UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2003
or
[ ] | TRANSITION REPORT PURSUANT 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 Number | |||
0-33207 | GREAT PLAINS ENERGY INCORPORATED | 43-1916803 | |||
(A Missouri Corporation) | |||||
1201 Walnut Street | |||||
Kansas City, Missouri 64106 | |||||
(816) 556-2200 | |||||
www.greatplainsenergy.com | |||||
1-707 | KANSAS CITY POWER & LIGHT COMPANY | 44-0308720 | |||
(A Missouri Corporation) | |||||
1201 Walnut Street | |||||
Kansas City, Missouri 64106 | |||||
(816) 556-2200 | |||||
www.kcpl.com |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _
Indicated by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Great Plains Energy Incorporated Yes X No _ Kansas City Power & Light Company Yes _ No X
As of August 12, 2003, the number of shares outstanding of (i) Great Plains Energys common stock was 69,193,057 and (ii) Kansas City Power and Light Companys common stock was one, which was held by Great Plains Energy.
Great Plains Energy Incorporated and Kansas City Power & Light Company separately file this combined Quarterly Report on Form 10-Q. Information contained herein relating to an individual registrant and its subsidiaries is filed by such registrant on its own behalf. Each registrant makes representations only as to information relating to itself and its subsidiaries.
The terms Great Plains Energy, Company, KCP&L, and consolidated KCP&L are used throughout this report. Great Plains Energy and the Company refer to Great Plains Energy Incorporated and its consolidated subsidiaries, unless otherwise indicated. KCP&L refers to Kansas City Power & Light Company, and consolidated KCP&L refers to KCP&L and its consolidated subsidiaries.
This report should be read in its entirety. No one section of the report deals with all aspects of the subject matter.
Statements made in this report that are not based on historical facts are forward-looking, may involve risks and uncertainties, and are intended to be as of the date when made. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the registrants are providing a number of important factors that could cause actual results to differ materially from the provided forward-looking information. These important factors include:
o | future economic conditions in the regional, national and international markets | ||
o | market perception of the energy industry and the Company | ||
o | changes in business strategy, operations or development plans | ||
o | state and federal legislative and regulatory actions or developments, including deregulation, re- | ||
regulation and restructuring of the electric utility industry and constraints placed on the Company´s | |||
actions by the Public Utility Holding Company Act of 1935 | |||
o | adverse changes in applicable laws, regulations, rules, principles or practices governing tax, | ||
accounting and environmental matters including, but not limited to , air quality | |||
o | financial market conditions including, but not limited to, changes in interest rates and in availability and cost of capital | ||
o | ability to maintain current credit ratings | ||
o | inflation rates | ||
o | effectiveness of risk management policies and procedures and the ability of counterparties to satisfy | ||
their contractual commitments | |||
o | impact of terrorist acts | ||
o | increased competition including, but not limited to, retail choice in the electric utility industry and the | ||
entry of new competitors | |||
o | ability to carry out marketing and sales plans | ||
o | weather conditions including weather-related damage | ||
o | cost and availability of fuel | ||
o | ability to achieve generation planning goals and the occurrence of unplanned generation outages | ||
o | delays in the anticipated in-service dates of additional generating capacity | ||
o | nuclear operations | ||
o | ability to enter new markets successfully and capitalize on growth opportunities in non-regulated | ||
businesses | |||
o | performance of projects undertaken by our non-regulated businesses and the success of efforts to | ||
invest in and develop new opportunities, and | |||
o | other risks and uncertainties. |
This list of factors is not all-inclusive because it is not possible to predict all factors.
2
The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report:
Abbreviation or Acronym | Definition | ||
---|---|---|---|
35 Act | Public Utility Holding Company Act of 1935 | ||
ARB | Accounting Research Bulletin | ||
CO2 | Carbon Dioxide | ||
COLI | Corporate Owned Life Insurance | ||
Clean Air Act | Clean Air Act Amendments of 1990 | ||
Compact | Central Interstate Low-Level Radioactive Waste Compact | ||
Company | Great Plains Energy Incorporated and its subsidiaries | ||
Consolidated KCP&L | KCP&L and its subsidiary HSS | ||
DTI | DTI Holdings, Inc. and its subsidiaries Digital Teleport, Inc. | ||
and Digital Teleport of Virginia, Inc. | |||
Digital Teleport | Digital Teleport, Inc. | ||
EIRR | Environmental Improvement Revenue Refunding | ||
EPA | Environmental Protection Agency | ||
EPS | Earnings per share | ||
ERISA | Employee Retirement Income Security Act of 1974 | ||
FASB | Financial Accounting Standards Board | ||
FERC | Federal Energy Regulatory Commission | ||
GPP | Great Plains Power Incorporated, a wholly-owned subsidiary | ||
of Great Plains Energy | |||
Great Plains Energy | Great Plains Energy Incorporated and its subsidiaries | ||
HSS | Home Service Solutions Inc., a wholly-owned subsidiary of KCP&L | ||
Holdings | DTI Holdings, Inc. | ||
IEC | Innovative Energy Consultants Inc., a wholly-owned subsidiary | ||
of Great Plains Energy | |||
IRS | Internal Revenue Service | ||
ISO | Independent Service Operator | ||
KCC | The State Corporation Commission of the State of Kansas | ||
KCP&L | Kansas City Power & Light Company, a wholly-owned subsidiary | ||
of Great Plains Energy | |||
KLT Gas | KLT Gas Inc., a wholly-owned subsidiary of KLT Inc. | ||
KLT Energy Services | KLT Energy Services Inc., a wholly-owned subsidiary of KLT Inc. | ||
KLT Inc. | KLT Inc., a wholly-owned subsidiary of Great Plains Energy | ||
KLT Investments | KLT Investments Inc., a wholly-owned subsidiary of KLT Inc. | ||
KLT Telecom | KLT Telecom Inc., a wholly-owned subsidiary of KLT Inc. | ||
MAC | Material Adverse Change | ||
MACT | Maximum Achievable Control Technology | ||
MISO | Midwest Independent System Operator | ||
MPSC | Missouri Public Service Commission | ||
MWh | Megawatt hour | ||
NEIL | Nuclear Electric Insurance Limited | ||
NOx | Nitrogen Oxide | ||
NRC | Nuclear Regulatory Commission | ||
OCI | Other Comprehensive Income | ||
RSAE | R.S. Andrews Enterprises, Inc., a subsidiary of HSS | ||
RTO | Regional Transmission Organization |
3
Abbreviation or Acronym | Definition | ||
---|---|---|---|
Receivables Company | Kansas City Power & Light Receivables Company, a wholly-owned | ||
subsidiary of KCP&L | |||
SEC | Securities and Exchange Commission | ||
SPP | Southwest Power Pool, Inc. | ||
SFAS | Statement of Financial Accounting Standards | ||
Strategic Energy | Strategic Energy, L.L.C., a subsidiary of KLT Energy Services | ||
WCNOC | Wolf Creek Nuclear Operating Corporation | ||
Wolf Creek | Wolf Creek Nuclear Operating Station | ||
Worry Free | Worry Free Service, Inc., a wholly-owned subsidiary of HSS |
4
PART I FINANCIAL
INFORMATION
Item 1. Consolidated
Financial Statements
GREAT PLAINS ENERGY
Consolidated Balance
Sheets
(Unaudited)
June 30 | December 31 | |||||||
---|---|---|---|---|---|---|---|---|
2003 | 2002 | |||||||
(thousands) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 78,005 | $ | 65,294 | ||||
Restricted cash | 88,491 | - | ||||||
Receivables | 208,217 | 197,845 | ||||||
Fuel inventories, at average cost | 25,352 | 21,311 | ||||||
Materials and supplies, at average cost | 55,630 | 50,800 | ||||||
Deferred income taxes | 5,303 | 3,233 | ||||||
Assets of discontinued operations | - | 38,298 | ||||||
Other | 28,536 | 16,619 | ||||||
Total | 489,534 | 393,400 | ||||||
Nonutility Property and Investments | ||||||||
Affordable housing limited partnerships | 64,429 | 68,644 | ||||||
Gas property and investments | 43,552 | 45,419 | ||||||
Nuclear decommissioning trust fund | 69,124 | 63,283 | ||||||
Other | 42,767 | 55,520 | ||||||
Total | 219,872 | 232,866 | ||||||
Utility Plant, at Original Cost | ||||||||
Electric | 4,503,008 | 4,428,433 | ||||||
Less-accumulated depreciation | 1,963,014 | 1,885,389 | ||||||
Net utility plant in service | 2,539,994 | 2,543,044 | ||||||
Construction work in progress | 47,800 | 39,519 | ||||||
Nuclear fuel, net of amortization of $128,977 and $121,951 | 31,904 | 21,506 | ||||||
Total | 2,619,698 | 2,604,069 | ||||||
Deferred Charges | ||||||||
Regulatory assets | 143,286 | 128,901 | ||||||
Prepaid pension costs | 84,332 | 85,945 | ||||||
Goodwill | 26,105 | 26,106 | ||||||
Other deferred charges | 39,358 | 35,452 | ||||||
Total | 293,081 | 276,404 | ||||||
Total | $ | 3,622,185 | $ | 3,506,739 | ||||
LIABILITIES AND CAPITALIZATION | ||||||||
Current Liabilities | ||||||||
Notes payable | $ | 136,200 | $ | 21,079 | ||||
Commercial paper | 16,700 | - | ||||||
Current maturities of long-term debt | 4,754 | 133,181 | ||||||
EIRR bonds classified as current | 81,000 | 81,000 | ||||||
Accounts payable | 204,504 | 172,319 | ||||||
Accrued taxes | 13,463 | 29,238 | ||||||
Accrued interest | 12,006 | 16,121 | ||||||
Accrued payroll and vacations | 23,030 | 27,053 | ||||||
Accrued refueling outage costs | 13,598 | 8,292 | ||||||
Supplier collateral | 88,491 | - | ||||||
Liabilities of discontinued operations | - | 34,232 | ||||||
Other | 29,844 | 29,071 | ||||||
Total | 623,590 | 551,586 | ||||||
Deferred Credits and Other Liabilities | ||||||||
Deferred income taxes | 600,682 | 602,907 | ||||||
Deferred investment tax credits | 39,568 | 41,565 | ||||||
Asset retirement obligation | 103,690 | - | ||||||
Accrued nuclear decommissioning costs | - | 64,584 | ||||||
Pension liability | 75,038 | 73,251 | ||||||
Other | 76,653 | 76,169 | ||||||
Total | 895,631 | 858,476 | ||||||
Capitalization (see statements) | 2,102,964 | 2,096,677 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Total | $ | 3,622,185 | $ | 3,506,739 | ||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5
GREAT
PLAINS ENERGY
Consolidated
Statements of Capitalization
(Unaudited)
June 30 | December 31 | |||||||
---|---|---|---|---|---|---|---|---|
2003 | 2002 | |||||||
(thousands) | ||||||||
Long-term Debt (excluding current maturities) | ||||||||
General Mortgage Bonds | ||||||||
Medium-Term Notes due 2004-07, | ||||||||
7.55%*** weighted-average rate | $ | 55,000 | $ | 55,000 | ||||
2.23%* and 2.48%** EIRR bonds due 2012-23 | 158,768 | 158,768 | ||||||
EIRR bonds classified as current liabilities | (31,000 | ) | (31,000 | ) | ||||
Senior Notes | ||||||||
7.125% due 2005 | 250,000 | 250,000 | ||||||
6.500% due 2011 | 150,000 | 150,000 | ||||||
6.000% due 2007 | 225,000 | 225,000 | ||||||
Unamortized discount | (802 | ) | (915 | ) | ||||
EIRR bonds | ||||||||
2.26%* and 2.41%** Series A & B due 2015 | 112,051 | 109,607 | ||||||
2.26%* and 2.41%** Series D due 2017 | 42,102 | 41,183 | ||||||
4.50%*** Series C due 2017 | 50,000 | 50,000 | ||||||
EIRR bonds classified as current liabilities | (50,000 | ) | (50,000 | ) | ||||
Affordable Housing Notes | ||||||||
7.63%* and 7.84%** weighted-average rate due 2004-08 | 6,443 | 10,564 | ||||||
Total | 967,562 | 968,207 | ||||||
Company-obligated Mandatorily Redeemable Preferred Securities | ||||||||
of a trust holding solely KCP&L Subordinated Debentures | 150,000 | 150,000 | ||||||
Cumulative Preferred Stock | ||||||||
$100 Par Value | ||||||||
3.80% - 100,000 shares issued | 10,000 | 10,000 | ||||||
4.50% - 100,000 shares issued | 10,000 | 10,000 | ||||||
4.20% - 70,000 shares issued | 7,000 | 7,000 | ||||||
4.35% - 120,000 shares issued | 12,000 | 12,000 | ||||||
Total | 39,000 | 39,000 | ||||||
Common Stock Equity | ||||||||
Common stock-150,000,000 shares authorized without par value | ||||||||
69,196,322 shares issued, stated value | 609,497 | 609,497 | ||||||
Capital stock premium and expense | (7,508 | ) | (7,744 | ) | ||||
Retained earnings (see statements) | 370,773 | 363,579 | ||||||
Treasury stock | (551 | ) | (4 | ) | ||||
Accumulated other comprehensive income (loss) | ||||||||
Gain on derivative hedging instruments | 1,016 | 927 | ||||||
Minimum pension obligation | (26,825 | ) | (26,785 | ) | ||||
Total | 946,402 | 939,470 | ||||||
Total | $ | 2,102,964 | $ | 2,096,677 | ||||
* | Weighted-average rate as of June 30, 2003 | ||||
** | Weighted-average rate as of December 31, 2002 | ||||
*** | Weighted-average rate as of June 30, 2003 and December 31, 2002 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
6
GREAT
PLAINS ENERGY
Consolidated
Statements of Income
(Unaudited)
Three Months Ended | Year to Date | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(thousands) | ||||||||||||||
Operating Revenues | ||||||||||||||
Electric revenues - KCP&L | $ | 247,315 | $ | 247,229 | $ | 481,707 | $ | 446,138 | ||||||
Electric revenues - Strategic Energy | 254,824 | 200,973 | 483,776 | 346,987 | ||||||||||
Other revenues | 1,104 | 888 | 2,375 | 2,301 | ||||||||||
Total | 503,243 | 449,090 | 967,858 | 795,426 | ||||||||||
Operating Expenses | ||||||||||||||
Fuel | 37,110 | 35,350 | 74,504 | 69,357 | ||||||||||
Purchased power - KCP&L | 15,868 | 12,301 | 31,941 | 23,232 | ||||||||||
Purchased power - Strategic Energy | 226,003 | 175,881 | 425,946 | 300,873 | ||||||||||
Other | 71,942 | 67,085 | 142,899 | 133,565 | ||||||||||
Maintenance | 23,798 | 20,834 | 46,750 | 55,445 | ||||||||||
Depreciation and depletion | 35,568 | 36,751 | 71,090 | 73,450 | ||||||||||
General taxes | 23,708 | 22,701 | 48,145 | 45,343 | ||||||||||
(Gain) Loss on property | (20,523 | ) | (126 | ) | (11,550 | ) | 15 | |||||||
Total | 413,474 | 370,777 | 829,725 | 701,280 | ||||||||||
Operating income | 89,769 | 78,313 | 138,133 | 94,146 | ||||||||||
Loss from equity investments | (293 | ) | (316 | ) | (586 | ) | (632 | ) | ||||||
Minority interest in subsidiaries | (2,221 | ) | (2,918 | ) | (4,475 | ) | (5,355 | ) | ||||||
Non-operating income | 2,315 | 2,301 | 3,581 | 3,492 | ||||||||||
Non-operating expenses | (2,218 | ) | (4,239 | ) | (6,940 | ) | (12,400 | ) | ||||||
Interest charges | 19,417 | 23,144 | 38,891 | 43,527 | ||||||||||
Income from continuing operations before | ||||||||||||||
income taxes and cumulative effect of a | ||||||||||||||
change in accounting principle | 67,935 | 49,997 | 90,822 | 35,724 | ||||||||||
Income taxes | 9,595 | 13,801 | 16,691 | 1,227 | ||||||||||
Income from continuing operations | ||||||||||||||
before cumulative effect of a change | ||||||||||||||
in accounting principle | 58,340 | 36,196 | 74,131 | 34,497 | ||||||||||
Loss from discontinued operations, net | ||||||||||||||
of income taxes (Note 8) | (7,454 | ) | (229 | ) | (8,690 | ) | (1,427 | ) | ||||||
Cumulative effect to January 1, 2002, of | ||||||||||||||
a change in accounting principle | - | - | - | (3,000 | ) | |||||||||
Net income | 50,886 | 35,967 | 65,441 | 30,070 | ||||||||||
Preferred stock dividend requirements | 412 | 411 | 823 | 823 | ||||||||||
Earnings available for common stock | $ | 50,474 | $ | 35,556 | $ | 64,618 | $ | 29,247 | ||||||
Average number of common shares outstanding | 69,186 | 61,909 | 69,188 | 61,897 | ||||||||||
Basic and diluted earnings per common share | ||||||||||||||
Continuing operations | $ | 0.84 | $ | 0.57 | $ | 1.06 | $ | 0.54 | ||||||
Discontinued operations | (0.11 | ) | - | (0.13 | ) | (0.02 | ) | |||||||
Cumulative effect | - | - | - | (0.05 | ) | |||||||||
Basic and diluted earnings per common share | $ | 0.73 | $ | 0.57 | $ | 0.93 | $ | 0.47 | ||||||
Cash dividends per common share | $ | 0.415 | $ | 0.415 | $ | 0.83 | $ | 0.83 | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
7
GREAT PLAINS ENERGY
Consolidated Statements
of Cash Flows
(Unaudited)
Year to Date June 30 | 2003 | 2002 | ||||||
---|---|---|---|---|---|---|---|---|
(thousands) | ||||||||
Cash Flows from Operating Activities | ||||||||
Net income | $ | 65,441 | $ | 30,070 | ||||
Less: Loss from discontinued operations, net of income taxes | (8,690 | ) | (1,427 | ) | ||||
Net income from continuing operations | 74,131 | 31,497 | ||||||
Adjustments to reconcile income to net cash | ||||||||
from operating activities: | ||||||||
Cumulative effect of a change in accounting principle | - | 3,000 | ||||||
Depreciation and depletion | 71,090 | 73,450 | ||||||
Amortization of: | ||||||||
Nuclear fuel | 7,026 | 5,894 | ||||||
Other | 5,773 | 4,968 | ||||||
Deferred income taxes (net) | (4,237 | ) | 15,167 | |||||
Investment tax credit amortization | (1,997 | ) | (2,091 | ) | ||||
Loss from equity investments | 586 | 632 | ||||||
(Gain) Loss on property | (11,550 | ) | 15 | |||||
Deferred storm costs | - | (19,518 | ) | |||||
Minority interest | 4,475 | 5,355 | ||||||
Other operating activities (Note 3) | 13,550 | (63,532 | ) | |||||
Net cash from operating activities | 158,847 | 54,837 | ||||||
Cash Flows from Investing Activities | ||||||||
Utility capital expenditures | (79,631 | ) | (66,603 | ) | ||||
Allowance for borrowed funds used during construction | (781 | ) | (452 | ) | ||||
Purchases of investments | (1,743 | ) | (5,421 | ) | ||||
Purchases of nonutility property | (8,291 | ) | (5,662 | ) | ||||
Proceeds from sale of assets | 24,069 | 1,621 | ||||||
Hawthorn No. 5 partial insurance recovery | 3,940 | - | ||||||
Other investing activities | 1,958 | (8,166 | ) | |||||
Net cash from investing activities | (60,479 | ) | (84,683 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Issuance of long-term debt | - | 224,539 | ||||||
Repayment of long-term debt | (132,548 | ) | (237,797 | ) | ||||
Net change in short-term borrowings | 109,747 | 100,920 | ||||||
Dividends paid | (58,247 | ) | (52,192 | ) | ||||
Other financing activities | (4,609 | ) | (3,683 | ) | ||||
Net cash from financing activities | (85,657 | ) | 31,787 | |||||
Net Change in Cash and Cash Equivalents | 12,711 | 1,941 | ||||||
Cash and Cash Equivalents from Continuing | ||||||||
Operations at Beginning of Year | 65,294 | 28,175 | ||||||
Cash and Cash Equivalents from Continuing | ||||||||
Operations at End of Period | $ | 78,005 | $ | 30,116 | ||||
Net Change in Cash and Cash Equivalents from | ||||||||
Discontinued Operations | $ | (307 | ) | $ | (233 | ) | ||
Cash and Cash Equivalents from Discontinued | ||||||||
Operations at Beginning of Year | 307 | 859 | ||||||
Cash and Cash Equivalents from Discontinued | ||||||||
Operations at End of Period | $ | - | $ | 626 | ||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
8
GREAT
PLAINS ENERGY
Consolidated
Statements of Comprehensive Income
(Unaudited)
Three Months Ended | Year to Date | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(thousands) | ||||||||||||||
Net income | $ | 50,886 | $ | 35,967 | $ | 65,441 | $ | 30,070 | ||||||
Other comprehensive income: | ||||||||||||||
Gain (loss) on derivative hedging instruments | (4,020 | ) | (43 | ) | 7,778 | 5,800 | ||||||||
Income tax expense | 1,765 | 13 | (3,360 | ) | (2,378 | ) | ||||||||
Net gain (loss) on derivative hedging instruments | (2,255 | ) | (30 | ) | 4,418 | 3,422 | ||||||||
Change in minimum pension obligation | - | - | 66 | - | ||||||||||
Income tax expense | - | - | (26 | ) | - | |||||||||
Net change in minimum pension obligation | - | - | 40 | - | ||||||||||
Reclassification to revenues and expenses, net of tax | (1,226 | ) | 1,367 | (4,329 | ) | 2,807 | ||||||||
Comprehensive income | $ | 47,405 | $ | 37,304 | $ | 65,570 | $ | 36,299 | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
GREAT
PLAINS ENERGY
Consolidated
Statements of Retained Earnings
(Unaudited)
Three Months Ended | Year to Date | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(thousands) | ||||||||||||||
Beginning balance | $ | 349,010 | $ | 312,829 | $ | 363,579 | $ | 344,815 | ||||||
Net income | 50,886 | 35,967 | 65,441 | 30,070 | ||||||||||
399,896 | 348,796 | 429,020 | 374,885 | |||||||||||
Dividends declared | ||||||||||||||
Preferred stock - at required rates | 412 | 411 | 823 | 823 | ||||||||||
Common stock | 28,711 | 25,692 | 57,424 | 51,369 | ||||||||||
Ending balance | $ | 370,773 | $ | 322,693 | $ | 370,773 | $ | 322,693 | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
9
