits (5,789) Other income and deductions 12,695 Allowance for borrowed and equity funds used during construction 5,447 Mirror CWIP amortization 47,750 Earnings $357,272 Fixed Charges: Interest on long-term debt $117,385 Interest on short-term debt and other 18,487 Preferred stock dividend requirements 15,038 Fixed Charges and Preferred Requirements $150,910 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 2.37 EX-12.3 5 EXHIBIT 12.3 PUBLIC SERVICE COMPANY OF OKLAHOMA (CONSOLIDATED) RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995 (Thousands Except Ratio) (Unaudited) Operating Income $114,568 Adjustments: Federal and state income taxes 39,061 Provision for deferred Federal and state income taxes 3,558 Deferred investment tax credits (2,789) Other income and deductions 2,777 Allowance for borrowed and equity funds used during construction 4,682 Earnings $161,857 Fixed Charges: Interest on long-term debt $ 29,594 Amortization of debt issuance cost 1,568 Other interest 4,192 Fixed Charges $ 35,354 Ratio of Earnings to Fixed Charges 4.58 EX-12.4 6 EXHIBIT 12.4 SOUTHWESTERN ELECTRIC POWER COMPANY RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995 (Thousands except Ratio) (Unaudited) Operating Income $166,324 Adjustments: Federal and state income taxes 29,233 Provision for deferred Federal and state income taxes 17,561 Deferred investment tax credits (4,717) Other income and deductions 3,175 Allowance for borrowed and equity funds used during construction 10,285 Interest portion of financing leases 1,978 Earnings $223,839 Fixed Charges: Interest on long-term debt $ 44,127 Amortization of debt issuance cost 3,558 Other interest 6,560 Interest portion of financing leases 1,978 Fixed Charges $ 56,223 Ratio of Earnings to Fixed Charges 3.98 EX-12.5 7 70 EXHIBIT 12.5 WEST TEXAS UTILITIES COMPANY RATIO OF EARNINGS TO FIXED CHARGES FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1995 (Thousands Except Ratio) (Unaudited) Operating Income $58,829 Adjustments: Federal income taxes 3,602 Provision for deferred Federal income taxes 4,344 Deferred investment tax credits (1,321) Other income and deductions 2,834 Allowance for borrowed and equity funds used during construction 973 Earnings $69,261 Fixed Charges: Interest on long-term debt $20,110 Interest on short-term debt and other 3,989 Fixed Charges $24,099 Ratio of Earnings to Fixed Charges 2.87 EX-27.1 8
UT 001 CENTRAL AND SOUTH WEST CORPORATION 1,000,000 3-MOS 9-MOS DEC-31-1995 DEC-31-1995 SEP-30-1995 SEP-30-1995 PER-BOOK PER-BOOK 7,433 7,433 624 624 1,483 1,483 515 515 1,241 1,241 11,296 11,296 673 673 597 597 1,914 1,914 3,184 3,184 34 34 292 292 2,940 2,940 0 0 50 50 1,544 1,544 26 26 2 2 11 11 4 4 3,209 3,209 11,296 11,296 1,087 2,666 87 64 733 2,075 820 2,139 267 527 21 76 288 603 85 249 203 354 4 14 199 340 83 248 60 172 213 505 1.04 1.78 1.04 1.78
EX-27.2 9
UT 003 CENTRAL POWER AND LIGHT COMPANY 1,000 3-MOS 9-MOS DEC-31-1995 DEC-31-1995 SEP-30-1995 SEP-30-1995 PER-BOOK PER-BOOK 3,470,450 3,470,450 1,538 1,538 161,795 161,795 1,151,292 1,151,292 94,225 94,225 4,879,300 4,879,300 168,888 168,888 405,000 405,000 885,811 885,811 1,459,699 1,459,699 0 0 250,351 250,351 1,517,887 1,517,887 0 0 0 0 0 0 526 526 0 0 183 183 73 73 1,650,581 1,650,581 4,879,300 4,879,300 358,790 810,597 39,295 3,677 215,413 575,764 254,708 579,441 104,082 231,156 13,079 44,038 117,161 275,194 34,923 100,950 82,238 174,244 3,535 10,899 78,703 163,345 75,000 135,000 32,082 89,176 82,263 235,230 0.41 0.85 0.41 0.85
EX-27.3 10
UT 004 PUBLIC SERVICE COMPANY OF OKLAHOMA 1,000 3-MOS 9-MOS DEC-31-1995 DEC-31-1995 SEP-30-1995 SEP-30-1995 PER-BOOK PER-BOOK 1,318,934 1,318,934 3,986 3,986 99,128 99,128 17,446 17,446 36,255 36,255 1,475,749 1,475,749 157,230 157,230 180,000 180,000 162,300 162,300 499,530 499,530 0 0 19,826 19,826 378,876 378,876 43,308 43,308 0 0 0 0 25,000 25,000 0 0 0 0 0 0 509,209 509,209 1,475,749 1,475,749 232,156 542,215 31,012 37,659 142,620 404,814 173,632 442,473 58,524 99,742 (212) 3,543 58,312 103,285 7,630 24,642 50,682 78,643 204 612 50,478 78,031 30,000 40,000 7,398 22,196 65,633 128,517 0.26 0.41 0.26 0.41
EX-27.4 11
UT 92487 SOUTHWESTERN ELECTRIC POWER COMPANY 1,000 3-MOS 9-MOS DEC-31-1995 DEC-31-1995 SEP-30-1995 SEP-30-1995 PER-BOOK PER-BOOK 1,877,134 1,877,134 3,250 3,250 162,950 162,950 33,310 33,310 20,911 20,911 2,097,555 2,097,555 135,660 135,660 245,000 245,000 324,059 324,059 704,719 704,719 33,578 33,578 16,032 16,032 534,214 534,214 0 0 50,000 50,000 0 0 145 145 2,400 2,400 10,436 10,436 3,755 3,755 742,276 742,276 2,097,555 2,097,555 266,268 648,468 23,969 37,744 182,419 475,379 206,388 513,123 59,880 135,345 374 3,931 60,254 139,276 11,781 37,208 48,473 102,068 854 2,472 47,619 99,596 51,000 73,000 10,986 33,423 84,944 187,164 0.25 0.52 0.25 0.52
EX-27.5 12
UT 006 WEST TEXAS UTILITIES COMPANY 1,000 3-MOS 9-MOS DEC-31-1995 DEC-31-1995 SEP-30-1995 SEP-30-1995 PER-BOOK PER-BOOK 673,280 673,280 796 796 75,826 75,826 26,298 26,298 42,427 42,427 817,831 817,831 137,214 137,214 2,236 2,236 141,486 141,486 280,936 280,936 0 0 6,291 6,291 249,518 249,518 12,232 12,232 0 0 0 0 650 650 0 0 0 0 0 0 268,204 268,204 817,831 817,831 87,178 245,148 2,063 6,183 54,683 185,451 56,746 191,634 30,432 53,514 (468) 576 29,964 54,090 5,943 17,910 24,021 36,180 66 198 23,955 35,982 16,000 27,000 5,297 15,435 32,930 58,978 0.12 0.19 0.12 0.19
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