KANSAS CITY POWER
& LIGHT COMPANY
Consolidated Balance
Sheets
(Unaudited)
June 30 | December 31 | |||||||
---|---|---|---|---|---|---|---|---|
2003 | 2002 | |||||||
(thousands) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 1,109 | $ | 171 | ||||
Receivables | 76,918 | 67,043 | ||||||
Fuel inventories, at average cost | 25,352 | 21,311 | ||||||
Materials and supplies, at average cost | 55,630 | 50,800 | ||||||
Deferred income taxes | 5,303 | 3,233 | ||||||
Assets of discontinued operations | - | 38,298 | ||||||
Other | 16,525 | 7,720 | ||||||
Total | 180,837 | 188,576 | ||||||
Nonutility Property and Investments | ||||||||
Nuclear decommissioning trust fund | 69,124 | 63,283 | ||||||
Other | 30,137 | 32,970 | ||||||
Total | 99,261 | 96,253 | ||||||
Utility Plant, at Original Cost | ||||||||
Electric | 4,503,008 | 4,428,433 | ||||||
Less-accumulated depreciation | 1,963,014 | 1,885,389 | ||||||
Net utility plant in service | 2,539,994 | 2,543,044 | ||||||
Construction work in progress | 47,800 | 39,519 | ||||||
Nuclear fuel, net of amortization of $128,977 and $121,951 | 31,904 | 21,506 | ||||||
Total | 2,619,698 | 2,604,069 | ||||||
Deferred Charges | ||||||||
Regulatory assets | 143,286 | 128,901 | ||||||
Prepaid pension costs | 84,332 | 85,945 | ||||||
Other deferred charges | 39,091 | 35,413 | ||||||
Total | 266,709 | 250,259 | ||||||
Total | $ | 3,166,505 | $ | 3,139,157 | ||||
LIABILITIES AND CAPITALIZATION | ||||||||
Current Liabilities | ||||||||
Notes payable | $ | 28,274 | $ | 250 | ||||
Commercial paper | 16,700 | - | ||||||
Current maturities of long-term debt | - | 124,000 | ||||||
EIRR bonds classified as current | 81,000 | 81,000 | ||||||
Accounts payable | 86,274 | 74,390 | ||||||
Accrued taxes | 60,023 | 65,436 | ||||||
Accrued interest | 11,622 | 15,176 | ||||||
Accrued payroll and vacations | 17,590 | 23,591 | ||||||
Accrued refueling outage costs | 13,598 | 8,292 | ||||||
Liabilities of discontinued operations | - | 34,232 | ||||||
Other | 8,834 | 8,885 | ||||||
Total | 323,915 | 435,252 | ||||||
Deferred Credits and Other Liabilities | ||||||||
Deferred income taxes | 626,494 | 625,705 | ||||||
Deferred investment tax credits | 39,568 | 41,565 | ||||||
Asset retirement obligation | 102,415 | - | ||||||
Accrued nuclear decommissioning costs | - | 64,584 | ||||||
Pension liability | 74,361 | 73,251 | ||||||
Other | 49,512 | 46,124 | ||||||
Total | 892,350 | 851,229 | ||||||
Capitalization (see statements) | 1,950,240 | 1,852,676 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Total | $ | 3,166,505 | $ | 3,139,157 | ||||
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
10
KANSAS
CITY POWER & LIGHT COMPANY
Consolidated
Statements of Capitalization
(Unaudited)
June 30 | December 31 | |||||||
---|---|---|---|---|---|---|---|---|
2003 | 2002 | |||||||
(thousands) | ||||||||
Long-term Debt (excluding current maturities) | ||||||||
General Mortgage Bonds | ||||||||
Medium-Term Notes due 2004-07, | ||||||||
7.55%*** weighted-average rate | $ | 55,000 | $ | 55,000 | ||||
2.23%* and 2.48%** EIRR bonds due 2012-23 | 158,768 | 158,768 | ||||||
EIRR bonds classified as current liabilities | (31,000 | ) | (31,000 | ) | ||||
Senior Notes | ||||||||
7.125% due 2005 | 250,000 | 250,000 | ||||||
6.500% due 2011 | 150,000 | 150,000 | ||||||
6.000% due 2007 | 225,000 | 225,000 | ||||||
Unamortized discount | (802 | ) | (915 | ) | ||||
EIRR bonds | ||||||||
2.26%* and 2.41%** Series A & B due 2015 | 112,051 | 109,607 | ||||||
2.26%* and 2.41%** Series D due 2017 | 42,102 | 41,183 | ||||||
4.50%*** Series C due 2017 | 50,000 | 50,000 | ||||||
EIRR bonds classified as current liabilities | (50,000 | ) | (50,000 | ) | ||||
Total | 961,119 | 957,643 | ||||||
Company-obligated Mandatorily Redeemable Preferred Securities | ||||||||
of a trust holding solely KCP&L Subordinated Debentures | 150,000 | 150,000 | ||||||
Common Stock Equity | ||||||||
Common stock-1,000 shares authorized without par value | ||||||||
1 share issued, stated value | 662,041 | 562,041 | ||||||
Retained earnings (see statements) | 202,974 | 209,606 | ||||||
Accumulated other comprehensive income (loss) | ||||||||
Gain on derivative hedging instruments | 931 | 171 | ||||||
Minimum pension obligation | (26,825 | ) | (26,785 | ) | ||||
Total | 839,121 | 745,033 | ||||||
Total | $ | 1,950,240 | $ | 1,852,676 | ||||
* | Weighted-average rate as of June 30, 2003 | ||||
** | Weighted-average rate as of December 31, 2002 | ||||
*** | Weighted-average rate as of June 30, 2003 and December 31, 2002 |
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
11
KANSAS
CITY POWER & LIGHT COMPANY
Consolidated
Statements of Income
(Unaudited)
Three Months Ended | Year to Date | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(thousands) | ||||||||||||||
Operating Revenues | ||||||||||||||
Electric revenues | $ | 247,315 | $ | 247,229 | $ | 481,707 | $ | 446,138 | ||||||
Other revenues | 519 | 744 | 1,090 | 1,550 | ||||||||||
Total | 247,834 | 247,973 | 482,797 | 447,688 | ||||||||||
Operating Expenses | ||||||||||||||
Fuel | 37,110 | 35,350 | 74,504 | 69,357 | ||||||||||
Purchased power | 15,868 | 12,301 | 31,941 | 23,232 | ||||||||||
Other | 59,082 | 54,210 | 116,179 | 108,703 | ||||||||||
Maintenance | 23,792 | 20,801 | 46,744 | 55,375 | ||||||||||
Depreciation and depletion | 34,973 | 36,390 | 69,869 | 72,537 | ||||||||||
General taxes | 22,977 | 22,388 | 46,721 | 44,692 | ||||||||||
(Gain) Loss on property | 127 | (201 | ) | 100 | (223 | ) | ||||||||
Total | 193,929 | 181,239 | 386,058 | 373,673 | ||||||||||
Operating income | 53,905 | 66,734 | 96,739 | 74,015 | ||||||||||
Non-operating income | 1,028 | 1,827 | 1,947 | 2,662 | ||||||||||
Non-operating expenses | (1,923 | ) | (2,292 | ) | (4,144 | ) | (4,728 | ) | ||||||
Interest charges | 17,618 | 21,147 | 35,440 | 40,144 | ||||||||||
Income from continuing operations before | ||||||||||||||
income taxes and cumulative effect | ||||||||||||||
of a change in accounting principle | 35,392 | 45,122 | 59,102 | 31,805 | ||||||||||
Income taxes | 13,454 | 17,862 | 24,044 | 11,328 | ||||||||||
Income from continuing operations before cumulative | ||||||||||||||
effect of a change in accounting principle | 21,938 | 27,260 | 35,058 | 20,477 | ||||||||||
Loss from discontinued operations, net | ||||||||||||||
of income taxes (Note 8) | (7,454 | ) | (229 | ) | (8,690 | ) | (1,427 | ) | ||||||
Cumulative effect to January 1, 2002, of | ||||||||||||||
a change in accounting principle | - | - | - | (3,000 | ) | |||||||||
Net income | $ | 14,484 | $ | 27,031 | $ | 26,368 | $ | 16,050 | ||||||
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
12
KANSAS
CITY POWER & LIGHT COMPANY
Consolidated
Statements of Cash Flows
(Unaudited)
Year to Date June 30 | 2003 | 2002 | ||||||
---|---|---|---|---|---|---|---|---|
(thousands) | ||||||||
Cash Flows from Operating Activities | ||||||||
Net income | $ | 26,368 | $ | 16,050 | ||||
Less: Loss from discontinued operations, net of income taxes | (8,690 | ) | (1,427 | ) | ||||
Net income from continuing operations | 35,058 | 17,477 | ||||||
Adjustments to reconcile income to net cash | ||||||||
from operating activities: | ||||||||
Cumulative effect of a change in accounting principle | - | 3,000 | ||||||
Depreciation and depletion | 69,869 | 72,537 | ||||||
Amortization of: | ||||||||
Nuclear fuel | 7,026 | 5,894 | ||||||
Other | 4,635 | 3,511 | ||||||
Deferred income taxes (net) | (2,488 | ) | 16,836 | |||||
Investment tax credit amortization | (1,997 | ) | (2,091 | ) | ||||
(Gain) Loss on property | 100 | (223 | ) | |||||
Deferred storm costs | - | (19,518 | ) | |||||
Other operating activities (Note 3) | 77 | (49,007 | ) | |||||
Net cash from operating activities | 112,280 | 48,416 | ||||||
Cash Flows from Investing Activities | ||||||||
Utility capital expenditures | (79,631 | ) | (66,603 | ) | ||||
Allowance for borrowed funds used during construction | (781 | ) | (452 | ) | ||||
Purchases of investments | (1,743 | ) | (1,711 | ) | ||||
Purchases of nonutility property | (2 | ) | (90 | ) | ||||
Proceeds from sale of assets | 183 | - | ||||||
Hawthorn No. 5 partial insurance recovery | 3,940 | - | ||||||
Other investing activities | 1,044 | (8,197 | ) | |||||
Net cash from investing activities | (76,990 | ) | (77,053 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Issuance of long-term debt | - | 224,539 | ||||||
Repayment of long-term debt | (124,000 | ) | (227,000 | ) | ||||
Net change in short-term borrowings | 22,650 | 32,920 | ||||||
Dividends paid to Great Plains Energy | (33,000 | ) | (35,677 | ) | ||||
Equity contribution from Great Plains Energy | 100,000 | 36,000 | ||||||
Other financing activities | (2 | ) | (1,567 | ) | ||||
Net cash from financing activities | (34,352 | ) | 29,215 | |||||
Net Change in Cash and Cash Equivalents | 938 | 578 | ||||||
Cash and Cash Equivalents from Continuing | ||||||||
Operations at Beginning of Year | 171 | 103 | ||||||
Cash and Cash Equivalents from Continuing | ||||||||
Operations at End of Period | $ | 1,109 | $ | 681 | ||||
Net Change in Cash and Cash Equivalents from | ||||||||
Discontinued Operations | $ | (307 | ) | $ | (233 | ) | ||
Cash and Cash Equivalents from Discontinued | ||||||||
Operations at Beginning of Year | 307 | 859 | ||||||
Cash and Cash Equivalents from Discontinued | ||||||||
Operations at End of Period | $ | - | $ | 626 | ||||
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
13
KANSAS
CITY POWER & LIGHT COMPANY
Consolidated
Statements of Comprehensive Income
(Unaudited)
Three Months Ended | Year to Date | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(thousands) | ||||||||||||||
Net income | $ | 14,484 | $ | 27,031 | $ | 26,368 | $ | 16,050 | ||||||
Other comprehensive income : | ||||||||||||||
Gain (loss) on derivative hedging instruments | (81 | ) | (186 | ) | 1,247 | 422 | ||||||||
Income tax expense | 31 | 72 | (487 | ) | (165 | ) | ||||||||
Net gain (loss) on derivative hedging instruments | (50 | ) | (114 | ) | 760 | 257 | ||||||||
Change in minimum pension obligation | - | - | 66 | - | ||||||||||
Income tax expense | - | - | (26 | ) | - | |||||||||
Net change in minimum pension obligation | - | - | 40 | - | ||||||||||
Reclassification to revenues and expenses, net of tax | - | (104 | ) | - | (67 | ) | ||||||||
Comprehensive income | $ | 14,434 | $ | 26,813 | $ | 27,168 | $ | 16,240 | ||||||
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
KANSAS
CITY POWER & LIGHT COMPANY
Consolidated
Statements of Retained Earnings
(Unaudited)
Three Months Ended | Year to Date | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(thousands) | ||||||||||||||
Beginning balance | $ | 208,490 | $ | 182,866 | $ | 209,606 | $ | 219,524 | ||||||
Net income | 14,484 | 27,031 | 26,368 | 16,050 | ||||||||||
222,974 | 209,897 | 235,974 | 235,574 | |||||||||||
Dividends declared | ||||||||||||||
Common stock held by Great Plains Energy | 20,000 | 10,000 | 33,000 | 35,677 | ||||||||||
Ending balance | $ | 202,974 | $ | 199,897 | $ | 202,974 | $ | 199,897 | ||||||
The disclosures regarding KCP&L included in the accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
14
In managements opinion, the consolidated interim financial statements reflect all adjustments (which, unless otherwise noted, include only normal recurring adjustments) necessary to present fairly the results of operations for the interim periods presented. These statements and notes should be read in connection with the financial statements and related notes included in the combined 2002 annual report on Form 10-K, of Great Plains Energy and consolidated KCP&L.
The notes to consolidated financial statements that follow are a combined presentation for Great Plains Energy and consolidated KCP&L, both registrants under this filing.
Great Plains Energy currently has five direct subsidiaries:
o | KCP&L is an integrated, regulated electric utility company that serves retail customers in the states of Missouri and | ||||
Kansas. KCP&L is one of Great Plains Energy´s three reportable segments. KCP&L´s wholly-owned subsidiary, Home | |||||
Service Solutions Inc. (HSS) has invested in two companies, R.S. Andrews Enterprises, Inc. (RSAE) and Worry Free | |||||
Service, Inc. (Worry Free). RSAE and Worry Free provide energy-related residential and commercial services. See | |||||
Note 8 for additional information concerning the June 2003 disposition of RSAE. KCP&L and its subsidiaries are | |||||
referred to as consolidated KCP&L. | |||||
o | KLT Inc. is an investment company that primarily holds interests in Strategic Energy, L.L.C. (Strategic Energy), KLT | ||||
Gas Inc. (KLT Gas) and affordable housing limited partnerships. Strategic Energy and KLT Gas are the other two | |||||
reportable segments of Great Plains Energy. Prior to the confirmation of DTI's restructuring plan, KLT Inc. held | |||||
an investment in DTI. See Note 7 for additional information. | |||||
o | Great Plains Power Incorporated (GPP) focuses on the development of wholesale generation. During 2002, management | ||||
decided to limit the operations of GPP until market conditions improve or the Company makes further changes in | |||||
its business strategy. GPP has made no significant investments to date. | |||||
o | Innovative Energy Consultants Inc. (IEC) holds an interest in Strategic Energy. IEC does not own or operate any | ||||
assets other than its indirect interest in Strategic Energy. | |||||
o | Great Plains Energy Services Incorporated (Services) is a service company created in April 2003 to provide support | ||||
and administrative services to Great Plains Energy and certain of its subsidiaries. Services is subject to | |||||
provisions of the Public Utility Holding Company Act of 1935 (35 Act). See Item 5 for additional information | |||||
concerning Services. |
The operations of Great Plains Energy and its subsidiaries are divided into three reportable segments: KCP&L, Strategic Energy and KLT Gas. Great Plains Energys legal structure differs from the functional management and financial reporting of its reportable segments. Other activities not considered a reportable segment include the operations of HSS and GPP, all KLT Inc. operations other than Strategic Energy and KLT Gas, and holding company operations.
15
Cash and Cash Equivalents
Cash and cash equivalents consist of
highly liquid investments with original maturities of three months or less. For Great
Plains Energy this includes Strategic Energys cash held in trust of $9.1 million at
June 30, 2003, and $11.4 million at December 31, 2002.
Strategic Energy has entered into collateral arrangements with selected electricity power suppliers that require selected customers to remit payment to lockboxes that are held in trust and managed by a Trustee. As part of the trust administration, the Trustee remits payment to the supplier for electricity purchased by Strategic Energy. On a monthly basis, any remittances into the lockboxes after the disbursement to the supplier has been made are remitted back to Strategic Energy.
Restricted Cash
Strategic Energy has entered into
Master Power Purchase and Sale Agreements with its purchased power suppliers. Certain of
these agreements contain provisions whereby, to the extent Strategic Energy has a net
exposure to the purchased power supplier, collateral requirements are to be maintained.
Collateral posted in the form of cash to Strategic Energy is restricted by agreement and
would become unrestricted in the event of a default by the purchased power supplier.
Restricted cash collateral at June 30, 2003, was $88.5 million. There were no such cash
collateral deposits at December 31, 2002.
Year to Date | ||||||||
June 30 | ||||||||
2003 | 2002 | |||||||
(thousands) | ||||||||
Great Plains Energy Other Operating Activities | ||||||||
Cash flows affected by changes in: | ||||||||
Receivables | $ | (10,857 | ) | $ | (65,531 | ) | ||
Fuel inventories | (4,041 | ) | (3,102 | ) | ||||
Materials and supplies | (4,830 | ) | (119 | ) | ||||
Accounts payable | 31,957 | 3,638 | ||||||
Accrued taxes and current income taxes | 5,755 | 185 | ||||||
Accrued interest | (4,115 | ) | 5,202 | |||||
Wolf Creek refueling outage accrual | 5,306 | (11,073 | ) | |||||
Pension and postretirement benefit obligations | 5,485 | (20 | ) | |||||
Allowance for equity funds used during construction | (793 | ) | 16 | |||||
Other | (10,317 | ) | 7,272 | |||||
Total other operating activities | $ | 13,550 | $ | (63,532 | ) | |||
Cash paid during the period: | ||||||||
Interest | $ | 41,831 | $ | 37,250 | ||||
Income taxes | $ | 28,390 | $ | 5,753 | ||||
16
Year to Date | ||||||||
June 30 | ||||||||
2003 | 2002 | |||||||
(thousands) | ||||||||
Consolidated KCP&L Other Operating Activities | ||||||||
Cash flows affected by changes in: | ||||||||
Receivables | $ | (13,641 | ) | $ | (18,719 | ) | ||
Fuel inventories | (4,041 | ) | (3,102 | ) | ||||
Materials and supplies | (4,830 | ) | (119 | ) | ||||
Accounts payable | 11,656 | (35,118 | ) | |||||
Accrued taxes and current income taxes | 16,117 | 7,770 | ||||||
Accrued interest | (3,554 | ) | 6,686 | |||||
Wolf Creek refueling outage accrual | 5,306 | (11,073 | ) | |||||
Pension and postretirement benefit obligations | 4,808 | (20 | ) | |||||
Allowance for equity funds used during construction | (793 | ) | 16 | |||||
Other | (10,951 | ) | 4,672 | |||||
Total other operating activities | $ | 77 | $ | (49,007 | ) | |||
Cash paid during the period: | ||||||||
Interest | $ | 37,817 | $ | 32,383 | ||||
Income taxes | $ | 24,201 | $ | 1,800 | ||||
KCP&L adopted Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations, on January 1, 2003, and recorded a liability for asset retirement obligations of $99.2 million and increased property and equipment, net of accumulated depreciation, by $18.3 million. KCP&L is a regulated utility subject to the provisions of SFAS No. 71, Accounting for the Effects of Certain Types of Regulation, and management believes it is probable that any differences between expenses under SFAS No. 143 and expenses recovered currently in rates will be recoverable in future rates. As a result, the $80.9 million cumulative effect of the adoption of SFAS No. 143 was recorded as a regulatory asset and therefore, had no impact on net income. KLT Gas also adopted SFAS No. 143 and recorded a liability for asset retirement obligations of $1.2 million, increased gas property and investments by $1.0 million and increased operating expense by $0.2 million for the immaterial cumulative effect of the accounting change. The adoption of SFAS No. 143 had no effect on Great Plains Energy and consolidated KCP&Ls cash flows.
On June 13, 2003, HSS board of directors approved a plan to dispose of its interest in residential services provider RSAE. On June 30, 2003, HSS completed the disposition of its interest in RSAE. See Note 8 for additional information concerning the disposition of RSAE. The table below summarizes the effects of this transaction.
Year to Date | ||||||||
June 30 | ||||||||
RSAE disposition | 2003 | |||||||
(thousands) | ||||||||
Cash repayment of supported bank line | $ | (22,074 | ) | |||||
Write-off of intercompany note | (3,950 | ) | ||||||
Accrued transaction costs | (1,550 | ) | ||||||
Investment write-off | 8,710 | |||||||
Income tax benefit | 11,793 | |||||||
Loss on disposition | (7,071 | ) | ||||||
Pre-disposition operating losses | (1,619 | ) | ||||||
Discontinued operations | $ | (8,690 | ) | |||||
17
On December 31, 2001, a subsidiary of KLT Telecom Inc. (KLT Telecom), DTI Holdings, Inc. (Holdings) and its subsidiaries, Digital Teleport Inc. (Digital Teleport) and Digital Teleport of Virginia, Inc., filed separate voluntary petitions in the Bankruptcy Court for the Eastern District of Missouri for reorganization under Chapter 11 of the U.S. Bankruptcy Code, which cases have been procedurally consolidated. In December 2002, Digital Teleport entered into an agreement to sell substantially all of its assets (Asset Sale) to CenturyTel Fiber Company II, LLC (CenturyTel), a nominee of CenturyTel, Inc. The Asset Sale was approved by the Bankruptcy Court on February 13, 2003, and closed on June 6, 2003. Distributions from the bankruptcy estates were made to DTI creditors in June 2003. The table below summarizes the effects of these distributions. See Note 7 for additional information concerning the confirmation of the restructuring plan.
Year to Date | ||||||||
June 30 | ||||||||
DTI | 2003 | |||||||
(thousands) | ||||||||
Cash proceeds from bankruptcy estates | $ | 14,903 | ||||||
Cash proceeds from sale of office building | 1,186 | |||||||
Receivables | 3,281 | |||||||
Total proceeds | 19,370 | |||||||
Book basis of office building sold | (2,720 | ) | ||||||
DIP financing accrual reversal | 5,000 | |||||||
Accounts payable | (1,000 | ) | ||||||
Income tax | (10,548 | ) | ||||||
Reversal of valuation allowance | 15,779 | |||||||
Gain on sale of assets | $ | 25,881 | ||||||
The Companys accounts receivables are comprised of the following:
June 30 | December 31 | |||||||
2003 | 2002 | |||||||
(thousands) | ||||||||
Customer accounts receivable sold to | ||||||||
Receivables Company | $ | 30,830 | $ | 19,168 | ||||
Consolidated KCP&L other receivables | 46,088 | 47,875 | ||||||
Consolidated KCP&L receivables | 76,918 | 67,043 | ||||||
Great Plains Energy other receivables | 131,299 | 130,802 | ||||||
Great Plains Energy receivables | $ | 208,217 | $ | 197,845 | ||||
KCP&L has entered into a revolving agreement, which expires in October 2003, to sell all of its right, title and interest in the majority of its customer accounts receivable to Kansas City Power & Light Receivables Company (Receivables Company), which in turn sells most of the receivables to outside investors. KCP&L expects the agreement to be renewed annually. Accounts receivable sold under this revolving agreement totaled $100.8 million at June 30, 2003, and $89.2 million at December 31, 2002. These sales included unbilled receivables of $40.0 million at June 30, 2003, and $27.2 million at December 31, 2002. As a result of the sales to outside investors, Receivables Company received $70 million in cash, which was forwarded to KCP&L as consideration for its sale. The agreement is structured as a true sale under which the creditors of Receivables Company are entitled to be satisfied out of the assets of Receivables Company prior to any value being returned to KCP&L or its creditors.
18
KCP&L sells its receivables at a fixed price based upon the expected cost of funds and charge-offs. These costs comprise KCP&Ls loss on the sale of accounts receivable. KCP&L services the receivables and receives an annual servicing fee of 0.25% of the outstanding principal amount of the receivables sold and retains any late fees charged to customers.
Information regarding KCP&Ls sale of accounts receivable is reflected in the following table.
Three Months Ended | Year to Date | |||||||||||||
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(thousands) | ||||||||||||||
Gross proceeds on sale of accounts receivable | $ | 224,717 | $ | 240,731 | $ | 421,246 | $ | 432,950 | ||||||
Collections | 205,164 | 211,785 | 412,158 | 419,026 | ||||||||||
Loss on sale of accounts receivable | 1,010 | 1,251 | 1,851 | 2,353 | ||||||||||
Late fees | 437 | 755 | 953 | 654 | ||||||||||
Consolidated KCP&L other receivables at June 30, 2003, and December 31, 2002, consist primarily of receivables from partners in jointly-owned electric utility plants, wholesale sales receivables and accounts receivable held by Worry Free. Great Plains Energy other receivables at June 30, 2003, and December 31, 2002, are primarily the accounts receivable held by Strategic Energy including unbilled receivables held by Strategic Energy of $60.7 million at June 30, 2003, and $57.3 million at December 31, 2002.
Great Plains Energy syndicated a $225 million, revolving credit facility with a group of banks in the first quarter of 2003. This facility replaced a $205 million syndicated facility and a $20 million credit facility with a bank. The line has a 364-day term but may be extended for an additional year at the Companys option. The facility contains a material adverse change (MAC) clause that requires Great Plains Energy to represent, prior to receiving funding, that no MAC has occurred. The clause does, however, permit the Company to access the facility even in the event of a MAC in order to repay maturing commercial paper. Available liquidity under this facility is not impacted by a decline in credit ratings unless the downgrade occurs in the context of a merger, consolidation or sale. A default by Great Plains Energy or any of its significant subsidiaries of material other indebtedness totaling more than $25.0 million is also a default under this bank line. Under the terms of this agreement, Great Plains Energy is required to maintain a consolidated indebtedness to consolidated capitalization ratio not greater than 0.65 to 1.0 at all times and an interest coverage ratio greater than 2.25 to 1.0. At June 30, 2003, the Company was in compliance with these covenants. At June 30, 2003, Great Plains Energy had $133.0 million of outstanding borrowings under this facility with a weighted-average interest rate of 2.19%.
KCP&Ls short-term borrowings consist of funds borrowed from banks or through the sale of commercial paper as needed. As of June 30, 2003, KCP&L had $16.7 million of commercial paper outstanding and $3.2 million of funds borrowed from banks, which were both repaid in July 2003. A default by KCP&L on other indebtedness is a default under these bank line agreements. Under the terms of certain bank line agreements, KCP&L is required to maintain a consolidated indebtedness to consolidated capitalization ratio not greater than 0.65 to 1.0 at all times. At June 30, 2003, KCP&L was in compliance with these covenants.
In 2003, KCP&L has redeemed $124.0 million of its medium term notes, including $104.0 million called prior to maturity. The medium term notes were paid off primarily with proceeds from a $100.0 million equity contribution received from Great Plains Energy during the first quarter of 2003. The average
19
interest rate on the $104.0 million of notes called early was 7.28% and the original maturity dates were 2005 through 2008.
Strategic Energy syndicated a secured revolving credit facility for up to $95 million with a group of banks in the second quarter of 2003. This facility is partially guaranteed by Great Plains Energy. The new agreement replaced a $30 million bank line of credit and a $25 million letter of credit facility. The new facility enhances Strategic Energys liquidity including its ability to provide credit support through letters of credit for purchased power and regulatory requirements. The maximum amount available for loans and letters of credit under the facility is the lesser of $95 million or the borrowing base, as defined in the agreement. The borrowing base generally is the sum of certain Strategic Energy accounts receivable and the amount of the Great Plains Energy guarantee which was $25.0 million at June 30, 2003. At June 30, 2003, $32.4 million in letters of credit had been issued under the agreement, leaving $29.5 million of capacity available for loans and additional letters of credit. The line has a 364-day term that may be extended for an additional year by Strategic Energy with mutual agreement of the parties. The facility contains a MAC clause that requires Strategic Energy to represent, prior to receiving funding, that no MAC has occurred. A default by Strategic Energy of other indebtedness, as defined in the facility, totaling more than $5.0 million is a default under facility. Under the terms of this agreement, Strategic Energy is required to maintain a minimum net worth of $30 million and a maximum debt to EBITDA ratio of 2.0 to 1.0. At June 30, 2003, Strategic Energy was in compliance with these covenants.
On June 30, 2003, HSS completed the disposition of its interest in RSAE. RSAEs line of credit totaling $27 million was cancelled. With proceeds from a note to Great Plains Energy, HSS repaid $22.1 million on the supported bank line. At June 30, 2003, HSS notes payable to Great Plains Energy totaled $25.0 million. See Note 8 for additional information concerning the disposition of RSAE.
KCP&L Financing I (Trust) has previously issued $150.0 million of 8.3% preferred securities. KCP&L owns all of the common securities issued by the Trust. The sole asset of the Trust is the $154.6 million principal amount of 8.3% Junior Subordinated Deferrable Interest Debentures, due 2037, issued by KCP&L. The terms and interest payments on these debentures correspond to the terms and dividend payments on the preferred securities. KCP&L deducts these payments for tax purposes. KCP&L may elect to defer interest payments on the debentures for a period up to 20 consecutive quarters, causing dividend payments on the preferred securities to be deferred as well. In case of a deferral, interest and dividends will continue to accrue, along with quarterly compounding interest on the deferred amounts. KCP&L may redeem all or a portion of the debentures at any time. If KCP&L redeems all or a portion of the debentures, the Trust must redeem an equal amount of preferred securities at face value plus accrued and unpaid distributions. The back-up undertakings of KCP&L in the aggregate provide a full and unconditional guarantee of amounts due on the preferred securities.
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities. The Interpretation clarifies the application of Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties (Variable Interest Entities). FASB Interpretation No. 46 is effective July 1, 2003, for Great Plains Energy and consolidated KCP&L. The accounting profession and others are deliberating the impact, if any, of FASB Interpretation No. 46 on Mandatorily Redeemable Preferred Securities issued by a Trust. If, as a result of the deliberations, management determines that under FASB Interpretation No. 46, KCP&L is not the primary beneficiary of the Trust, KCP&L would be required to de-consolidate the Trust. De-consolidation would result in an increase of $4.6 million in Great Plains Energys and consolidated KCP&Ls other nonutility property and investments representing KCP&Ls investment in the common stock of the Trust. Additionally, both companies long-term debt would increase by $154.6
20
million reflecting the 8.3% Junior Subordinated Deferrable Interest Debentures issued by KCP&L and held by the Trust. This increase in both companies consolidated statements of capitalization would be mostly offset by the de-consolidation of the $150.0 million of Mandatorily Redeemable Preferred Securities issued by the Trust.
Liability Insurance
The Price-Anderson Act currently
limits the combined public liability of nuclear reactor owners to $9.4 billion for claims
that could arise from a single nuclear incident. The owners of Wolf Creek, a nuclear
generating station, (the Owners) carry the maximum available commercial insurance of $0.2
billion. Secondary Financial Protection, an assessment plan mandated by the Nuclear
Regulatory Commission (NRC), provides insurance for the $9.2 billion balance.
Under Secondary Financial Protection, if there were a catastrophic nuclear incident involving any of the nations licensed reactors, the Owners would be subject to a maximum retrospective assessment per incident of up to $88 million ($41 million, KCP&Ls 47% share). The Owners are jointly and severally liable for these charges, payable at a rate not to exceed $10 million ($5 million, KCP&Ls 47% share) per incident per year, excluding applicable premium taxes. The assessment, most recently revised in 1998, is subject to an inflation adjustment based on the Consumer Price Index and renewal of the Price-Anderson Act by Congress.
Property,
Decontamination, Premature Decommissioning and Extra Expense Insurance
The Owners also carry $2.8 billion
($1.3 billion, KCP&Ls 47% share) of property damage, decontamination and
premature decommissioning insurance for loss resulting from damage to the Wolf Creek
facilities. Nuclear Electric Insurance Limited (NEIL) provides this insurance.
In the event of an accident, insurance proceeds must first be used for reactor stabilization and NRC mandated site decontamination. KCP&Ls share of any remaining proceeds can be used for further decontamination, property damage restoration and premature decommissioning costs. Premature decommissioning coverage applies only if an accident at Wolf Creek exceeds $500 million in property damage and decontamination expenses, and only after trust funds have been exhausted.
The Owners also carry additional insurance from NEIL to cover costs of replacement power and other extra expenses incurred in the event of a prolonged outage resulting from accidental property damage at Wolf Creek.
Under all NEIL policies, KCP&L is subject to retrospective assessments if NEIL losses, for each policy year, exceed the accumulated funds available to the insurer under that policy. The estimated maximum amount of retrospective assessments to KCP&L under the current policies could total about $24.5 million.
In the event of a catastrophic loss at Wolf Creek, the insurance coverage may not be adequate to cover property damage and extra expenses incurred. Uninsured losses, to the extent not recovered through rates, would be assumed by KCP&L and could have a material, adverse effect on its financial condition, results of operations and cash flows.
Low-Level Waste
The Low-Level Radioactive Waste
Policy Amendments Act of 1985 mandated that the various states, individually or through
interstate compacts, develop alternative low-level radioactive waste disposal
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facilities. The states of Kansas, Nebraska, Arkansas, Louisiana and Oklahoma formed the Central Interstate Low-Level Radioactive Waste Compact (Compact) and selected a site in northern Nebraska to locate a disposal facility. Wolf Creek Nuclear Operating Corporation (WCNOC) and the owners of the other five nuclear units in the Compact provided most of the pre-construction financing for this project. KCP&Ls net investment in the Compact was $7.4 million at June 30, 2003, and December 31, 2002.
Significant opposition to the project has been raised by Nebraska officials and residents in the area of the proposed facility and attempts have been made through litigation and proposed legislation in Nebraska to slow down or stop development of the facility. On December 18, 1998, the application for a license to construct this project was denied. After the license denial, WCNOC and others filed a lawsuit in federal court contending Nebraska officials acted in bad faith while handling the license application. In September 2002, the U.S. District Court Judge presiding over the Central Interstate Compact Commissions federal bad faith lawsuit against the State of Nebraska issued his decision in the case finding clear evidence that the State of Nebraska acted in bad faith in processing the license application for a low-level radioactive waste disposal site in Nebraska and rendered a judgment on behalf of the Compact in the amount of $151.4 million against the state. The state has appealed this decision to the 8th Circuit, U.S. Court of Appeals. Based on the favorable outcome of this trial, in KCP&Ls opinion, there is a greater possibility of reversing the states license denial once the decision in this case is final.
In May 1999, the Nebraska legislature passed a bill withdrawing Nebraska from the Compact. In August 1999, the Nebraska Governor gave official notice of the withdrawal to the other member states. In June 2003, the Compact revoked Nebraskas membership in the Compact effective July 17, 2004. As a result, Nebraskas legal rights under the Compact will be extinguished on the effective date, but its legal obligations incurred prior to the effective date, including the obligation to be the host state for a disposal site, are expected to continue. Nebraska may appeal this revocation.
Environmental Matters
KCP&Ls operations are
subject to regulation by federal, state and local authorities with regard to air and other
environmental matters. The generation and transmission of electricity produces and
requires disposal of certain hazardous products that are subject to these laws and
regulations. In addition to imposing continuing compliance obligations, these laws and
regulations authorize the imposition of substantial penalties for noncompliance, including
fines, injunctive relief and other sanctions. Failure to comply with these laws and
regulations could have a material adverse effect on KCP&L.
KCP&L operates in an environmentally responsible manner and seeks to use current technology to avoid and treat contamination. KCP&L regularly conducts environmental audits designed to ensure compliance with governmental regulations and to detect contamination. Governmental bodies, however, may impose additional or more restrictive environmental regulations that could require substantial changes to operations or facilities at a significant cost. At June 30, 2003, and December 31, 2002, KCP&L had $1.9 million accrued for environmental remediation expenses covering water monitoring at one site and unasserted claims for remediation at a second site. The amounts accrued were established on an undiscounted basis and KCP&L does not currently have an estimated time frame over which the accrued amounts may be paid out. Expenditures to comply with environmental laws and regulations have not been material in amount during the periods presented and are not expected to be material in the upcoming years with the exception of the issues discussed below.
Certain Air Toxic
Substances
In July 2000, the National Research
Council published its findings of a study under the Clean Air Act Amendments of 1990
(Clean Air Act), which stated that power plants that burn fossil fuels, particularly coal,
generate the greatest amount of mercury emissions. As a result, in December 2000, the
22
Environmental Protection Agency (EPA) announced it would propose Maximum Achievable Control Technology (MACT) requirements by December 2003 to reduce mercury emissions and issue final rules by December 2004. Until the rules are proposed, KCP&L cannot predict the likelihood or compliance costs of such regulations.
Air Particulate Matter
In July 1997, the EPA revised ozone
and particulate matter air quality standards creating a new eight-hour ozone standard and
establishing a new standard for particulate matter less than 2.5 microns (PM-2.5) in
diameter. These standards were challenged in the U.S. Court of Appeals for the District of
Columbia (Appeals Court) that decided against the EPA. Upon further appeal, the U.S.
Supreme Court reviewed the standards and remanded the case back to the Appeals Court for
further review, including a review of whether the standards were arbitrary and capricious.
On March 26, 2002, the Appeals Court issued its decision on challenges to the 8-hour ozone
and PM-2.5 national ambient air quality standards (NAAQS). This decision denied all state,
industry and environmental groups petitions for review and thus upheld as valid the
EPAs new 8-hour ozone and PM-2.5 NAAQS. In so doing, the court held that the EPA
acted consistently with the Clean Air Act in setting the standards at the levels it chose
and the EPAs actions were reasonable and not arbitrary and capricious, and cited the
deference given the EPAs decision-making authority. The court stated that the
extensive records established for each rule supported the EPAs actions in both
rulemakings.
This decision by the Appeals Court removed the last major hurdle to the EPAs implementation of stricter ambient air quality standards for ozone and fine particles. The EPA has not yet issued regulations incorporating the new standards. Until new regulations are issued, KCP&L is unable to estimate the impact of the new standards. However, the impact on KCP&L and all other utilities that use fossil fuels could be substantial. In addition, the EPA is conducting a three-year study of fine particulate ambient air levels. Until this testing and review period has been completed, KCP&L cannot determine additional compliance costs, if any, associated with the new particulate regulations.
Nitrogen Oxide
The EPA announced in 1998 regulations
implementing reductions in Nitrogen Oxide (NOx) emissions. These regulations
initially called for 22 states, including Missouri, to submit plans for controlling
NOx emissions. The regulations require a significant reduction in
NOx emissions from 1990 levels at KCP&Ls Missouri coal-fired plants
by the year 2003.
In December 1998, KCP&L and several other western Missouri utilities filed suit against the EPA over the inclusion of western Missouri in the NOx reduction program based on the 1-hour NOx standard. On March 3, 2000, a three-judge panel of the District of Columbia Circuit of the U.S. Court of Appeals sent the NOx rules related to Missouri back to the EPA, stating the EPA failed to prove that fossil plants in the western part of Missouri significantly contribute to ozone formation in downwind states. On March 5, 2001, the U.S. Supreme Court denied certiorari, making the decision of the Court of Appeals final.
In February 2002, the EPA issued proposed Phase II NOx SIP Call regulations which specifically exclude the fossil plants in the western part of Missouri from the NOx SIP Call. To date, the EPA has not issued its final Phase II NOx SIP Call regulation.
If fossil plants in western Missouri are required to implement NOx reductions, KCP&L would need to incur significant capital costs, purchase power or purchase NOx emission allowances. Preliminary analysis of the regulations indicates that selective catalytic reduction technology, as well as other changes, may be required for some of the KCP&L units. Currently, KCP&L estimates that additional capital expenditures to comply with these regulations could range from $40 million to $60 million. Operations and maintenance expenses could also increase by more than $2.5 million per year. KCP&L
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continues to refine these preliminary estimates and explore alternatives. The ultimate cost of these regulations, if any, could be significantly different from the amounts estimated above.
Carbon Dioxide
At a December 1997 meeting in Kyoto,
Japan, delegates from 167 nations, including the United States, agreed to a treaty (Kyoto
Protocol) that would require a seven percent reduction in United States carbon dioxide
(CO2) emissions below 1990 levels. Although the United States agreed to the
Kyoto Protocol, the treaty has not been sent to Congress for ratification. The financial
impact on KCP&L of future requirements in the reduction of CO2 emissions
cannot be determined until specific regulations are adopted.
Clean Air Legislation
Congress has debated numerous bills
that would make significant changes to the current federal Clean Air Act including
potential establishment of nationwide limits on power plant emissions for several specific
pollutants. These bills have the potential for a significant financial impact on KCP&L
through the installation of new pollution control equipment to achieve compliance with the
new nationwide limits. The financial consequences to KCP&L cannot be determined until
the final legislation is passed. KCP&L will continue to monitor the progress of these
bills.
Proposed Water Use
Regulations
In February 2002, the EPA issued
proposed rules related to certain existing power producing facilities that employ cooling
water intake structures that withdraw 50 million gallons or more per day and use 25% or
more of that water for cooling purposes. The proposed rules establish national minimum
performance requirements designed to minimize adverse environmental impact. The EPA must
take final action by August 2003. KCP&L will continue to monitor the progress of this
rulemaking. The impact of these proposed rules has not yet been quantified, however,
KCP&Ls generating stations would be affected.
Strategic Energy
Purchased Power Energy Commitments
Strategic Energy has entered into
agreements to purchase electricity at various fixed prices to meet the estimated demand
requirements of long-term sales agreements with its customers. Commitments at June 30,
2003, under these agreements total $1,295.6 million through 2010. Commitments for the
remainder of 2003 total $383.5 million, and for the years 2004 through 2007 total $499.3
million, $312.4 million, $65.6 million, and $23.2 million, respectively. See Note 17 for
further discussion.
KCP&L Leases
In 2001, KCP&L entered into a
synthetic lease arrangement with a Trust (Lessor) to finance the purchase, installation,
assembly and construction of five combustion turbines and related property and equipment
that will add 385 MWs of peaking capacity (Project). The Trust is a special-purpose entity
and has an aggregate financing commitment from third-party equity and debt participants of
$176 million. In the second quarter of 2003, construction and installation of
KCP&Ls five combustion turbines was completed and the units were placed in
service. At June 30, 2003, cumulative project costs were approximately $147.4 million.
Total project costs, projected to be under $155 million, are anticipated to be finalized
by the end of the third quarter and rental payments under the lease will begin after these
costs have been finalized. Upon a default during the lease period, KCP&Ls
maximum obligation to the Lessor equals 100% of project costs. KCP&Ls rental
obligation, which reflects interest payments only, is expected to be approximately $17.5
million in the aggregate. At the end of the lease term (October 2006), KCP&L may
choose to sell the project for the Lessor, guaranteeing to the Lessor a residual value for
the Project in an amount which may be up to 83.21% of the project cost.
The Trust, acting as Lessor in the synthetic lease arrangement discussed above, is considered a Variable Interest Entity under FASB Interpretation No. 46. Because KCP&L has variable interests in
24
the Trust, including among other things, a residual value guarantee provided to the Lessor, KCP&L is the primary beneficiary of the Trust. Accordingly, KCP&L will be required to consolidate the Trust effective July 1, 2003. Great Plains Energys and consolidated KCP&Ls utility plant and long-term debt will increase by the total project cost and depreciation expense will increase upon consolidation of the Trust.
Internal Revenue Service
Settlement Corporate-Owned Life Insurance
In November 2002, KCP&L accepted
a settlement offer related to corporate-owned life insurance (COLI) from the Internal
Revenue Service (IRS). The offer allowed 20% of the interest originally deducted and taxed
only 20% of the gain on surrender of the COLI policies. KCP&L surrendered the policies
in February 2003. KCP&L will make cash payments of approximately $1.3 million to the
IRS in the fourth quarter of 2003 to satisfy the liability associated with the surrender.
The remaining $9.9 million related to the disallowed interest will be paid upon completion
of the 1995 1998 IRS audit.
7. DTI HOLDINGS, INC. AND SUBSIDIARIES BANKRUPTCY UPDATE
On December 31, 2001, a subsidiary of KLT Telecom, Holdings and its subsidiaries, Digital Teleport and Digital Teleport of Virginia, Inc., filed separate voluntary petitions in the Bankruptcy Court for the Eastern District of Missouri for reorganization under Chapter 11 of the U.S. Bankruptcy Code, which cases have been procedurally consolidated. Holdings and its two subsidiaries are collectively called DTI.
In December 2002, Digital Teleport entered into an agreement to sell substantially all of its assets (Asset Sale) to CenturyTel Fiber Company II, LLC (CenturyTel), a nominee of CenturyTel, Inc. (Asset Purchase Agreement). The Asset Sale was approved by the Bankruptcy Court on February 13, 2003, and closed on June 6, 2003. The Asset Sale produced approximately $38 million of cash proceeds, $3.8 million of which was escrowed (Escrow Funds). The Escrow Funds will be disbursed 180 days following the closing of the Asset Sale, subject to any reduction for the amount of claims by CenturyTel for breaches of representations and warranties of Digital Teleport under the Asset Purchase Agreement. Assuming full release of the Escrow Funds, the proceeds of the Asset Sale together with Digital Teleports net cash on hand are expected to total approximately $47.6 million (Anticipated Assets), which except for certain reserves was distributed in the second quarter of 2003 pursuant to the Chapter 11 plan discussed below.
Digital Teleport, Digital Teleport of Virginia and Holdings prepared a joint Chapter 11 plan (Chapter 11 Plan) and disclosure statement based on the provisions of settlement agreements which are discussed below. The Chapter 11 Plan provides that Digital Teleport, Holdings, and Digital Teleport of Virginia will be liquidated after distribution of those companies assets to their creditors pursuant to the Chapter 11 Plan The Chapter 11 Plan was confirmed by the Bankruptcy Court on June 11, 2003, and became effective on June 24, 2003.
After providing for certain reserves associated with the Escrow Funds, the MODOR Claim (as discussed below), certain administrative expenses and payment of secured and priority claims, an initial distribution of 82.5 cents on each dollar of approved claims was made by Digital Teleport to its creditors (other than KLT Telecom), a $13.8 million distribution was made by Holdings to its creditors, and an initial distribution of approximately $14.9 million was made by Digital Teleport to KLT Telecom (net of the approximate $13.8 million paid by KLT Telecom to Holdings, as discussed below). Additionally, KLT Telecom anticipates that it will realize approximately $21 million of cash tax benefits in late 2003. Pending final resolution of certain items including the Escrow Funds, the MODOR Claim and the put option of a certain minority shareholder (which is described in Note 19 of the 2002 Form 10-K), the Company recorded a net gain of $25.9 million or $0.37 per share during the second quarter 2003 related to the DTI bankruptcy. The impact on net income is primarily due to the net effect of the
25
Chapter 11 Plan confirmation and the resulting distribution, the reversal of a $15.8 million tax valuation allowance, and the reversal of a $5 million debtor in possession financing previously reserved.
Settlement agreements entered into by Digital Teleport and Holdings, which provided the basis of the Chapter 11 plan, were also approved by the Bankruptcy Court in its June 11, 2003, confirmation order. KLT Telecom, KLT Inc., KCP&L, Great Plains Energy, Digital Teleport and the Official Unsecured Creditors Committee of Digital Teleport (Creditors Committee) entered into a Settlement Agreement as of December 23, 2002 (Teleport Settlement Agreement). Under the Teleport Settlement Agreement, Digital Teleport, the Creditors Committee and three members of the Creditors Committee holding claims against Digital Teleport released claims and possible causes of action against the Company and any other entity currently or previously a member of the Great Plains Energy or KCP&L consolidated tax group, and creditors receiving payments are deemed to receive such payments in full satisfaction of their claims against Digital Teleport. In addition, the Teleport Settlement Agreement provides for the receipt by KLT Telecom of an assignment of claims of Digital Teleport, the Creditors Committee and the bankruptcy estate of Digital Teleport against any officer or director of Digital Teleport, or any other person or entity. The Teleport Settlement Agreement resolves all material issues and disputes among the parties to those agreements.
The Teleport Settlement Agreement does not, however, purport to resolve (i) three priority proofs of claim by the Missouri Department of Revenue in the aggregate amount of $2,848,446 (collectively, the MODOR Claim); (ii) an unsecured proof of claim by Gary Douglass, the former Chief Financial Officer of DTI, in the amount of $2,055,900 (Douglass Claim); or (iii) any claims by Holdings against KLT Telecom, KLT Inc., KCP&L and Great Plains Energy, or by creditors of Holdings, including the holders of $265 million of Senior Discount Notes of Holdings. However, the Holdings Settlement Agreement, discussed below, does resolve all material issues and disputes among the parties to that agreement. Digital Teleport objected to the MODOR Claim and the Douglass Claim asserting that each claim should be disallowed in full. The Bankruptcy Court conducted an evidentiary hearing regarding the MODOR Claim, and ruled substantially in favor of Digital Teleport. MODOR is appealing this ruling. The Bankruptcy Court disallowed the Douglass Claim. In lieu of an appeal or motion to reconsider the Bankruptcy Courts ruling regarding the Douglass Claim, Digital Teleport and Douglass entered into a settlement agreement, which was approved by the Bankruptcy Court, that afforded Douglass a $15,000 general unsecured claim against Digital Teleport.
The Teleport Settlement Agreement provided for a pro rata distribution from the Anticipated Assets ranging from 82.5% to 90% of the sum of (i) the non-priority unsecured claims of approximately $10.5 million held by Digital Teleports trade creditors, (ii) an amended claim of $1 million by Union Electric Co. d/b/a Ameren UE, and (iii) the allowed, non-priority unsecured portions, if any, of the MODOR Claim, with the exact percentage being determined by the extent to which the MODOR Claim is resolved in the Digital Teleport bankruptcy proceeding and is not disallowed. After the payment of administrative, secured and priority claims (which claims, excluding the MODOR Claim, are estimated to total approximately $3 million), the Teleport Settlement Agreement provided for the balance of the Anticipated Assets to be distributed to KLT Telecom, subject to the resolution of the MODOR Claim and the Douglass Claim, and subject, further, to a payment to the creditors of Holdings pursuant to the Holdings Settlement Agreement described below.
On March 14, 2003, KLT Telecom, KLT Inc., Great Plains Energy, KCP&L, Holdings, The Bank of New York (as trustee of an Indenture, as amended, relating to the Senior Discount Notes issued by Holdings) (Trustee), and three principal holders of Senior Discounted Notes (including the largest creditor) of Holdings (collectively, the Noteholders) entered into a Settlement Agreement and Plan Term Sheet (the Holdings Settlement Agreement).
26
Under the Holdings Settlement Agreement, KLT Telecom paid to the Holdings bankruptcy estate approximately $13.8 million from the distribution that KLT Telecom received under the Teleport Settlement Agreement for distribution to unsecured creditors of Holdings. In addition, Holdings, the Trustee and the Noteholders released claims and possible causes of action against the Company and any other entity currently or previously a member of the Great Plains Energy or KCP&L consolidated tax group, and creditors receiving payments are deemed to receive such payments in full satisfaction of their claims against Holdings. In addition, the Holdings Settlement Agreement provides for the receipt by KLT Telecom of an assignment of claims of Holdings, the bankruptcy estate of Holdings, the Trustee and the Noteholders against any officer or director of Holdings, or any other person or entity. The Holdings Settlement Agreement resolves all material issues and disputes among the parties to that agreement.
Within 190 days after the closure of the Asset Sale, KLT Inc. and KLT Telecom will pay a base sum of $1.6 million to certain executives of Digital Teleport for entering into employment agreements required as a condition precedent to the Asset Sale. KLT Telecom accrued the $1.6 million in the second quarter of 2003 and the amount was considered in the determination of the $25.9 million or $0.37 per share net gain related to the DTI bankruptcy recorded during the second quarter of 2003. This sum will be increased based upon the amount of Escrow Funds released to Digital Teleport, but the sum may not exceed $2.5 million (collectively, the Payment). The Payment will be made pursuant to a December 26, 2002 letter from KLT Inc. and KLT Telecom to Mr. Paul Pierron, President of Digital Teleport.
Because DTI filed for bankruptcy protection under the U.S. Bankruptcy Code, KLT Telecom no longer had control over nor could it exert significant influence over DTI. As a consequence, as of December 31, 2001, DTI was de-consolidated and was presented on the cost basis. Because of this de-consolidation, KLT Telecom did not include in its financial results the ongoing results of operations, earnings or losses incurred by DTI since December 31, 2001.
8. DISPOSITION OF OWNERSHIP INTEREST IN R.S. ANDREWS ENTERPRISES, INC.
On June 13, 2003, HSS board of directors approved a plan to dispose of its interest in residential services provider RSAE. On June 30, 2003, HSS completed the disposition of its interest in RSAE. Under terms of the agreement, HSS repaid $22 million of RSAEs outstanding debt under its bank line of credit and forgave $4 million of inter-company debt. The financial statements have been restated to reflect RSAE as discontinued operations for all periods presented as prescribed under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
27
The following table summarizes the operating results for the discontinued operations.
Three Months Ended | Year to Date | |||||||||||||
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Revenues | $ | 19.8 | $ | 16.2 | $ | 31.8 | $ | 28.7 | ||||||
Loss from operations before income taxes | $ | (0.4 | ) | $ | (0.2 | ) | $ | (1.6 | ) | $ | (1.4 | ) | ||
Loss on disposal before income taxes | (18.9 | ) | - | (18.9 | ) | - | ||||||||
Total loss on discontinued operations | ||||||||||||||
before income taxes | (19.3 | ) | (0.2 | ) | (20.5 | ) | (1.4 | ) | ||||||
Income tax benefit (a) | 11.8 | - | 11.8 | - | ||||||||||
Loss on discontinued operations, net | ||||||||||||||
of income taxes | $ | (7.5 | ) | $ | (0.2 | ) | $ | (8.7 | ) | $ | (1.4 | ) | ||
(a) | Since RSAE is not included in Great Plains Energy's consolidated income tax returns, | |||||||
an income tax benefit was not recognized on RSAE's 2002 losses. RSAE had continual | ||||||||
losses and therefore did not recognize tax benefits. The tax benefit reflected | ||||||||
is the tax effect of Great Plains Energy's disposition of its interest in RSAE. See Note 9 | ||||||||
on income taxes. |
Assets and liabilities of the discontinued operations were as follows:
December 31 | ||||||||
2002 | ||||||||
(millions) | ||||||||
Current assets | $ | 6.1 | ||||||
Other nonutility property and investments | 8.4 | |||||||
Goodwill | 20.0 | |||||||
Other deferred charges | 3.8 | |||||||
Total assets of discontinued operations | $ | 38.3 | ||||||
Current liabilities | $ | 32.7 | ||||||
Deferred taxes | (9.7 | ) | ||||||
Other deferred credits and liabilities | 5.1 | |||||||
Long-term debt | 6.1 | |||||||
Total liabilities of discontinued operations | $ | 34.2 | ||||||
DTI Holdings, Inc. and
subsidiaries
During the fourth quarter of 2001,
Great Plains Energy recognized a $15.8 million tax valuation allowance related to the
bankruptcy of DTI due to significant uncertainty regarding the ability to realize future
tax deductions while in the bankruptcy process. Upon the close of the Asset Sale to
CenturyTel on June 6, 2003, uncertainty no longer existed regarding the ability to realize
future tax benefits; therefore, the entire $15.8 million valuation allowance was reversed
in the second quarter of 2003. The $15.8 million tax benefit was partially offset by tax
expense associated with the income impact of the asset sale, the DIP reversal, the
estimated escrow proceeds and the Noteholder recovery.
The full amount of the tax benefits associated with the sale of DTI assets is limited by KLT Telecoms tax basis in DTI. The financial statements reflect the full tax benefit allowable considering the basis limitation.
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The tax loss on the DTI transaction will reduce Great Plains Energys 2003 consolidated taxable income. The loss will reduce estimated tax payments by approximately $21 million, otherwise payable in late 2003.
R.S. Andrews
Enterprises, Inc.
Great Plains Energy recognized an
$11.8 million book tax benefit relating to the disposition of its interest in RSAE. This
is net of $9.7 million of tax benefits recorded in prior years. The $21.5 million total
tax benefit relates to Great Plains Energys original $30.4 million investment, the
payment of RSAE debt of $22 million and $1 million of fees pursuant to the disposition.
The disposition of RSAE resulted in a capital loss for tax purposes. Under corporate tax laws, capital losses can only be offset by capital gains. Great Plains Energy will carry back this capital loss to offset capital gains recognized on Great Plains Energys 2001 tax return. Great Plains Energy expects to realize these tax benefits in late 2004.
There was no dilutive effect on Great Plains Energys earnings per share (EPS) from other securities for the three months ended and year to date June 30, 2003 and 2002. To determine EPS, preferred stock dividend requirements are deducted from both income from continuing operations before cumulative effect of a change in accounting principle and net income before dividing by average number of common shares outstanding. The EPS impact of the loss from discontinued operations, net of income taxes, is determined by dividing the loss from discontinued operations, net of income taxes, by the average number of common shares outstanding. The EPS impact of the cumulative effect of a change in accounting principle is determined by dividing the cumulative effect of a change in accounting principle by the average number of common shares outstanding.
The following table reconciles Great Plains Energys calculation of basic and diluted EPS from continuing operations before the cumulative effect of a change in accounting principle:
Three Months Ended | Income | Shares | EPS | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2003 | (thousands except per share amounts) | ||||||||||
Income from continuing operations before cumulative effect | $ | 58,340 | |||||||||
Less: Preferred stock dividend requirement | 412 | ||||||||||
Basic EPS | |||||||||||
Income available to common stockholders | 57,928 | 69,186 | $ | 0.84 | |||||||
Add: effect of dilutive securities | 21 | ||||||||||
Diluted EPS | $ | 57,928 | 69,207 | $ | 0.84 | ||||||
Three Months Ended | Income | Shares | EPS | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2002 | (thousands except per share amounts) | ||||||||||
Income from continuing operations before cumulative effect | $ | 36,196 | |||||||||
Less: Preferred stock dividend requirement | 411 | ||||||||||
Basic EPS | |||||||||||
Income available to common stockholders | 35,785 | 61,909 | $ | 0.57 | |||||||
Add: effect of dilutive securities | - | ||||||||||
Diluted EPS | $ | 35,785 | 61,909 | $ | 0.57 | ||||||
29
Year to Date | Income | Shares | EPS | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2003 | (thousands except per share amounts) | ||||||||||
Income from continuing operations before cumulative effect | $ | 74,131 | |||||||||
Less: Preferred stock dividend requirement | 823 | ||||||||||
Basic EPS | |||||||||||
Income available to common stockholders | 73,308 | 69,188 | $ | 1.06 | |||||||
Add: effect of dilutive securities | 1 | ||||||||||
Diluted EPS | $ | 73,308 | 69,189 | $ | 1.06 | ||||||
Year to Date | Income | Shares | EPS | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2002 | (thousands except per share amounts) | ||||||||||
Income from continuing operations before cumulative effect | $ | 34,497 | |||||||||
Less: Preferred stock dividend requirement | 823 | ||||||||||
Basic EPS | |||||||||||
Income available to common stockholders | 33,674 | 61,897 | $ | 0.54 | |||||||
Add: effect of dilutive securities | - | ||||||||||
Diluted EPS | $ | 33,674 | 61,897 | $ | 0.54 | ||||||
Options to purchase 305,000 shares of common stock for year to date June 30, 2003, were excluded from the computation of diluted EPS because the option exercise prices were greater than the average market price of the common shares during the period. For the three months ended June 30, 2003, there were no anti-dilutive shares. Options to purchase 363,818 shares of common stock for the three months ended and year to date June 30, 2002, were excluded from the computation of diluted EPS because the option exercise prices were greater than the average market price of the common shares during the period.
Regulatory Assets and
Liabilities
KCP&L is subject to the
provisions of SFAS No. 71. Accordingly, KCP&L has recorded assets and liabilities on
its balance sheet resulting from the effects of the ratemaking process, which would not be
recorded under GAAP for non-regulated entities. Regulatory assets represent incurred costs
that have been deferred because they are probable of future recovery in customer rates.
Regulatory liabilities generally represent probable future reductions in revenue or
refunds to customers. KCP&Ls continued ability to meet the criteria for
application of SFAS No. 71 may be affected in the future by competitive forces and
restructuring in the electric industry. In the event that SFAS No. 71 no longer applied to
all, or a separable portion, of KCP&Ls operations, the related regulatory assets
and liabilities would be written off unless an appropriate regulatory recovery mechanism
is provided.
30
Amortization | |||||||||||
ending | June 30 | December 31 | |||||||||
period | 2003 | 2002 | |||||||||
Regulatory Assets | (millions) | ||||||||||
Taxes recoverable through future rates | $ | 100.0 | $ | 100.0 | |||||||
Coal contract termination costs | 2003 | 0.8 | 1.6 | ||||||||
Decommission and decontaminate federal | |||||||||||
uranium enrichment facilities | 2007 | 2.9 | 3.3 | ||||||||
Loss on reaquired debt | 2023 | 4.6 | 4.7 | ||||||||
January 2002 incremental ice storm costs | 2007 | 16.3 | 18.6 | ||||||||
Change in depreciable life of Wolf Creek | 3.9 | - | |||||||||
Asset retirement obligations | 14.0 | - | |||||||||
Other (a) | 2006 | 0.8 | 0.7 | ||||||||
Total Regulatory Assets | $ | 143.3 | $ | 128.9 | |||||||
Regulatory Liabilities | |||||||||||
Taxes recoverable through future rates | $ | (100.0 | ) | $ | (100.0 | ) | |||||
Emission allowances (b) | (3.8 | ) | (3.6 | ) | |||||||
Total Regulatory Liabilities | $ | (103.8 | ) | $ | (103.6 | ) | |||||
(a) | $0.5 million earns a return on investment in the rate making process. | |||||||
(b) | Consistent with the MPSC order establishing regulatory treatment, no amortization is being recorded. |
Retail Rate Matters
At the end of January 2002, a severe
ice storm occurred throughout large portions of the Midwest, including the greater Kansas
City metropolitan area. In 2002, the Kansas Corporation Commission (KCC) approved a
stipulation and agreement regarding the treatment of the Kansas portion of the ice storm
costs. Pursuant to the stipulation and agreement, KCP&L implemented a retail rate
reduction January 1, 2003, and began calculating depreciation expense on Wolf Creek using
a 60 year life instead of a 40 year life. As a result of the stipulation and agreement,
KCP&L retail revenues decreased approximately $3.0 million and $5.6 million for the
three months ended and year to date June 30, 2003 periods, respectively. Depreciation
expense decreased approximately $2.0 million and $3.9 million for the three months ended
and year to date June 30, 2003 periods, respectively. The reduction in depreciation
expense has been recorded as a regulatory asset.
In 2002, the Missouri Public Service Commission (MPSC) approved KCP&Ls application for an accounting authority order related to the Missouri jurisdictional portion of the storm costs. The order allows KCP&L to defer and amortize $20.1 million, representing the Missouri portion of the storm costs, through January 2007. The amortization began in September 2002 and will amortize approximately $4.6 million annually for the remainder of the amortization period. KCP&L amortized $1.2 million and $2.3 million of deferred ice storm costs for the three months ended and year to date June 30, 2003 periods, respectively.
The Company adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for its stock options as of January 1, 2003. The Company has elected to use the modified prospective method of adoption as prescribed under SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. Under the modified prospective method of adoption, stock option compensation cost recognized beginning January 1, 2003, is the same as if the fair value recognition provisions of SFAS No. 123 had been applied to all stock options granted after October 1, 1995. Compensation expense recorded for the three months ended and year to date June 30, 2002, was immaterial.
31
The following table illustrates the effect on net income and EPS for Great Plains Energy if the fair value method had been applied to all periods presented.
Three Months Ended | Year to Date | |||||||||||||
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(thousands except per share amounts) | ||||||||||||||
Net income, as reported | $ | 50,886 | $ | 35,967 | $ | 65,441 | $ | 30,070 | ||||||
Pro forma net income as if fair | ||||||||||||||
value method were applied | $ | 50,886 | $ | 35,851 | $ | 65,441 | $ | 29,992 | ||||||
Basic and diluted earnings | ||||||||||||||
per common share, as reported | $ | 0.73 | $ | 0.57 | $ | 0.93 | $ | 0.47 | ||||||
Pro forma basic and diluted earnings | ||||||||||||||
per common share | $ | 0.73 | $ | 0.57 | $ | 0.93 | $ | 0.47 | ||||||
Custom Energy Holdings, L.L.C. holds 100% of the direct ownership interests in Strategic Energy. Great Plains Energy holds an 89% indirect ownership position in Strategic Energy. SE Holdings, L.L.C. (SE Holdings) owns the remaining 11% indirect ownership position in Strategic Energy. Richard Zomnir, President and Chief Executive Officer of Strategic Energy, holds a 56% interest in SE Holdings and certain other employees of Strategic Energy hold the remaining interests in SE Holdings.
SE Holdings has a put option to sell all or part of its 11% interest in Strategic Energy to Custom Energy Holdings at any time within the 90 days following January 31, 2004, under certain circumstances, at fair market value. Fair market value would be determined by the mutual agreement of the parties or if an agreement cannot be reached, by third party appraisal.
Custom Energy Holdings business and affairs are controlled and managed by a three member Management Committee composed of one representative designated by KLT Energy Services Inc. (KLT Energy Services), one representative designated by IEC, and one representative designated by SE Holdings. Certain actions (including amendment of Custom Energy Holdings operating agreement, approval of actions in contravention of the operating agreement, approval of a dissolution of Custom Energy Holdings, additional capital contributions and assumption of recourse indebtedness) require the unanimous consent of all the members of Custom Energy Holdings. Certain other actions (including mergers with Custom Energy Holdings, acquisitions by Custom Energy Holdings, assumption of non-recourse indebtedness, sales of substantial assets, approval of distributions, filing of registration statements, partition of assets, admission of new members and transfers of interests in Custom Energy Holdings) can be approved by the Management Committee, but to the extent they affect the rights, obligations, assets or business of Strategic Energy, the approval of the Strategic Energy Management Committee is also required.
Strategic Energys business and affairs are controlled and managed exclusively by a four member Management Committee composed of two representatives designated by KLT Energy Services, one representative designated by IEC and one representative designated by SE Holdings. Certain actions (including amendment of Strategic Energys operating agreement, approval of actions in contravention of the operating agreement, approval of transactions between Strategic Energy and affiliates of its members, approval of a dissolution of Strategic Energy, and assumption of recourse indebtedness) require the unanimous consent of all the Management Committee members.
32
In the normal course of business, Great Plains Energy and certain of its subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include, for example, guarantees and indemnification of letters of credit and surety bonds. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries intended business purposes.
As prescribed in FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others, the Company began recording a liability for the fair value of the obligation it has undertaken for guarantees issued after December 31, 2002. The liability recognition requirements of FASB Interpretation No. 45 are to be applied on a prospective basis to guarantees issued or modified after December 31, 2002, while the disclosure requirements are to be applied to all guarantees. The interpretation does not encompass guarantees of the Companys own future performance, such as credit support provided to its subsidiaries. As of June 30, 2003, KCP&L recorded an immaterial amount for the fair value of guarantees issued for the residual value of vehicles and heavy equipment under an operating lease.
The following table reflects Great Plains Energys and consolidated KCP&Ls maximum potential amount of future payments that could be required under guarantees and describes those guarantees:
Guarantor | Maximum potential | Nature of Guarantee | ||||||
(millions) | ||||||||
KCP&L | $ | 12.2 | Guaranteed energy savings under agreements with several | |||||
customers that expire over the next 8 years. In most cases, a | ||||||||
subcontractor would indemnify KCP&L for any payments made | ||||||||
by KCP&L under these guarantees. | ||||||||
KCP&L | 8.5 | Guarantees for residual value of vehicles and heavy equipment | ||||||
under an operating lease. Guaranteed residual values average | ||||||||
approximately $0.7 million per year through 2013. | ||||||||
Total consolidated KCP&L | 20.7 | |||||||
Great Plains Energy | 0.9 | Great Plains Energy has guaranteed a letter of credit issued by | ||||||
Custom Energy, L.L.C. related to the sale of demand side | ||||||||
management credits. The letter of credit renews annually and | ||||||||
has 8 years remaining. | ||||||||
KLT Energy Services | - | Custom Energy, L.L.C. had indemnified construction performance | ||||||
bonds totaling $9.4 million, which were secured by KLT Energy | ||||||||
Services' $2.1 million ownership interest in Custom Energy, L.L.C. | ||||||||
On July 17, 2003, the final completion acceptance was signed | ||||||||
and the performance bonds were subsequently released. | ||||||||
Total Great Plains Energy | $ | 21.6 | ||||||
In 2001, KCP&L entered into a synthetic lease arrangement with a Trust (Lessor). At the end of the lease term (October 2006), KCP&L may choose to sell the project for the Lessor, guaranteeing to the Lessor a residual value for the Project in an amount, which may be up to 83.21% of the project cost. As a result of the new consolidation requirements of FASB Interpretation No. 46, the synthetic lease arrangement will be consolidated in the third quarter of 2003. See Note 6 for additional information regarding KCP&Ls synthetic lease arrangement.
33
Effective January 1, 2003, the Company adopted SFAS No. 143. SFAS No. 143 provides accounting requirements for the recognition and measurement of liabilities associated with the retirement of tangible long-lived assets. Under the standard, these liabilities are recognized at fair value as incurred and capitalized as part of the cost of the related long-lived asset. Accretion of the liabilities due to the passage of time is recorded as an operating expense. Retirement obligations associated with long-lived assets included within the scope of SFAS No. 143 are those for which a legal obligation exists under enacted laws, statutes, written or oral contracts, including obligations arising under the doctrine of promissory estoppel.
The adoption of SFAS No. 143 changed the accounting for and the method used to report KCP&Ls obligation to decommission its 47% share of Wolf Creek. The legal obligation to decommission Wolf Creek was incurred when the plant was placed in service in 1985. The estimated liability, recognized on KCP&Ls balance sheet at January 1, 2003, is based on a third party nuclear decommissioning study conducted in 2002. KCP&L used a credit-adjusted risk free discount rate of 6.42% to calculate the retirement obligation. This rate is based on the rate KCP&L could issue 30-year bonds, adjusted downward to reflect the portion of the anticipated costs in current year dollars that had been funded at date of adoption through the tax-qualified trust fund. The cumulative impact of prior decommissioning accruals recorded consistent with rate orders issued by the MPSC and KCC has been reversed and a new regulatory contra-asset for such amounts has been established. Amounts collected through these rate orders have been deposited in a legally restricted external trust fund. The fair market value of the trust fund was $69.1 million and $63.3 million at June 30, 2003 and December 31, 2002, respectively.
KCP&L also must recognize, where possible to estimate, the future costs to settle other legal liabilities including the removal of water intake structures on rivers, capping/filling of piping at levees following steam power plant closures and capping/closure of ash landfills. Estimates for these liabilities are based on internal engineering estimates of third party costs to remove the assets in satisfaction of legal obligations and have been discounted using credit adjusted risk free rates ranging from 5.25% to 7.50% depending on the anticipated settlement date.
KLT Gas has estimated liabilities for gas well plugging and abandonment, facility removal and surface restoration. These estimates are based upon internal estimates of third party costs to satisfy the legal obligations and have been discounted using credit adjusted risk free rates ranging from 6.00% to 7.25%, depending upon the anticipated settlement date.
Revisions to the estimated liabilities of KCP&L and KLT Gas could occur due to changes in the decommissioning or other cost estimates, extension of the nuclear operating license or changes in federal or state regulatory requirements.
On January 1, 2003, KCP&L recorded an asset retirement obligation of $99.2 million and increased property and equipment, net of accumulated depreciation, by $18.3 million. KCP&L is a regulated utility subject to the provisions of SFAS No. 71 and management believes it is probable that any differences between expenses under SFAS No. 143 and expenses recovered currently in rates will be recoverable in future rates. As a result, the $80.9 million cumulative effect of the adoption of SFAS No. 143 was recorded as a regulatory asset and therefore, had no impact on net income.
As a result of its adoption of SFAS No. 143, KLT Gas recorded an asset retirement obligation of $1.2 million, increased property and equipment by $1.0 million and increased operating expense by $0.2 million for the immaterial cumulative effect of the accounting change.
34
KCP&L has legal asset retirement obligations for certain other assets where it is not possible to estimate the time period when the obligations will be settled. Consequently, the retirement obligations cannot be measured at this time. For transmission easements obtained by condemnation, KCP&L must remove its transmission lines if the line is de-energized. It is extremely difficult to obtain siting for new transmission lines. Consequently, KCP&L does not anticipate de-energizing any of its existing lines. KCP&L also operates, under state permits, ash landfills at several of its power plants. While the life of the ash landfill at one plant can be estimated and is included in the estimated liabilities above, the future life of ash landfills at other permitted landfills cannot be estimated. KCP&L can continue to maintain permits for these landfills after the adjacent plant is closed.
The following table illustrates the effect on asset retirement obligations if the provisions of SFAS No. 143 had been applied beginning January 1, 2000. Pro forma amounts for the periods prior to the January 1, 2003, adoption were measured using assumptions consistent with the period of adoption.
Year to Date | ||||||||||||||
June 30 | ||||||||||||||
2000 | 2001 | 2002 | 2003 | |||||||||||
Consolidated KCP&L | (millions) | |||||||||||||
Asset retirement obligation beginning of period | $ | 81.9 | $ | 87.3 | $ | 93.1 | $ | 99.2 | ||||||
Additions | - | 0.1 | - | - | ||||||||||
Accretion | 5.4 | 5.7 | 6.1 | 3.2 | ||||||||||
Asset retirement obligation end of period | $ | 87.3 | $ | 93.1 | $ | 99.2 | $ | 102.4 | ||||||
Other Great Plains Energy | ||||||||||||||
Asset retirement obligation beginning of period | $ | 0.9 | $ | 0.9 | $ | 1.1 | $ | 1.2 | ||||||
Additions | - | 0.1 | - | - | ||||||||||
Accretion | - | 0.1 | 0.1 | 0.1 | ||||||||||
Asset retirement obligation end of period | $ | 0.9 | $ | 1.1 | $ | 1.2 | $ | 1.3 | ||||||
Consolidated Great Plains Energy | ||||||||||||||
Asset retirement obligation beginning of period | $ | 82.8 | $ | 88.2 | $ | 94.2 | $ | 100.4 | ||||||
Additions | - | 0.2 | - | - | ||||||||||
Accretion | 5.4 | 5.8 | 6.2 | 3.3 | ||||||||||
Asset retirement obligation end of period | $ | 88.2 | $ | 94.2 | $ | 100.4 | $ | 103.7 | ||||||
Great Plains Energy
Great Plains Energy has three
reportable segments based on its method of internal reporting, which generally segregates
the reportable segments based on products and services, management responsibility and
regulation. The three reportable business segments are: (1) KCP&L, an integrated,
regulated electric utility, generates, transmits and distributes electricity; (2)
Strategic Energy provides power supply coordination services by entering into long-term
contracts with its customers to supply electricity Strategic Energy purchases under
long-term contracts, operating in several electricity markets offering retail choice; and
(3) KLT Gas explores for, develops, and produces unconventional natural gas resources,
including coalbed methane properties. Other includes the operations of HSS and
GPP, all KLT Inc. operations other than Strategic Energy and KLT Gas, unallocated
corporate charges and intercompany eliminations. The summary of significant accounting
policies applies to all of the reportable segments. Segment performance is evaluated based
on net income.
35
The tables below reflect summarized financial information concerning Great Plains Energys reportable segments. Prior year information has been reclassified to conform to the current presentation.
Three Months Ended | Strategic | Great Plains | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2003 | KCP&L | Energy | KLT Gas | Other | Energy | ||||||||||||
(millions) | |||||||||||||||||
Operating revenues | $ | 247.3 | $ | 255.2 | $ | 0.3 | $ | 0.5 | $ | 503.3 | |||||||
Depreciation and depletion | (34.7 | ) | (0.4 | ) | (0.1 | ) | (0.4 | ) | (35.6 | ) | |||||||
Loss from equity investments | - | - | - | (0.3 | ) | (0.3 | ) | ||||||||||
Interest charges | (17.6 | ) | (0.2 | ) | (0.4 | ) | (1.2 | ) | (19.4 | ) | |||||||
Income taxes | (13.7 | ) | (7.6 | ) | 0.3 | 11.4 | (9.6 | ) | |||||||||
Loss from discontinued operations | - | - | - | (7.5 | ) | (7.5 | ) | ||||||||||
Net income (loss) | 22.3 | 9.6 | (0.6 | ) | 19.6 | 50.9 | |||||||||||
Three Months Ended | Strategic | Great Plains | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2002 | KCP&L | Energy | KLT Gas | Other | Energy | ||||||||||||
(millions) | |||||||||||||||||
Operating revenues | $ | 247.2 | $ | 201.2 | $ | (0.1 | ) | $ | 0.8 | $ | 449.1 | ||||||
Depreciation and depletion | (36.1 | ) | (0.2 | ) | (0.1 | ) | (0.4 | ) | (36.8 | ) | |||||||
Loss from equity investments | - | - | - | (0.3 | ) | (0.3 | ) | ||||||||||
Interest charges | (21.1 | ) | (0.1 | ) | - | (1.9 | ) | (23.1 | ) | ||||||||
Income taxes | (17.9 | ) | (5.8 | ) | 2.5 | 7.4 | (13.8 | ) | |||||||||
Loss from discontinued operations | - | - | - | (0.2 | ) | (0.2 | ) | ||||||||||
Net income (loss) | 27.3 | 8.2 | (0.3 | ) | 0.8 | 36.0 | |||||||||||
Year to Date | Strategic | Great Plains | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2003 | KCP&L | Energy | KLT Gas | Other | Energy | ||||||||||||
(millions) | |||||||||||||||||
Operating revenues | $ | 481.7 | $ | 484.4 | $ | 0.7 | $ | 1.1 | $ | 967.9 | |||||||
Depreciation and depletion | (69.3 | ) | (0.7 | ) | (0.4 | ) | (0.7 | ) | (71.1 | ) | |||||||
Loss from equity investments | - | - | - | (0.6 | ) | (0.6 | ) | ||||||||||
Interest charges | (35.4 | ) | (0.3 | ) | (0.6 | ) | (2.6 | ) | (38.9 | ) | |||||||
Income taxes | (24.4 | ) | (15.2 | ) | 4.4 | 18.5 | (16.7 | ) | |||||||||
Loss from discontinued operations | - | - | - | (8.7 | ) | (8.7 | ) | ||||||||||
Net income (loss) | 35.7 | 19.4 | (7.1 | ) | 17.4 | 65.4 | |||||||||||
Year to Date | Strategic | Great Plains | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2002 | KCP&L | Energy | KLT Gas | Other | Energy | ||||||||||||
(millions) | |||||||||||||||||
Operating revenues | $ | 446.1 | $ | 347.6 | $ | 0.1 | $ | 1.6 | $ | 795.4 | |||||||
Depreciation and depletion | (71.9 | ) | (0.4 | ) | (0.4 | ) | (0.8 | ) | (73.5 | ) | |||||||
Loss from equity investments | - | - | - | (0.6 | ) | (0.6 | ) | ||||||||||
Interest charges | (40.1 | ) | (0.2 | ) | - | (3.2 | ) | (43.5 | ) | ||||||||
Income taxes | (11.3 | ) | (10.6 | ) | 4.8 | 15.9 | (1.2 | ) | |||||||||
Loss from discontinued operations | - | - | - | (1.4 | ) | (1.4 | ) | ||||||||||
Cumulative effect of a change | |||||||||||||||||
in accounting principle | - | - | - | (3.0 | ) | (3.0 | ) | ||||||||||
Net income (loss) | 20.4 | 15.1 | (0.4 | ) | (5.0 | ) | 30.1 | ||||||||||
36
Strategic | KLT | Great Plains | |||||||||||||||
KCP&L | Energy | Gas | Other | Energy | |||||||||||||
June 30, 2003 | (millions) | ||||||||||||||||
Assets | $ | 3,150.0 | $ | 335.9 | $ | 44.5 | $ | 91.8 | $ | 3,622.2 | |||||||
Capital and investment expenditures (a) | 81.4 | 1.3 | 7.0 | - | 89.7 |
December 31, 2002 | (millions) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | $ | 3,084.5 | $ | 226.0 | $ | 49.8 | $146.4 | $ | 3,506.7 | ||||||||
Capital and investment expenditures (a) | 135.5 | 2.1 | 8.7 | 3.5 | 149.8 | ||||||||||||
(a) | Capital and investment expenditures reflect year to date amounts for the periods presented. |
Consolidated KCP&L
The table below reflects summarized
financial information concerning consolidated KCP&Ls reportable segment. Other
includes the operations of HSS and immaterial intercompany eliminations.
Three Months Ended | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2003 | KCP&L | Other | KCP&L | |||||||||||
(millions) | ||||||||||||||
Operating revenues | $ | 247.3 | $ | 0.6 | $ | 247.9 | ||||||||
Depreciation and depletion | (34.7 | ) | (0.3 | ) | (35.0 | ) | ||||||||
Interest charges | (17.6 | ) | - | (17.6 | ) | |||||||||
Income taxes | (13.7 | ) | 0.3 | (13.4 | ) | |||||||||
Loss from discontinued operations | - | (7.5 | ) | (7.5 | ) | |||||||||
Net income (loss) | 22.3 | (7.8 | ) | 14.5 | ||||||||||
Three Months Ended | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2002 | KCP&L | Other | KCP&L | |||||||||||
(millions) | ||||||||||||||
Operating revenues | $ | 247.2 | $ | 0.7 | $ | 247.9 | ||||||||
Depreciation and depletion | (36.1 | ) | (0.3 | ) | (36.4 | ) | ||||||||
Interest charges | (21.1 | ) | (0.1 | ) | (21.2 | ) | ||||||||
Income taxes | (17.9 | ) | 0.1 | (17.8 | ) | |||||||||
Loss from discontinued operations | - | (0.2 | ) | (0.2 | ) | |||||||||
Net income (loss) | 27.3 | (0.2 | ) | 27.1 | ||||||||||
Year to Date | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2003 | KCP&L | Other | KCP&L | |||||||||||
(millions) | ||||||||||||||
Operating revenues | $ | 481.7 | $ | 1.1 | $ | 482.8 | ||||||||
Depreciation and depletion | (69.3 | ) | (0.6 | ) | (69.9 | ) | ||||||||
Interest charges | (35.4 | ) | - | (35.4 | ) | |||||||||
Income taxes | (24.4 | ) | 0.4 | (24.0 | ) | |||||||||
Loss from discontinued operations | - | (8.7 | ) | (8.7 | ) | |||||||||
Net income (loss) | 35.7 | (9.3 | ) | 26.4 | ||||||||||
37
Year to Date | Consolidated | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
June 30, 2002 | KCP&L | Other | KCP&L | |||||||||||
(millions) | ||||||||||||||
Operating revenues | $ | 446.1 | $ | 1.5 | $ | 447.6 | ||||||||
Depreciation and depletion | (71.9 | ) | (0.7 | ) | (72.6 | ) | ||||||||
Interest charges | (40.1 | ) | (0.1 | ) | (40.2 | ) | ||||||||
Income taxes | (11.3 | ) | - | (11.3 | ) | |||||||||
Loss from discontinued operations | - | (1.4 | ) | (1.4 | ) | |||||||||
Cumulative effect of a change | ||||||||||||||
in accounting principle | - | (3.0 | ) | (3.0 | ) | |||||||||
Net income (loss) | 20.4 | (4.3 | ) | 16.1 | ||||||||||
Consolidated | ||||||||||||||
KCP&L | Other | KCP&L | ||||||||||||
June 30, 2003 | (millions) | |||||||||||||
Assets | $ | 3,150.0 | $ | 16.5 | $ | 3,166.5 | ||||||||
Capital and investment expenditures (a) | 81.4 | - | 81.4 | |||||||||||
December 31, 2002 | ||||||||||||||
Assets | $ | 3,084.5 | $ | 54.7 | $ | 3,139.2 | ||||||||
Capital and investment expenditures (a) | 135.5 | 0.1 | 135.6 | |||||||||||
(a) | Capital and investment expenditures reflect year to date amounts for the periods presented. |
The Companys activities expose it to a variety of market risks including interest rates and commodity prices. Management has established risk management policies and strategies to reduce the potentially adverse effects that the volatility of the markets may have on its operating results. The Companys risk management activities, including the use of derivatives, are subject to the management, direction and control of internal risk management committees.
The Companys interest rate risk management strategy uses derivative instruments to adjust the Companys liability portfolio to optimize the mix of fixed and floating rate debt within an established range. The Company maintains commodity-price risk management strategies that use derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity price volatility. Derivative instruments are recorded on the balance sheet as an asset or liability measured at fair value. Changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met.
Interest Rate Risk
Management
KCP&L utilizes interest rate
management derivatives to adjust its liability portfolio to optimize the mix of fixed and
floating rate debt within an established range.
In 2002, KCP&L remarketed its 1998 Series A, B, and D Environmental Improvement Revenue Refunding (EIRR) bonds totaling $146.5 million to a 5-year fixed interest rate of 4.75% ending October 1, 2007. Simultaneously with the remarketing, KCP&L entered into an interest rate swap for the $146.5 million based on LIBOR to effectively create a floating interest rate obligation. The transaction is a fair value hedge with the assumption of no ineffectiveness. Changes in the fair market value of the swap are recorded on the balance sheet as an asset with an offset to the respective debt balances with no impact on earnings. At June 30, 2003, the fair value of the swap was $7.7 million.
38
KCP&L had two interest rate swap agreements in place to fix the interest rate on $30 million of floating-rate long-term debt. The swap agreements expired in June 2003.
Commodity Risk Management
KCP&Ls risk management
policy is to use derivative hedge instruments to mitigate its exposure to market price
fluctuations on a portion of its projected gas generation requirements for retail and firm
wholesale sales. These hedging instruments are designated as cash flow hedges. The fair
market values of these instruments are recorded as current assets or current liabilities.
When the gas is purchased and to the extent the hedge is effective at mitigating the
impact of a change in the purchase price of gas, the amounts in other comprehensive income
(OCI) are reclassified to the consolidated income statement. To the extent that the hedges
are not effective, the ineffective portion of the changes in fair market value is recorded
directly in fuel expense.
Strategic Energy maintains a commodity-price risk management strategy that uses forward physical energy purchases and derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity-price volatility.
As a result of supplying electricity to retail customers under fixed rate contracts, Strategic Energys policy is to match customers projected demand with fixed price purchases. In certain markets where Strategic Energy operates, entering into forward fixed price contracts is cost prohibitive. By entering into swap contracts for a portion of its forecasted purchases in these markets, the future purchase price of electricity is effectively fixed under these swap contracts protecting Strategic Energy from price volatility. The swap contracts limit the unfavorable effect that price increases will have on electricity purchases. The majority of the swap agreements are designated as cash flow hedges resulting in the difference between the market value of energy and the hedge value being recorded as other comprehensive income (loss). To the extent that the hedges are not effective, the ineffective portion of the changes in fair market value is recorded directly in purchased power.
In March 2003, Strategic Energy initiated a termination agreement with a swap counterparty due to credit and performance concerns. Strategic Energy received a $4.8 million fair value settlement. The swap was designated as a cash flow hedge of a forecasted transaction and Strategic Energy management believes the forecasted transaction will occur. During the second quarter, Strategic Energy reclassified $1.6 million to earnings. The remaining $3.2 million will be reclassified to earnings in the third and fourth quarters of 2003, the remaining term of the underlying forecasted transaction.
KLT Gas risk management policy is to use firm sales agreements or financial hedge instruments to mitigate its exposure to market price fluctuations on up to 85% of its daily natural gas production. KLT Gas is currently developing and testing gas properties; therefore, no production was hedged in 2002 or 2003.
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities is effective for contracts entered into or modified after June 30, 2003. The accounting profession is currently considering differing interpretations of the provisions of this statement therefore, the effects, if any, on Great Plains Energys and consolidated KCP&Ls financial condition and results of operations have not yet been determined.
39
The amounts recorded related to the cash flow hedges in OCI are summarized in the following tables:
Great Plains Energy activity for the three months ended June 30, 2003 | ||||||||||||||
Increase | ||||||||||||||
(Decrease) in | ||||||||||||||
March 31 | Comprehensive | June 30 | ||||||||||||
2003 | Income | Reclassified | 2003 | |||||||||||
Assets | (millions) | |||||||||||||
Cash | $ | 4.8 | $ | - | $ | (1.6 | ) | $ | 3.2 | |||||
Other current assets | 5.9 | 0.5 | (1.2 | ) | 5.2 | |||||||||
Other deferred charges | - | 0.2 | - | 0.2 | ||||||||||
Liabilities and capitalization | ||||||||||||||
Other current liabilities | (2.2 | ) | (3.7 | ) | 0.4 | (5.5 | ) | |||||||
Other comprehensive | ||||||||||||||
income | (4.5 | ) | 2.3 | 1.2 | (1.0 | ) | ||||||||
Deferred income taxes | (3.4 | ) | 1.8 | 0.9 | (0.7 | ) | ||||||||
Other deferred credits | (0.6 | ) | (1.1 | ) | 0.3 | (1.4 | ) | |||||||
Consolidated KCP&L activity for the three months ended June 30, 2003 | ||||||||||||||
Increase | ||||||||||||||
(Decrease) in | ||||||||||||||
March 31 | Comprehensive | June 30 | ||||||||||||
2003 | Income | Reclassified | 2003 | |||||||||||
Assets | (millions) | |||||||||||||
Other current assets | $ | 1.6 | $ | (0.1 | ) | $ | - | $ | 1.5 | |||||
Liabilities and capitalization | ||||||||||||||
Other comprehensive | ||||||||||||||
income | (1.0 | ) | 0.1 | - | (0.9 | ) | ||||||||
Deferred income taxes | (0.6 | ) | - | - | (0.6 | ) | ||||||||
Great Plains Energy activity for the three months ended June 30, 2002 | ||||||||||||||
Increase | ||||||||||||||
(Decrease) in | ||||||||||||||
March 31 | Comprehensive | June 30 | ||||||||||||
2002 | Income | Reclassified | 2002 | |||||||||||
Assets | (millions) | |||||||||||||
Other current assets | $ | 0.8 | $ | (0.5 | ) | $ | (0.2 | ) | $ | 0.1 | ||||
Other deferred charges | 0.3 | 0.2 | - | 0.5 | ||||||||||
Liabilities and capitalization | ||||||||||||||
Other current liabilities | (7.4 | ) | (3.4 | ) | 2.9 | (7.9 | ) | |||||||
Other comprehensive | ||||||||||||||
income | 7.2 | - | (1.3 | ) | 5.9 | |||||||||
Deferred income taxes | 5.1 | - | (1.0 | ) | 4.1 | |||||||||
Other deferred credits | (6.0 | ) | 3.7 | (0.4 | ) | (2.7 | ) | |||||||
40
Consolidated KCP&L activity for the three months ended June 30, 2002 | ||||||||||||||
Increase | ||||||||||||||
(Decrease) in | ||||||||||||||
March 31 | Comprehensive | June 30 | ||||||||||||
2002 | Income | Reclassified | 2002 | |||||||||||
Assets | (millions) | |||||||||||||
Other current assets | $ | 0.4 | $ | (0.2 | ) | $ | (0.2 | ) | $ | - | ||||
Liabilities and capitalization | ||||||||||||||
Other comprehensive | ||||||||||||||
income | (0.3 | ) | 0.2 | 0.1 | - | |||||||||
Deferred income taxes | (0.1 | ) | - | 0.1 | - | |||||||||
Great Plains Energy activity year to date June 30, 2003 | ||||||||||||||
Increase | ||||||||||||||
(Decrease) in | ||||||||||||||
December 31 | Comprehensive | June 30 | ||||||||||||
2002 | Income | Reclassified | 2003 | |||||||||||
Assets | (millions) | |||||||||||||
Cash | $ | - | $ | 4.8 | $ | (1.6 | ) | $ | 3.2 | |||||
Other current assets | 3.0 | 7.4 | (5.2 | ) | 5.2 | |||||||||
Other deferred charges | - | 0.2 | - | 0.2 | ||||||||||
Liabilities and capitalization | ||||||||||||||
Other current liabilities | (1.6 | ) | (2.1 | ) | (1.8 | ) | (5.5 | ) | ||||||
Other comprehensive | ||||||||||||||
income | (0.9 | ) | (4.4 | ) | 4.3 | (1.0 | ) | |||||||
Deferred income taxes | (0.7 | ) | (3.3 | ) | 3.3 | (0.7 | ) | |||||||
Other deferred credits | 0.2 | (2.6 | ) | 1.0 | (1.4 | ) | ||||||||
Consolidated KCP&L activity year to date June 30, 2003 | ||||||||||||||
Increase | ||||||||||||||
(Decrease) in | ||||||||||||||
December 31 | Comprehensive | June 30 | ||||||||||||
2002 | Income | Reclassified | 2003 | |||||||||||
Assets | (millions) | |||||||||||||
Other current assets | $ | 0.3 | $ | 1.2 | $ | - | $ | 1.5 | ||||||
Liabilities and capitalization | ||||||||||||||
Other comprehensive | ||||||||||||||
income | (0.2 | ) | (0.7 | ) | - | (0.9 | ) | |||||||
Deferred income taxes | (0.1 | ) | (0.5 | ) | - | (0.6 | ) | |||||||
41
Great Plains Energy activity year to date June 30, 2002 | ||||||||||||||
Increase | ||||||||||||||
(Decrease) in | ||||||||||||||
December 31 | Comprehensive | June 30 | ||||||||||||
2001 | Income | Reclassified | 2002 | |||||||||||
Assets | (millions) | |||||||||||||
Other current assets | $ | (0.2 | ) | $ | 0.4 | $ | (0.1 | ) | $ | 0.1 | ||||
Other deferred debits | - | 0.5 | - | 0.5 | ||||||||||
Liabilities and capitalization | ||||||||||||||
Other current liabilities | (12.7 | ) | (1.0 | ) | 5.8 | (7.9 | ) | |||||||
Other comprehensive | ||||||||||||||
income | 12.1 | (3.4 | ) | (2.8 | ) | 5.9 | ||||||||
Deferred income taxes | 8.5 | (2.4 | ) | (2.0 | ) | 4.1 | ||||||||
Other deferred credits | (7.7 | ) | 5.9 | (0.9 | ) | (2.7 | ) | |||||||
Consolidated KCP&L activity year to date June 30, 2002 | ||||||||||||||
Increase | ||||||||||||||
(Decrease) in | ||||||||||||||
December 31 | Comprehensive | June 30 | ||||||||||||
2001 | Income | Reclassified | 2002 | |||||||||||
Assets | (millions) | |||||||||||||
Other current assets | $ | (0.2 | ) | $ | 0.3 | $ | (0.1 | ) | $ | - | ||||
Liabilities and capitalization | ||||||||||||||
Other current liabilities | (0.1 | ) | 0.1 | - | - | |||||||||
Other comprehensive | ||||||||||||||
income | 0.2 | (0.2 | ) | - | - | |||||||||
Deferred income taxes | 0.1 | (0.2 | ) | 0.1 | - | |||||||||
Reclassified to earnings for the three months ended June 30, | ||||||||||||||
Great Plains Energy | Consolidated KCP&L | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Gas revenues | $ | - | $ | (0.2 | ) | $ | - | $ | - | |||||
Fuel expense | - | 0.2 | - | 0.2 | ||||||||||
Purchased power expense | 2.4 | (2.7 | ) | - | - | |||||||||
Minority interest | (0.3 | ) | 0.4 | - | - | |||||||||
Income taxes | (0.9 | ) | 1.0 | - | (0.1 | ) | ||||||||
Other comprehensive income | $ | 1.2 | $ | (1. | 3) | $ | - | $ | 0.1 | |||||
Reclassified to earnings year to date June 30, | ||||||||||||||
Great Plains Energy | Consolidated KCP&L | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Gas revenues | $ | - | $ | (0.2 | ) | $ | - | $ | - | |||||
Fuel expense | - | 0.1 | - | 0.1 | ||||||||||
Purchased power expense | 8.6 | (5.6 | ) | - | - | |||||||||
Minority interest | (1.0 | ) | 0.9 | - | - | |||||||||
Income taxes | (3.3 | ) | 2.0 | - | (0.1 | ) | ||||||||
Other comprehensive income | $ | 4.3 | $ | (2.8 | ) | $ | - | $ | - | |||||
42
In June 2001, the FASB issued SFAS No. 141, Business Combinations, which requires the purchase method of accounting for business combinations initiated after June 30, 2001. In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other Intangible Assets, which discontinues the practice of amortizing goodwill and indefinite lived intangible assets and initiates an annual review for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. The amortization provisions apply to goodwill and intangible assets acquired after June 30, 2001. SFAS No. 141 and 142 clarify that more assets should be distinguished and classified between tangible and intangible. KLT Gas did not change or reclassify contractual mineral rights included in gas property and investments on Great Plains Energys consolidated balance sheet upon adoption of SFAS No. 142. KLT Gas management believes its classification of such mineral rights under the full cost method of accounting for natural gas properties, which is consistent with industry practice, is appropriate. However, the accounting profession and others are engaged in industry-wide deliberations regarding whether SFAS No. 141 and 142 require contractual mineral rights to be classified as intangible assets. Based on the results of the deliberations, if management determines reclassification is necessary, KLT Gas gas property and investments would be reduced by $8.3 million and $6.0 million and intangible assets would have increased by a like amount at June 30, 2003, and December 31, 2002, respectively, representing cost incurred from the effective date of June 30, 2001. The provisions of SFAS No. 141 and 142 impact only the balance sheet and associated footnote disclosure, and any required reclassification would not impact Great Plains Energys cash flows or results of operations.
43
The Managements Discussion and Analysis of Financial Condition and Results of Operations that follow are a combined presentation for Great Plains Energy and KCP&L, both registrants under this filing. The discussion and analysis by management focuses on those factors that had a material effect on the financial condition and results of operations of the registrants during the periods presented. It should be read in conjunction with the accompanying consolidated financial statements and related notes and with the managements discussion and analysis included in the companies 2002 annual report on Form 10-K.
Losses in prior periods related to the operations of RSAE have been reclassified and are presented as discontinued operations due to the June 2003 disposition of RSAE.
Great Plains Energy
Incorporated
As a diversified energy company,
Great Plains Energys reportable business segments include:
o | KCP&L, an integrated, regulated electric utility in the states of Missouri and Kansas, provides reliable, affordable | ||
electricity to retail customers; | |||
o | Strategic Energy provides power supply coordination services by entering into long-term contracts with its customers | ||
to supply electricity Strategic Energy purchases under long-term contracts, operating in several electricity markets | |||
offering retail choice, including Pennsylvania, California, Ohio, New York, Massachusetts, Texas, Michigan and New | |||
Jersey; and | |||
o | KLT Gas explores for, develops and produces unconventional natural gas resources. |
The Companys goal is to become a premier diversified energy company that achieves annual growth in earnings per share in a financially disciplined manner. To achieve this goal, Great Plains Energy intends to focus on its three reportable segments of business:
o | Stressing operational excellence in the utility operations of KCP&L; | ||
o | Expanding Strategic Energy's business model in new and existing markets; and | ||
o | Developing KLT Gas into a leading unconventional natural gas exploration company. |
Regulatory Matters
At the end of January 2002, a severe
ice storm occurred throughout large portions of the Midwest, including the greater Kansas
City metropolitan area. In 2002, the KCC approved a stipulation and agreement regarding
the treatment of the Kansas portion of the ice storm costs. Pursuant to the stipulation
and agreement, KCP&L implemented a retail rate reduction January 1, 2003, and began
calculating depreciation expense on Wolf Creek using a 60 year life instead of a 40 year
life. As a result of the stipulation and agreement, KCP&L retail revenues decreased
approximately $3.0 million and $5.6 million for the three months ended and year to date
June 30, 2003 periods, respectively. Depreciation expense decreased approximately $2.0
million and $3.9 million for the three months ended and year to date June 30, 2003
periods, respectively. The reduction in depreciation expense has been recorded as a
regulatory asset.
In 2002, the MPSC approved KCP&Ls application for an accounting authority order related to the Missouri jurisdictional portion of the storm costs. The order allows KCP&L to defer and amortize $20.1 million, representing the Missouri portion of the storm costs, through January 2007. The amortization began in September 2002 and will amortize approximately $4.6 million annually for the remainder of the
44
amortization period. KCP&L amortized $1.2 million and $2.3 million of deferred ice storm costs for the three months ended and year to date June 30, 2003 periods, respectively.
Asset Retirement
Obligations
Effective January 1, 2003, the
Company adopted SFAS No. 143. SFAS No. 143 provides accounting requirements for the
recognition and measurement of liabilities associated with the retirement of tangible
long-lived assets. Under the standard, these liabilities are recognized at fair value as
incurred and capitalized as part of the cost of the related long-lived asset. Accretion of
the liabilities due to the passage of time is recorded as an operating expense. Retirement
obligations associated with long-lived assets included within the scope of SFAS No. 143
are those for which a legal obligation exists under enacted laws, statutes written or oral
contracts, including obligations arising under the doctrine of promissory estoppel.
The adoption of SFAS No. 143 changed the accounting for and the method used to report KCP&Ls obligation to decommission its 47% share of Wolf Creek. The legal obligation to decommission Wolf Creek was incurred when the plant was placed in service in 1985. The estimated liability, recognized on KCP&Ls balance sheet at January 1, 2003, is based on a third party nuclear decommissioning study conducted in 2002. KCP&L used a credit-adjusted risk free discount rate of 6.42% to calculate the retirement obligation. This rate is based on the rate KCP&L could issue 30-year bonds, adjusted downward to reflect the portion of the anticipated costs in current year dollars that had been funded at date of adoption through the tax-qualified trust fund. The cumulative impact of prior decommissioning accruals recorded consistent with rate orders issued by the MPSC and KCC has been reversed and a new regulatory contra-asset for such amounts has been established. Amounts collected through these rate orders have been deposited in a legally restricted external trust fund. The fair market value of the trust fund was $69.1 million and $63.3 million at June 30, 2003 and December 31, 2002, respectively.
KCP&L also must recognize, where possible to estimate, the future costs to settle other legal liabilities including the removal of water intake structures on rivers, capping/filling of piping at levees following steam power plant closures and capping/closure of ash landfills. Estimates for these liabilities are based on internal engineering estimates of third party costs to remove the assets in satisfaction of legal obligations and have been discounted using credit adjusted risk free rates ranging from 5.25% to 7.50% depending on the anticipated settlement date.
KLT Gas has estimated liabilities for gas well plugging and abandonment, facility removal and surface restoration. These estimates are based upon internal estimates of third party costs to satisfy the legal obligations and have been discounted using credit adjusted risk free rates ranging from 6.00% to 7.25%, depending upon the anticipated settlement date.
Revisions to the estimated liabilities of KCP&L and KLT Gas could occur due to changes in the decommissioning or other cost estimates, extension of the nuclear operating license or changes in federal or state regulatory requirements.
On January 1, 2003, KCP&L recorded an asset retirement obligation of $99.2 million and increased property and equipment, net of accumulated depreciation, by $18.3 million. KCP&L is a regulated utility subject to the provisions of SFAS No. 71 and management believes it is probable that any differences between expenses under SFAS No. 143 and expenses recovered currently in rates will be recoverable in future rates. As a result, the $80.9 million cumulative effect of the adoption of SFAS No. 143 was recorded as a regulatory asset and therefore, had no impact on net income.
As a result of its adoption of SFAS No. 143, KLT Gas recorded an asset retirement obligation of $1.2 million, increased property and equipment by $1.0 million and increased operating expense by $0.2 million for the immaterial cumulative effect of the accounting change.
45
If the provisions of SFAS No. 143 had been applied to the consolidated balance sheets presented, Consolidated KCP&Ls liability for asset retirement obligations would have been $99.2 million at December 31, 2002. Great Plains Energys liability for asset retirement obligations at December 31, 2002, would have been $100.4 million, reflecting consolidated KCP&Ls liability and the KLT Gas liability of $1.2 million.
KCP&L has legal asset retirement obligations for certain other assets where it is not possible to estimate the time period when the obligations will be settled. Consequently, the retirement obligations cannot be measured at this time. For transmission easements obtained by condemnation, KCP&L must remove its transmission lines if the line is de-energized. It is extremely difficult to obtain siting for new transmission lines. Consequently, KCP&L does not anticipate de-energizing any of its existing lines. KCP&L also operates, under state permits, ash landfills at several of its power plants. While the life of the ash landfill at one plant can be estimated and is included in the estimated liabilities above, the future life of ash landfills at other permitted landfills cannot be estimated. KCP&L can continue to maintain permits for these landfills after the adjacent plant is closed.
Although the liability for Wolf Creek decommissioning costs recorded under the new asset retirement obligations method will be substantially the same at the end of Wolf Creeks life as the liability that would have been recorded under the former ratemaking method, the rate at which the liability will increase will be different under the two methods. In the near term, the asset retirement obligations liability will be higher than the liability under the former method. Because KCP&L is subject to SFAS No. 71, the difference in the recognition of the liability will have no impact on earnings.
Prior to the adoption of SFAS No. 143, KLT Gas did not record separate asset retirement costs and liabilities, or the associated depreciation and accretion. Under the full cost method of accounting followed by KLT Gas, estimated dismantlement and abandonment costs, net of estimated salvage values, were recorded to the property cost to be amortized. Under SFAS No. 143, KLT Gas reserve for depreciation and asset retirement liabilities will increase systematically over the asset life up to the time of settlement with corresponding charges to expense.
46
Three Months Ended | Year to Date | |||||||||||||
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Operating revenues | $ | 503.3 | $ | 449.1 | $ | 967.9 | $ | 795.4 | ||||||
Fuel | (37.1 | ) | (35.4 | ) | (74.5 | ) | (69.4 | ) | ||||||
Purchased power - KCP&L | (15.8 | ) | (12.3 | ) | (31.9 | ) | (23.2 | ) | ||||||
Purchased power - Strategic Energy | (226.1 | ) | (175.9 | ) | (426.0 | ) | (300.9 | ) | ||||||
Revenues, net of | ||||||||||||||
fuel and purchased power | 224.3 | 225.5 | 435.5 | 401.9 | ||||||||||
Other operating expenses | (119.6 | ) | (110.6 | ) | (237.9 | ) | (234.3 | ) | ||||||
Depreciation and depletion | (35.6 | ) | (36.8 | ) | (71.1 | ) | (73.5 | ) | ||||||
Loss on property | 20.6 | 0.1 | 11.6 | - | ||||||||||
Operating income | 89.7 | 78.2 | 138.1 | 94.1 | ||||||||||
Loss from equity investments | (0.3 | ) | (0.3 | ) | (0.6 | ) | (0.6 | ) | ||||||
Non-operating income (expenses) | (2.0 | ) | (4.8 | ) | (7.8 | ) | (14.3 | ) | ||||||
Interest charges | (19.4 | ) | (23.1 | ) | (38.9 | ) | (43.5 | ) | ||||||
Income taxes | (9.6 | ) | (13.8 | ) | (16.7 | ) | (1.2 | ) | ||||||
Discontinued operations | (7.5 | ) | (0.2 | ) | (8.7 | ) | (1.4 | ) | ||||||
Cumulative effect of a change | ||||||||||||||
in accounting principle | - | - | - | (3.0 | ) | |||||||||
Net income | 50.9 | 36.0 | 65.4 | 30.1 | ||||||||||
Preferred dividends | (0.4 | ) | (0.5 | ) | (0.8 | ) | (0.9 | ) | ||||||
Earnings available for common stock | $ | 50.5 | $ | 35.5 | $ | 64.6 | $ | 29.2 | ||||||
Three months ended June
30, 2003 compared to June 30, 2002
Great Plains Energys three
months ended June 30, 2003 earnings, as detailed in the table below, increased to $50.5
million, or $0.73 per share, from $35.5 million, or $0.57 per share, compared to the same
period of 2002. The issuance of 6.9 million shares in November 2002 diluted three months
ended 2003 earnings per share $0.08.
Earnings per Great | ||||||||||||||
Earnings (Loss) | Plains Energy Share | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Three Months Ended June 30 | ||||||||||||||
KCP&L | $ | 22.3 | $ | 27.3 | $ | 0.32 | $ | 0.44 | ||||||
Subsidiary operations | (0.3 | ) | - | - | - | |||||||||
Discontinued operations | (7.5 | ) | (0.2 | ) | (0.11 | ) | - | |||||||
Consolidated KCP&L | 14.5 | 27.1 | 0.21 | 0.44 | ||||||||||
Strategic Energy | 9.6 | 8.2 | 0.14 | 0.13 | ||||||||||
KLT Gas | (0.6 | ) | (0.3 | ) | (0.01 | ) | - | |||||||
Other non-regulated operations | 27.0 | 0.5 | 0.39 | - | ||||||||||
Total | $ | 50.5 | $ | 35.5 | $ | 0.73 | $ | 0.57 | ||||||
KCP&L earnings decreased $5.0 million for the three months ended June 30, 2003, compared to the same period of 2002. KCP&L revenue, net of fuel and purchased power decreased $5.1 million primarily due to decreased retail revenues as a result of mild June 2003 weather and the effect of the January 2003 Kansas rate reduction partially offset by a 35% increase in wholesale MWh sales at
47
higher wholesale prices. Increased operating and maintenance expenses including pension and plant maintenance expenses were partially offset by a decrease in interest expense.
Discontinued operations includes a $7.1 million loss on the June 2003 disposition of the Companys interest in RSAE and $0.4 million of continuing operating losses at RSAE through the date of disposition.
Strategic Energys earnings increased $1.4 million for the three months ended June 30, 2003, compared to the same period of 2002. The increase is the result of a $3.8 million increase in revenues net of purchased power primarily due to a 31% increase in MWhs sold. This increase was partially offset by an increase in administrative and general expenses including employee related expenses. In addition to the continued growth, Great Plains Energys ownership of Strategic Energy was increased by 5.8% in the fourth quarter of 2002.
Other non-regulated operations includes $25.9 million for the effects of the June confirmation of the restructuring plan of DTI Holdings, Inc., Digital Teleport, Inc., and Digital Teleport of Virginia, Inc. and sale of substantially all of the assets of Digital Teleport, Inc. to a subsidiary of CenturyTel, Inc. See Note 7 to the consolidated financial statements for additional information regarding DTI. Other non-regulated operations also included a $1.2 million increase in earnings primarily due to lower reductions in affordable housing limited partnerships in the second quarter of 2003 compared to 2002.
Year to date June 30,
2003 compared to June 30, 2002
Great Plains Energys year to
date June 30, 2003 earnings, as detailed in the table below, increased to $64.6 million,
or $0.93 per share, from $29.2 million, or $0.47 per share, compared to the same period of
2002. The issuance of 6.9 million shares in November 2002 diluted year to date 2003
earnings per share $0.11.
Earnings per Great | ||||||||||||||
Earnings (Loss) | Plains Energy Share | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Year to Date June 30 | ||||||||||||||
KCP&L | $ | 35.7 | $ | 20.4 | $ | 0.52 | $ | 0.33 | ||||||
Subsidiary operations | (0.6 | ) | 0.1 | (0.01 | ) | - | ||||||||
Discontinued operations | (8.7 | ) | (1.4 | ) | (0.13 | ) | (0.02 | ) | ||||||
Cumulative effect to January 1, 2002 | ||||||||||||||
of a change in accounting principle | - | (3.0 | ) | - | (0.05 | ) | ||||||||
Consolidated KCP&L | 26.4 | 16.1 | 0.38 | 0.26 | ||||||||||
Strategic Energy | 19.4 | 15.1 | 0.28 | 0.24 | ||||||||||
KLT Gas | (7.1 | ) | (0.4 | ) | (0.10 | ) | (0.01 | ) | ||||||
Other non-regulated operations | 25.9 | (1.6 | ) | 0.37 | (0.02 | ) | ||||||||
Total | $ | 64.6 | $ | 29.2 | $ | 0.93 | $ | 0.47 | ||||||
KCP&L earnings increased $15.3 million year to date June 30, 2003, compared to the same period of 2002. KCP&L revenue, net of fuel and purchased power increased $21.8 million primarily due to a significant increase in wholesale MWhs sold and favorable first quarter 2003 weather partially offset by the effect on retail revenues of the January 2003 Kansas rate reductions. This increase combined with a $4.7 million decrease in interest expense more than offset mild June 2003 weather, a $5.9 million increase in pension expense and a $5.1 million increase in power plant maintenance. The amortization of the Missouri jurisdictional portion of the storm costs totaled $2.3 million year to date June 30, 2003.
48
Year to date June 30, 2002, KCP&L expensed $16.0 million for the Kansas jurisdictional portion of the storm costs.
Discontinued operations includes a $7.1 million loss on the June 2003 disposition of the Companys interest in RSAE and $1.6 million of continuing operating losses at RSAE through the date of disposition.
Strategic Energys earnings increased $4.3 million year to date June 30, 2003, compared to the same period of 2002. The increase is the result of an $11.7 million increase in revenues net of purchased power primarily due to a 48% increase in MWhs sold. This increase was partially offset by an increase in administrative and general expenses including employee related expenses. In addition to the continued growth, Great Plains Energys ownership of Strategic Energy was increased by 5.8% in the fourth quarter of 2002.
KLT Gas continues to focus on the testing and development of several unconventional natural gas properties. Year to date June 30, 2003, includes a first quarter after tax impairment charge of $5.5 million recorded by KLT Gas on a Rocky Mountain project in response to lower revised estimates of future gas production.
Other non-regulated operations includes the $25.9 million effect of DTI discussed above and a $3.0 million increase in earnings primarily due to lower reductions in affordable housing limited partnerships year to date June 30, 2003, compared to 2002.
Consolidated KCP&L
The following discussion of
consolidated KCP&L results of operations includes KCP&L, an integrated electric
utility and HSS, an unregulated subsidiary of KCP&L. References to KCP&L, in the
discussion that follows, reflect only the operations of the integrated electric utility.
Consolidated KCP&L
Business Overview
As an integrated electric utility,
KCP&L engages in the generation, transmission, distribution and sale of electricity.
KCP&Ls power business has over 4,000 megawatts of generating capacity following the second quarter 2003 completion of five combustion turbine units that added 385 megawatts of peaking capacity. KCP&L has entered into a five-year construction and synthetic operating lease transaction with a Trust for the five combustion turbines. The total estimated cost for the purchase, installation, assembly and construction of the five combustion turbines is projected to be under $155 million. Under FASB Interpretation No. 46, KCP&L will be required to consolidate the Trust effective July 1, 2003. KCP&Ls utility plant and long-term debt will increase by the total project cost and depreciation expense will increase upon consolidation of the Trust. Because of the manner in which the current synthetic lease is treated for covenant purposes in the Companys and KCP&Ls financing arrangements, as well as by the rating agencies, liquidity and credit ratings are not expected to be impacted by this new accounting standard.
KCP&Ls delivery business consists of transmission and distribution facilities that serve over 485,000 customers as of June 30, 2003. KCP&L continues to experience load growth approximating the historical average of 2.0% to 2.5% annually through increased customer usage and additional customers. Rates charged for electricity are below the national average.
At the end of January 2002, a severe ice storm occurred throughout large portions of the Midwest, including the greater Kansas City metropolitan area. At its peak, the storm caused over 300,000 customer outages throughout the KCP&L service territory, an unprecedented level in the KCP&Ls 120-
49
year history. Crews from other utilities in numerous states were called in to assist in the restoration of power and power was restored in nine days. Total costs related to the January ice storm were approximately $51.3 million of which $14.7 million were capital expenditures and therefore charged to utility plant. KCP&L expensed a total of $16.5 million in 2002 for the Kansas jurisdictional portion of the storm costs and deferred $20.1 million of the storm costs applicable to Missouri. In January 2003, Edison Electric Institute honored KCP&L for exemplary performance and dedication in restoring power to customers during the storm and recognized KCP&L by awarding it the associations annual Emergency Response Award.
Under the Federal Energy Regulatory Commission (FERC) Order 2000, KCP&L, as an investor-owned utility, is strongly encouraged to join a FERC approved Regional Transmission Organization (RTO). RTOs combine regional transmission operations of utility businesses into a regional organization that schedules transmission services and monitors the energy market to ensure regional transmission reliability and non-discriminatory access. During the first quarter of 2002, the Southwest Power Pool, Inc. (SPP) and the Midwest Independent System Operator (MISO) voted to consolidate the two organizations to create a larger Midwestern RTO, a non-profit organization that would operate in twenty states and one Canadian province. During March 2003, SPP and MISO mutually agreed to terminate the process of consolidating the organizations. Subsequent to the termination of the merger between SPP and MISO, the SPP formulated and approved a strategic plan for SPP. The plan includes provisions for SPP to become compliant with FERC Order 2000. It is anticipated that SPP will file their compliance plan with FERC in the Fall of 2003. KCP&L is directly participating in the SPP process to become FERC Order 2000 compliant and intends to continue SPP participation.
During the third quarter of 2002, the FERC issued a Notice of Proposed Rulemaking to Remedy Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design. The proposed rulemaking is designed to establish a single non-discriminatory open access transmission tariff with a single transmission service that is applicable to all users of the interstate transmission grid and to standardize wholesale energy market rules. All public utilities that own, control or operate interstate transmission facilities would be required to become independent transmission providers, turn over the operation of their transmission facilities to an RTO that meets the definition of an independent transmission provider or contract with an entity that meets the definition of an independent transmission provider. KCP&L filed comments with the FERC on the proposed rulemaking in November 2002. In late April 2003, the FERC issued a white paper titled Wholesale Power Market Platform, in response to comments received on its proposed rulemaking. In the white paper, the FERC stated its intent to require all public utilities to join an RTO or Independent System Operator (ISO). The FERC also stressed that state authorities will play a significant role in RTO and ISO formation through the formation of Regional State Committees. The proposal also allows for phased-in implementation and market rules tailored to each region. The FERC also indicated that divestiture is not required to achieve independent operation of the transmission system. Companies may remain vertically integrated under an RTO or ISO. Additionally, as proposed, each RTO or ISO would be required to have a clear transmission cost recovery policy outlined in its tariff.
KCP&L has a wholly-owned unregulated subsidiary, HSS, that holds a residential services investment, Worry Free. In June 2003, HSS completed the disposition of its interest in RSAE.
50
Consolidated KCP&L
Results of Operations
The following table summarizes
consolidated KCP&Ls comparative results of operations.
Three Months Ended | Year to Date | |||||||||||||
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Operating revenues | $ | 247.9 | $ | 247.9 | $ | 482.8 | $ | 447.6 | ||||||
Fuel | (37.1 | ) | (35.4 | ) | (74.5 | ) | (69.4 | ) | ||||||
Purchased power | (15.8 | ) | (12.3 | ) | (31.9 | ) | (23.2 | ) | ||||||
Revenues, net of | ||||||||||||||
fuel and purchased power | 195.0 | 200.2 | 376.4 | 355.0 | ||||||||||
Other operating expenses | (106.0 | ) | (97.3 | ) | (209.7 | ) | (208.6 | ) | ||||||
Depreciation and depletion | (35.0 | ) | (36.4 | ) | (69.9 | ) | (72.6 | ) | ||||||
Gain (loss) on property | (0.1 | ) | 0.2 | (0.1 | ) | 0.2 | ||||||||
Operating income | 53.9 | 66.7 | 96.7 | 74.0 | ||||||||||
Non-operating income (expenses) | (0.9 | ) | (0.4 | ) | (2.2 | ) | (2.0 | ) | ||||||
Interest charges | (17.6 | ) | (21.2 | ) | (35.4 | ) | (40.2 | ) | ||||||
Income taxes | (13.4 | ) | (17.8 | ) | (24.0 | ) | (11.3 | ) | ||||||
Discontinued operations | (7.5 | ) | (0.2 | ) | (8.7 | ) | (1.4 | ) | ||||||
Cumulative effect of a change | ||||||||||||||
in accounting principle | - | - | - | (3.0 | ) | |||||||||
Net income | $ | 14.5 | $ | 27.1 | $ | 26.4 | $ | 16.1 | ||||||
Consolidated KCP&L earnings from continuing operations decreased $5.3 million due to decreased earnings from KCP&L of $5.0 million for the three months ended June 30, 2003, compared to the same period of 2002. KCP&L revenue, net of fuel and purchased power decreased $5.1 million primarily due to decreased retail revenues as a result of mild June 2003 weather and the effect of the January 2003 Kansas rate reduction partially offset by a 35% increase in wholesale MWh sales at higher wholesale prices. Increased operating and maintenance expenses including pension and plant maintenance expenses were partially offset by a decrease in interest expense.
Consolidated KCP&L earnings from continuing operations increased $14.6 million due to increased earnings from KCP&L of $15.3 million year to date June 30, 2003, compared to the same period of 2002. KCP&L revenue, net of fuel and purchased power increased $21.8 million primarily due to a significant increase in wholesale MWhs sold at higher wholesale prices and favorable first quarter 2003 weather partially offset by the effect on retail revenues of the January 2003 Kansas rate reduction. This increase combined with a $4.8 million decrease in interest expense more than offset a $5.9 million increase in pension expense and a $5.1 million increase in power plant maintenance. The amortization of the Missouri jurisdictional portion of the storm costs totaled $2.3 million year to date June 30, 2003. Year to date June 30, 2002, KCP&L expensed $16.0 million for the Kansas jurisdictional portion of the storm costs.
Discontinued operations for the 2003 periods includes a $7.1 million loss on the June 2003 disposition of HSS interest in RSAE and continuing losses through the date of disposition of $0.4 million and $1.6 million during the three months ended and year to date, respectively. Losses from RSAE during the three months ended and year to date June 30, 2002, of $0.2 million and $1.4 million, respectively have been reclassified and are presented as discontinued operations. Additionally, year to date June 30, 2002, earnings reflect the $3.0 million cumulative effect to January 1, 2002, of a change in accounting principle for the adoption of SFAS No. 142 and the associated write-down of RSAE goodwill.
51
Consolidated KCP&L Sales Revenues and MWh Sales | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Three Months Ended | Year to Date | |||||||||||||||||||
June 30 | % | June 30 | % | |||||||||||||||||
2003 | 2002 | Change | 2003 | 2002 | Change | |||||||||||||||
Retail revenues | (millions) | (millions) | ||||||||||||||||||
Residential | $ | 81.4 | $ | 84.2 | (3 | ) | $ | 153.8 | $ | 154.0 | - | |||||||||
Commercial | 103.5 | 110.2 | (6 | ) | 193.3 | 196.7 | (2 | ) | ||||||||||||
Industrial | 24.4 | 26.4 | (8 | ) | 45.3 | 46.2 | (2 | ) | ||||||||||||
Other retail revenues | 2.1 | 2.1 | 1 | 4.2 | 4.3 | - | ||||||||||||||
Total retail | 211.4 | 222.9 | (5 | ) | 396.6 | 401.2 | (1 | ) | ||||||||||||
Wholesale revenues | 32.4 | 21.1 | 53 | 78.7 | 38.6 | 104 | ||||||||||||||
Other revenues | 3.5 | 3.2 | 10 | 6.4 | 6.3 | 1 | ||||||||||||||
KCP&L electric revenues | 247.3 | 247.2 | - | 481.7 | 446.1 | 8 | ||||||||||||||
Subsidiary revenues | 0.6 | 0.7 | (30 | ) | 1.1 | 1.5 | (30 | ) | ||||||||||||
Consolidated KCP&L revenues | $ | 247.9 | $ | 247.9 | - | $ | 482.8 | $ | 447.6 | 8 | ||||||||||
Three Months Ended | Year to Date | |||||||||||||||||||
June 30 | % | June 30 | % | |||||||||||||||||
2003 | 2002 | Change | 2003 | 2002 | Change | |||||||||||||||
Retail MWh sales | (thousands) | (thousands) | ||||||||||||||||||
Residential | 1,070 | 1,080 | (1 | ) | 2,224 | 2,149 | 4 | |||||||||||||
Commercial | 1,653 | 1,726 | (4 | ) | 3,282 | 3,282 | - | |||||||||||||
Industrial | 503 | 522 | (4 | ) | 982 | 948 | 4 | |||||||||||||
Other retail MWh sales | 22 | 19 | 7 | 42 | 41 | 3 | ||||||||||||||
Total retail | 3,248 | 3,347 | (3 | ) | 6,530 | 6,420 | 2 | |||||||||||||
Wholesale MWh sales | 1,341 | 998 | 35 | 2,831 | 1,853 | 53 | ||||||||||||||
KCP&L electric MWh sales | 4,589 | 4,345 | 6 | 9,361 | 8,273 | 13 | ||||||||||||||
Retail revenues decreased $11.5 million for the three months ended and $4.6 million year to date June 30, 2003, compared to the same periods of 2002. Mild June 2003 weather was the primary reason for the decrease in the three months ended which was more than offset in the year to date period by favorable weather earlier in 2003 and continued load growth. The Kansas rate reduction effective January 1, 2003 decreased retail revenues approximately $3.0 million for the three months ended and $5.6 million year to date June 30, 2003. See Critical Accounting Policies for additional information. Less than 1% of revenues include an automatic fuel adjustment provision.
Wholesale revenues increased $11.3 million for the three months ended and $40.1 million year to date. Bulk power sales, the major component of wholesale sales, vary with system requirements, generating unit and purchased power availability, fuel costs and requirements of other electric systems. In addition to these factors, a more focused sales effort helped increase MWh sales by 35% for the three months ended and 53% year to date. Additionally, average market prices per MWh of power sold increased 18% for the three months ended and 50% year to date compared to the same periods of 2002. The increase was driven by increased natural gas prices.
KCP&L Fuel and
Purchased Power
The fuel cost per MWh generated and
the purchased power cost per MWh have a significant impact on the results of operations
for KCP&L. Generation fuel mix can change the fuel cost per MWh generated
substantially. Nuclear fuel costs per MWh generated remain substantially less than the
cost of coal per MWh generated. Replacement power costs for planned Wolf Creek outages are
accrued evenly over the units operating cycle. KCP&L expects its cost of nuclear
fuel to remain fairly constant through the year 2008. Coal has a significantly lower cost
per MWh generated than natural gas and oil. KCP&Ls procurement strategies
continue to provide delivered coal costs below the regional average. The cost
52
per MWh for purchased power is significantly higher than the fuel cost per MWh of coal and nuclear generation. KCP&L continually evaluates its system requirements, the availability of generating units, availability and cost of fuel supply, availability and cost of purchased power and the requirements of other electric systems to provide reliable power economically. Fossil plants averaged 75% of total generation and the nuclear plant the remainder over the last three years.
Fuel costs increased $1.7 million for the three months ended and $5.1 million year to date June 30, 2003, compared to the same periods of 2002. MWh generated increased 4% and 12% for the same periods, respectively. The increase in MWh generated was partially offset by lower fuel cost per MWh.
Purchased power expenses increased $3.5 million for the three months ended and $8.7 million year to date June 30, 2003 compared to the same periods of 2002. The three months ended increase is due to a 28% increase in MWh purchased combined with a 15% increase in the average price per MWh driven by increased natural gas prices. The primary reason for the year to date increase was a 40% increase in the average price per MWh purchased, driven by increased natural gas prices.
Consolidated KCP&L
Other Operating Expenses (including operating, maintenance and general taxes)
Consolidated KCP&Ls other
operating expenses increased $8.7 million for the three months ended June 30, 2003,
compared to the same period of 2002 primarily due to the following:
o | increased pension expense of $2.9 million due to a significant decline in the market value of plan assets | ||
o | increased plant maintenance expense of $3.0 million for plant outages | ||
o | increased transmission expenses of $1.5 million primarily due to increased usage charges as a result of the increased | ||
wholesale MWh sales and increased MWh of purchased power |
Consolidated KCP&Ls other operating expenses increased $1.1 million year to date June 30, 2003, compared to the same period of 2002 primarily due to the following:
o | expensing in 2002 $16.0 million of the Kansas jurisdictional portion of the January 2002 ice storm and amortizing in | ||
2003 $2.3 million of the Missouri jurisdictional portion of the ice storm | |||
o | increased pension expense of $5.9 million due to a significant decline in the market value of plan assets | ||
o | increased plant maintenance expense of $5.1 million for plant outages | ||
o | increased transmission expenses of $2.5 million primarily due to increased usage charges as a result of the increased | ||
wholesale MWh sales and increased MWh of purchased power |
Consolidated KCP&L
Depreciation
Consolidated KCP&Ls
depreciation expense decreased $1.4 million for the three months ended and $2.7 million
year to date June 30, 2003, compared to the same periods of 2002 primarily due to the
change to a 60 year life for Wolf Creek pursuant to the 2002 KCC stipulation and
agreement. The change decreased depreciation expense approximately $2.0 million and $3.9
million for the three months ended and year to date June 30, 2003 periods, respectively.
See Critical Accounting Policies for additional information.
Consolidated KCP&L
Interest Charges
Consolidated KCP&Ls
interest charges decreased $3.6 million for the three months ended and $4.8 million year
to date June 30, 2003, compared to the same periods of 2002 primarily due to lower levels
of outstanding debt as a result of the repayment of $124.0 million of medium-term notes in
2003. Lower interest rates on variable rate debt compared to the prior year periods also
contributed to the decreases.
53
Wolf Creek
Wolf Creek, a nuclear unit, is 20% of
KCP&Ls base load generating capacity and 14% of KCP&Ls total
generating capacity, including the second quarter 2003 addition of five leased combustion
turbines that added peaking capacity. Wolf Creeks operating performance has remained
strong over the last three years, contributing an average of 25% of KCP&Ls
annual MWh generation while operating at an average capacity of 92%. Wolf Creek has the
lowest fuel cost per MWh generated of any of KCP&Ls generating units.
KCP&L accrues the incremental operating, maintenance and replacement power costs for planned outages evenly over the units operating cycle, normally 18 months. As actual outage expenses are incurred, the refueling liability and related deferred tax asset are reduced. Wolf Creek returned to service on April 27, 2002, following a 35-day refueling and maintenance outage that began on March 23, 2002. The next outage is scheduled for the fall of 2003 and is estimated to be approximately 35 days.
There has been significant opposition and delays to, development of a low-level radioactive waste disposal facility. See Note 6 to the consolidated financial statements for additional information. An inability to complete this project would require KCP&L to write-off its net investment in the project, which was $7.4 million at June 30, 2003. KCP&L, and the other owners of Wolf Creek, could also still be required to participate in development of an alternate site.
Ownership and operation of a nuclear generating unit exposes KCP&L to risks regarding decommissioning costs at the end of the units life and to potential retrospective assessments and property losses in excess of insurance coverage. These risks are more fully discussed in the related sections of Note 6 to the consolidated financial statements.
Strategic Energy
Strategic Energy
Business Overview
Strategic Energy provides power
supply coordination services by entering into long-term contracts with its customers to
supply electricity that Strategic Energy purchases under long-term contracts to manage its
customers electricity needs. In return, Strategic Energy receives an ongoing
management fee, which is included in the contracted sales price for the electricity.
Strategic Energy operates in several electricity markets offering retail choice, including
Pennsylvania, California, Ohio, New York, Massachusetts, Texas, Michigan and New Jersey.
During the second quarter of 2003, Strategic Energy delivered power to its first customers
in the Michigan market, and announced expansion into the New Jersey market anticipating
beginning power delivery to New Jersey customers during the second half of 2003. This
expands Strategic Energys operations into eight of the sixteen states that offer
retail choice. Strategic Energy also provides strategic planning and consulting services
in the natural gas and electricity markets.
Great Plains Energys indirect ownership in Strategic Energy totals 89%. In the normal course of business, Great Plains Energy and KLT Inc. provide financial or performance assurance to third parties on behalf of Strategic Energy in the form of guarantees to those third parties. Additionally, Great Plains Energy provides guarantees and indemnities supporting letters of credit and surety bonds obtained by Strategic Energy. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to Strategic Energy on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish Strategic Energys intended business purposes.
At June 30, 2003, Strategic Energy provided power supply coordination services on behalf of approximately 39,600 commercial, institutional and small manufacturing accounts. Strategic Energys customer base is very diverse. Strategic Energy served approximately 5,400 customers, including
54
numerous Fortune 500 companies, smaller companies, and governmental entities. Based solely on current signed contracts and expected usage, Strategic Energy has forecasted future MWh commitments of 8.1 million for the remainder of 2003 and 10.8 million, 6.9 million, and 1.6 million for the years 2004 through 2006, respectively. Strategic Energy expects to also supply additional MWh sales in these years through growth in existing markets by re-signing existing customers and by signing new customers as well as through expansion into new markets.
Strategic Energy maintains a commodity-price risk management strategy that uses forward physical energy purchases and derivative instruments to minimize significant, unanticipated earnings fluctuations caused by commodity-price volatility. As a result of supplying electricity to retail customers under fixed rate contracts, Strategic Energys policy is to match customers demand with fixed price purchases. In certain markets where Strategic Energy operates, entering into forward fixed price contracts is cost prohibitive. By entering into swap contracts for a portion of its forecasted purchases in these markets, the future purchase price of electricity is effectively fixed under these swap contracts. The swap contracts limit the unfavorable effect that price increases will have on electricity purchases. All of the swap agreements are currently designated as cash flow hedges resulting in the difference between the market value of energy and the hedge value being recorded as other comprehensive income (loss). At June 30, 2003, the accumulated comprehensive gain, net of income taxes and minority interest, reflected in Great Plains Energys consolidated statements of capitalization included a $0.1 million gain related to such cash flow hedges. However, substantially all of the energy hedged with the swaps has been sold to customers through contracts at prices different than the fair market value used to value the swaps. Therefore, Strategic Energy does not anticipate realizing the gain represented in comprehensive income.
During the third quarter of 2002, the FERC issued a Notice of Proposed Rulemaking to Remedy Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design. The proposed rulemaking is designed to establish a single non-discriminatory open access transmission tariff with a single transmission service that is applicable to all users of the interstate transmission grid and to standardize wholesale energy market rules. Strategic Energy has evaluated the impact of the proposed rulemaking on its operations and provided comments to the FERC that are generally supportive of the provisions of the proposal, but suggested some changes to the proposed rule. In late April 2003, the FERC issued a white paper titled Wholesale Power Market Platform, in response to comments received on its proposed rulemaking. In the white paper, the FERC stressed that state authorities will play a significant role in RTO and ISO formation through the establishment of Regional State Committees. The proposal also allows for phased-in implementation and market rules tailored to each region.
Strategic Energy
Supplier Concentration and Credit Risk
Credit risk represents the loss that
Strategic Energy could incur if a counterparty failed to perform under its contractual
obligations. To reduce its credit exposure, Strategic Energy enters into payment netting
agreements with certain counterparties that permit Strategic Energy to offset receivables
and payables with such counterparties. Strategic Energy further reduces credit risk with
certain counterparties by entering into agreements that enable Strategic Energy to
terminate the transaction or modify collateral thresholds upon the occurrence of
credit-related events.
Based on guidelines set by its Exposure Management Committee, Strategic Energy monitors its counterparty credit risk by evaluating the credit quality and performance of its suppliers on a routine basis. Among other things, Strategic Energy monitors counterparty credit ratings, liquidity and results of operations. As a result of these evaluations, Strategic Energy may, among other things, establish counterparty credit limits and adjust the amount of collateral required from its suppliers.
55
Strategic Energy enters into forward contracts with multiple suppliers. At June 30, 2003, Strategic Energys five largest suppliers under forward supply contracts represented 60% of the total future committed purchases. In the event of supplier non-delivery or default, Strategic Energys results of operations could be affected to the extent the cost of replacement power exceeded the combination of the contracted price with the supplier and the amount of collateral held by Strategic Energy to mitigate its credit risk with the supplier. Strategic Energys results of operations could also be affected, in a given period, if it was required to make a payment upon termination of a supplier contract to the extent that the contracted price with the supplier exceeded the market value of the contract.
The following table provides information on Strategic Energys credit exposure, net of collateral, as of June 30, 2003. It further delineates the exposure by the credit rating of counterparties and provides guidance on the concentration of credit risk and an indication of the maturity of the credit risk by credit rating of the counterparties.
Number Of | Net Exposure Of | ||||||||||||||||
Counterparties | Counterparties | ||||||||||||||||
Exposure | Greater Than | Greater Than | |||||||||||||||
Before Credit | Credit | Net | 10% Of Net | 10% of Net | |||||||||||||
Rating | Collateral | Collateral | Exposure | Exposure | Exposure | ||||||||||||
(millions) | (millions) | ||||||||||||||||
External rating | |||||||||||||||||
Investment Grade | $ | 17.3 | $ | - | $ | 17.3 | 1 | $ | 12.1 | ||||||||
Non-Investment Grade | 39.5 | 23.2 | 16.3 | 2 | 16.3 | ||||||||||||
Internal rating | |||||||||||||||||
Investment Grade | 1.1 | - | 1.1 | - | - | ||||||||||||
Non-Investment Grade | 51.5 | 51.5 | - | - | - | ||||||||||||
Total | $ | 109.4 | $ | 74.7 | $ | 34.7 | 3 | $ | 28.4 | ||||||||
Maturity Of Credit Risk Exposure Before Credit Collateral | ||||||||||||||
Exposure | ||||||||||||||
Less Than | Greater Than | |||||||||||||
Rating | 2 Years | 2 - 5 Years | 5 Years | Total Exposure | ||||||||||
(millions) | ||||||||||||||
External rating | ||||||||||||||
Investment Grade | $ | 13.8 | $ | 3.5 | $ | - | $ | 17.3 | ||||||
Non-Investment Grade | 24.3 | 12.8 | 2.4 | 39.5 | ||||||||||
Internal rating | ||||||||||||||
Investment Grade | 0.9 | 0.2 | - | 1.1 | ||||||||||
Non-Investment Grade | 43.4 | 7.3 | 0.8 | 51.5 | ||||||||||
Total | $ | 82.4 | $ | 23.8 | $ | 3.2 | $ | 109.4 | ||||||
External ratings are determined by using publicly available credit ratings of the counterparty. If a counterparty has provided a guarantee by a higher rated entity, the determination has been based on the rating of its guarantor. Internal ratings are determined by, among other things, an analysis of the counterpartys financial statements and consideration of publicly available credit ratings of the counterpartys parent. Investment grade counterparties are those with a minimum senior unsecured debt Standard & Poors rating of BBB- or a Moodys rating of Baa3. Exposure before credit collateral has been calculated considering all netting agreements in place, netting accounts payable and receivable exposure with net mark-to-market exposure. Exposure before credit collateral is impacted primarily by the power supply volume under contract with a given counterparty and the relationship between current market prices and contracted power supply prices. Credit collateral includes the amount of cash deposits and letters of credit received from counterparties. Net exposure has only
56
been calculated for those counterparties Strategic Energy is exposed to and excludes counterparties exposed to Strategic Energy.
At June 30, 2003, Strategic Energy had exposure before collateral to non-investment grade counterparties totaling $91.0 million of which 74% is scheduled to mature in less than two years. In addition, Strategic Energy held collateral totaling $74.7 million limiting its exposure to these non-investment grade counterparties to $16.3 million at June 30, 2003, of which $8.7 million was related to Mirant Americas Energy Marketing, LP (Mirant), as discussed below.
In July 2003, Mirant filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy court entered an Interim Order, which authorized Mirant to comply with the terms of its prepetition trading contracts. In accordance with the Master Power Purchase and Sale Agreement and the ISDA Master Agreement between Strategic Energy and Mirant, the $10.0 million collateral threshold limit in both agreements was reduced to zero upon the bankruptcy filing. At the time of the petition filing, exposure to Mirant was $18.0 million for physical transactions and $0.4 million for financial transactions with Strategic Energy holding collateral of $8.9 million. Upon reduction of the collateral thresholds to zero, Mirant provided the additional $9.5 million of collateral required at that time under Strategic Energys contracts. Mirant has moved to assume its contracts with Strategic Energy and the hearing to assume the contracts and to finalize the Interim Order is scheduled for August 21, 2003.
Strategic Energy is continuing to pursue a strategy of contracting with national and regional counterparties that have direct supplies and assets in the region of demand. Strategic Energy is also continuing to address counterparty issues with strict margining and collateral requirements, netting of credit exposures against payable balances, preferences for higher credit quality counterparties and, in some cases, replacement of lower quality counterparty contracts.
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Strategic Energy Results
of Operations
The following table summarizes
Strategic Energys comparative results of operations.
Three Months Ended | Year to Date | |||||||||||||
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Operating revenues | $ | 255.2 | $ | 201.2 | $ | 484.4 | $ | 347.6 | ||||||
Purchased power | (226.1 | ) | (175.9 | ) | (426.0 | ) | (300.9 | ) | ||||||
Revenues, net of | ||||||||||||||
purchased power | 29.1 | 25.3 | 58.4 | 46.7 | ||||||||||
Other operating expenses | (9.5 | ) | (8.2 | ) | (18.9 | ) | (15.2 | ) | ||||||
Depreciation | (0.4 | ) | (0.2 | ) | (0.7 | ) | (0.4 | ) | ||||||
Operating income | 19.2 | 16.9 | 38.8 | 31.1 | ||||||||||
Non-operating income (expenses) | (1.8 | ) | (2.8 | ) | (3.9 | ) | (5.2 | ) | ||||||
Interest charges | (0.2 | ) | (0.1 | ) | (0.3 | ) | (0.2 | ) | ||||||
Income taxes | (7.6 | ) | (5.8 | ) | (15.2 | ) | (10.6 | ) | ||||||
Net income | $ | 9.6 | $ | 8.2 | $ | 19.4 | $ | 15.1 | ||||||
Strategic Energys earnings increased $1.4 million for the three months ended and $4.3 million year to date June 30, 2003, compared to the same periods of 2002. The increased net income for the three months ended and year to date is primarily due to continued growth in retail electric sales from the expansion into new markets and continued sales efforts in existing markets. In addition to continued growth, Great Plains Energys ownership of Strategic Energy was increased by 5.8% in the fourth quarter of 2002. These increases were partially offset by increased general and administrative expenses including employee related expenses and income taxes due to increased sales in states with higher income tax rates. Also, total gross margin per MWh decreased to $7.58 for the three months ended and $7.64 year to date June 30, 2003, compared to $8.49 for the three months ended and $8.94 year to date June 30, 2002. The total gross margin per MWh for 2003 is expected to be in the range of $7.00 to $7.25. The decreases in gross margin per MWh for the three months ended and year to date comparative periods was primarily due to the roll-off of higher margin contracts that were obtained during periods of high market price volatility in late 2000 and early 2001 and to a lesser extent due to slightly increased competition.
Strategic Energy
Operating Revenues
Operating revenues from Strategic
Energy increased $54.0 million for the three months ended and $136.8 million year to date
June 30, 2003, compared to the same periods in 2002. The following table reflects
Strategic Energys operating revenues.
Three Months Ended | Year to Date | |||||||||||||||||||
June 30 | % | June 30 | % | |||||||||||||||||
2003 | 2002 | Change | 2003 | 2002 | Change | |||||||||||||||
(millions) | (millions) | |||||||||||||||||||
Electric - Retail | $ | 249.2 | $ | 194.3 | 28 | $ | 470.7 | $ | 333.1 | 41 | ||||||||||
Electric - Wholesale | 5.7 | 6.7 | (15 | ) | 13.1 | 13.9 | (6 | ) | ||||||||||||
Other | 0.3 | 0.2 | 27 | 0.6 | 0.6 | (2 | ) | |||||||||||||
Total Operating Revenues | $ | 255.2 | $ | 201.2 | 27 | $ | 484.4 | $ | 347.6 | 39 | ||||||||||
At June 30, 2003, Strategic Energy served approximately 5,400 customers, compared to approximately 4,600 customers at June 30, 2002. These customers represented approximately 39,600 accounts and 27,500 accounts at June 30, 2003 and 2002, respectively. Strategic Energy has added approximately
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200 customers since the beginning of 2003. Strategic Energy may provide periodic billing credits to its customers resulting from its power supply coordination efforts. The amounts credited back to the customer are treated as a reduction of retail electric revenues when determined to be payable.
Retail electric revenues increased $54.9 million for the three months ended and $137.6 million year to date June 30, 2003, compared to the same periods in 2002, primarily due to increased retail MWh sales, partially offset by a 2% decrease for the three months ended and a 4% decrease year to date in average retail revenues per MWh. Retail MWhs sold increased approximately 31% to 3.8 million for the three months ended June 30, 2003, from 2.9 million for the same period in 2002. Retail MWhs sold increased approximately 48% to 7.7 million year to date June 30, 2003, from 5.2 million for the same period in 2002. The increases in MWh sales resulted primarily from strong sales efforts in re-signing customers as well as signing new customers in markets in which Strategic Energy continued to experience favorable conditions for growth. Several factors contribute to changes in the average retail revenues per MWh, including the underlying price of the commodity, the nature and type of products offered and the mix of sales by geographic market.
Strategic Energy
Purchased Power
To supply its retail contracts,
Strategic Energy purchases long-term blocks of electricity under forward contracts in
fixed quantities at fixed prices from power suppliers based on projected usage. Strategic
Energy sells any excess retail supply of electricity back into the wholesale market. The
proceeds from the sale of excess supply of electricity is recorded as a reduction of
purchased power. The amount of excess retail supply sales that reduced purchased power was
$51.1 million for the three months ended and $105.1 million year to date June 30, 2003,
compared to $28.9 million for the three months ended and $50.2 million year to date June
30, 2002.
As previously discussed, Strategic Energy operates in several retail choice electricity markets. The cost of supplying electricity to retail customers can vary widely by geographic market. This variability can be affected by many factors including, among other items, geographic differences in the cost per MWh of purchased power and capacity charges due to regional purchased power availability and requirements of other electricity providers and differences in transmission charges. However, Strategic Energy has mitigated the effects of higher supply costs by entering into long-term, full-requirements contracts with customers that are priced to the customers based on the cost of the associated supply contract.
Purchased power increased $50.2 million for the three months ended and $125.1 million year to date June 30, 2003, compared to the same periods in 2002, primarily due to 31% and 48% increases in MWh purchases for the three months ended and year to date, respectively, to supply the increase in retail MWh sales discussed above. The effect of the year to date increase in MWh purchases was partially offset by a 2% decrease in the cost per MWh of purchased power.
Strategic Energy Other
Operating Expenses
Strategic Energys other
operating expenses as a percentage of operating revenues decreased to 3.7% for the three
months ended and 3.9% year to date June 30, 2003, from 4.1% for the three months ended and
4.4% year to date June 30, 2002, due to Strategic Energys efforts in leveraging its
infrastructure and the effects of achieving economies of scale. Strategic Energy
experienced increased labor and benefits as well as other general and administrative
expenses for the three months ended and year to date June 30, 2003, compared to the same
periods in 2002. The increase is primarily due to higher labor and benefit costs from the
addition of employees, higher profit sharing and deferred compensation expense which are
tied to earnings and financial performance, and higher other general and administrative
expenses associated with higher sales volumes, geographic market expansion, and regulatory
and market development initiatives.
59
Strategic Energy
Non-operating Income (Expenses)
Strategic Energys non-operating
income (expenses) includes non-operating income less minority interest expense and
non-operating expenses. Minority interest expense represents the share of Strategic
Energys net income not attributable to Great Plains Energys indirect ownership
interest in Strategic Energy. For the three months ended and year to date June 30, 2003,
non-operating income (expenses) decreased $1.0 million and $1.3 million, respectively,
primarily due to a decrease in minority interest expense resulting from Great Plains
Energys acquisition of an additional 5.8% indirect ownership interest in Strategic
Energy during the fourth quarter of 2002.
KLT Gas
KLT Gas Business Overview
KLT Gas is focused on exploring for,
developing and producing unconventional natural gas resources, including coalbed methane
properties. KLT Gas believes that unconventional natural gas resources provide an
economically attractive alternative source of supply to meet the growing demand for
natural gas in North America. Additionally, KLT Gas management team has experience
and expertise in identifying, testing and producing unconventional natural gas properties
and, as a result, it believes its expertise provides a competitive advantage in this niche
of the exploration and production sector.
Although gas prices have been volatile historically, KLT Gas continues to believe that the long-term future price scenarios for natural gas appear strong. Environmental concerns, especially air quality, and the increased demand for natural gas for new electric generating capacity are contributing to this projected growth in demand.
KLT Gas leased properties are primarily located in Colorado, Kansas and Wyoming with some leases in Nebraska and Texas. These leased properties cover approximately 249,000 undeveloped acres. The testing of this acreage is in accordance with KLT Gas exploration plan and capital budget. The timing of the testing may vary from current plans based upon obtaining the required environmental and regulatory approvals and permits and future changes in market conditions.
In March 2003, KLT Gas completed the sale of approximately 30,000 undeveloped acres in Kansas. KLT Gas follows the full cost accounting method for its natural gas properties, under which the acreage sale was accounted for as an adjustment to capitalized costs with no gain recognized in earnings.
During the first half of 2003, KLT Gas leased additional acreage in the Rocky Mountain region. Exploration of the newly acquired acreage is anticipated to begin during the second half of 2003. In addition, KLT Gas continued to test a new prospect in Colorado as well as the development of a pilot project in the Powder River Basin and two additional projects in the Rocky Mountain region.
Gas Property and
Investments
In June 2001, the FASB issued SFAS
No. 141, Business Combinations, which requires the purchase method of
accounting for business combinations initiated after June 30, 2001. In July 2001, the FASB
also issued SFAS No. 142, Goodwill and Other Intangible Assets, which
discontinues the practice of amortizing goodwill and indefinite lived intangible assets
and initiates an annual review for impairment. Intangible assets with a determinable
useful life will continue to be amortized over that period. The amortization provisions
apply to goodwill and intangible assets acquired after June 30, 2001. SFAS No. 141 and 142
clarify that more assets should be distinguished and classified between tangible and
intangible. KLT Gas did not change or reclassify contractual mineral rights included in
gas property and investments on Great Plains Energys consolidated balance sheet upon
adoption of SFAS No. 142. KLT Gas management believes its classification of such mineral
rights under the full cost method of accounting for natural gas properties, which is
consistent with industry practice, is appropriate.
60
However, the accounting profession and others are engaged in industry-wide deliberations regarding whether SFAS No. 141 and 142 require contractual mineral rights to be classified as intangible assets. Based on the results of the deliberations, if management determines reclassification is necessary, KLT Gas gas property and investments would be reduced by $8.3 million and $6.0 million and intangible assets would have increased by a like amount at June 30, 2003, and December 31, 2002, respectively, representing cost incurred from the effective date of June 30, 2001. The provisions of SFAS No. 141 and 142 impact only the balance sheet and associated footnote disclosure, and any required reclassification would not impact Great Plains Energys cash flows or results of operations.
KLT Gas Results of
Operations
The following table summarizes KLT
Gas comparative results of operations.
Three Months Ended | Year to Date | |||||||||||||
June 30 | June 30 | |||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||
(millions) | ||||||||||||||
Operating revenues | $ | 0.3 | $ | (0.1 | ) | $ | 0.7 | $ | 0.1 | |||||
Other operating expenses | (1.4 | ) | (2.5 | ) | (2.9 | ) | (5.0 | ) | ||||||
Depreciation and depletion | (0.1 | ) | (0.1 | ) | (0.4 | ) | (0.4 | ) | ||||||
Loss on property | - | (0.1 | ) | (9.0 | ) | (0.2 | ) | |||||||
Operating loss | (1.2 | ) | (2.8 | ) | (11.6 | ) | (5.5 | ) | ||||||
Non-operating income (expenses) | 0.7 | - | 0.7 | 0.3 | ||||||||||
Interest charges | (0.4 | ) | - | (0.6 | ) | - | ||||||||
Income taxes | 0.3 | 2.5 | 4.4 | 4.8 | ||||||||||
Net loss | $ | (0.6 | ) | $ | (0.3 | ) | $ | (7.1 | ) | $ | (0.4 | ) | ||
KLT Gas loss increased $0.3 million for the three months ended and $6.7 million year to date June 30, 2003, compared to the same periods of 2002. Throughout 2002 and the first half of 2003, KLT Gas has been developing and testing gas properties, as well as continuing production at its South Texas properties. Additionally, KLT Gas net loss year to date June 30, 2003, includes a first quarter 2003 impairment of $9.0 million on a Rocky Mountain project, which reduced earnings by $5.5 million. The impairment was in response to lower revised estimates of future gas production from that property.
KLT Gas Income Taxes
KLT Gas recorded tax credits related
to its investment in natural gas properties of $1.4 million and $2.8 million for the three
months ended and year to date June 30, 2002, respectively. The law that allowed
substantially all of these credits expired at the end of 2002.
Other Non Regulated Activities
Investment in Affordable
Housing Limited Partnerships KLT Investments
KLT Investments Inc.s (KLT
Investments) earnings for the three months ended June 30, 2003, totaled $3.9 million
(including an after tax reduction of $0.1 million in its affordable housing investment)
compared to earnings of $2.7 million for the three months ended June 30, 2002 (including
an after tax reduction of $1.1 million in its affordable housing investment). KLT
Investments earnings include accrued tax credits of $4.8 million and $4.9 million in
the three months ended June 30, 2003 and 2002, respectively. Earnings year to date June
30, 2003, totaled $6.2 million (including an after tax reduction of $1.6 million in its
affordable housing investment) compared to earnings of $3.2 million year to date June 30,
2002 (including an after tax reduction of $4.5 million in its affordable housing
investment). KLT Investments earnings include accrued tax credits of $9.5 million
and $9.6 million year to date June 30, 2003 and 2002, respectively.
61
At June 30, 2003, KLT Investments had $64.4 million in affordable housing limited partnerships. Approximately 67% of these investments were recorded at cost; the equity method was used for the remainder. Tax expense is reduced in the year tax credits are generated. The investments generate future cash flows from tax credits and tax losses of the partnerships. The investments also generate cash flows from the sales of the properties. For most investments, tax credits are received over ten years. KLT Investments projects tax credits to run through 2009. A change in accounting principle relating to investments made after May 19, 1995, requires the use of the equity method when a company owns more than 5% in a limited partnership investment. Of the investments recorded at cost, $42.1 million exceed this 5% level but were made before May 19, 1995. KLT Investments management does not anticipate making additional investments in affordable housing limited partnerships at this time.
On a quarterly basis, KLT Investments compares the cost of those properties accounted for by the cost method to the total of projected residual value of the properties and remaining tax credits to be received. Estimated residual values are based on studies performed by an independent firm. Based on the latest comparison, pretax reductions in affordable housing investments were $0.2 million for the three months ended and $2.5 million year to date June 30, 2003, compared to $1.8 million for the three months ended and $7.1 million year to date June 30, 2002. Pretax reductions in affordable housing investments are estimated to be $10 million for the remainder of 2003 and $7 million, $10 million, and $3 million for the years 2004 through 2006, respectively. These projections are based on the latest information available but the ultimate amount and timing of actual reductions could be significantly different from the above estimates. The properties underlying the partnership investment are subject to certain risks inherent in real estate ownership and management. Even after these estimated reductions, earnings from the investments in affordable housing are expected to be positive for the years 2003 through 2006.
Subsidiary of KLT
Telecom Files for Bankruptcy DTI
The accounting treatment related to
DTI and its 2001 bankruptcy is complex and is addressed in greater detail in Note 19 to
the consolidated financial statements of the Companies 2002 annual report on Form
10-K. Additionally, Note 7 of the consolidated financial statements in this quarterly
report on Form 10-Q is incorporated by reference in this portion of Managements
Discussion and Analysis. Both notes should be read as a component of this discussion.
On December 31, 2001, a subsidiary of KLT Telecom, Holdings and its subsidiaries, Digital Teleport and Digital Teleport of Virginia, Inc., filed separate voluntary petitions in the Bankruptcy Court for the Eastern District of Missouri for reorganization under Chapter 11 of the U.S. Bankruptcy Code, which cases have been procedurally consolidated. Holdings and its two subsidiaries are collectively called DTI.
In December 2002, Digital Teleport entered into an agreement to sell substantially all of its assets (Asset Sale) to CenturyTel Fiber Company II, LLC, a nominee of CenturyTel, Inc. The Asset Sale was approved by the Bankruptcy Court on February 13, 2003, and closed on June 6, 2003. The Asset Sale produced approximately $38 million of cash proceeds, including $3.8 million of escrowed proceeds.
DTI filed a joint Chapter 11 plan, based on the provisions of settlement agreements which are discussed below. The Chapter 11 plan was confirmed by the Bankruptcy Court of June 11, 2003, and became effective on June 24, 2003. After providing for certain reserves and payment of secured and priority claims, an initial distribution of 82.5 cents on each dollar of approved claims was made by Digital Teleport to its creditors (other than KLT Telecom), a $13.8 million distribution was made by Holdings to its creditors, and an initial distribution of approximately $14.9 million was made by Digital Teleport to KLT Telecom (net of the approximate $13.8 million paid by KLT Telecom to Holdings, as
62
discussed below). Additionally, KLT Telecom anticipates that it will realize approximately $21 million of cash tax benefits in late 2003. Pending final resolution of certain items, the Company recorded a net gain of $25.9 million or $0.37 per share during the second quarter of 2003 related to the DTI bankruptcy. The impact on net income is primarily due to the net effect of the Chapter 11 plan confirmation and the resulting distribution, the reversal of a $15.8 million tax valuation allowance, and the reversal of $5 million debtor in possession financing previously reserved.
Settlement agreements entered into by Digital Teleport and Holdings, which provided the basis of the Chapter 11 plan, were also approved by the Bankruptcy Court in its June 11, 2003, confirmation order. In the Digital Teleport bankruptcy case, KLT Telecom, KLT Inc., KCP&L, Great Plains Energy, Digital Teleport and the Official Unsecured Creditors Committee of Digital Teleport entered into a Settlement Agreement as of December 23, 2002 (Teleport Settlement Agreement). The Teleport Settlement Agreement provides that unsecured creditors will receive up to 90 cents on each dollar of approved claims after the consummation of the Asset Sale, and that the remaining estate balance after the payment of administrative expenses and all other claims will be distributed to KLT Telecom. The Teleport Settlement Agreement resolves all material issues and disputes among the parties to that agreement.
In addition, in the Holdings bankruptcy case, KLT Telecom, KLT Inc., Great Plains Energy, KCP&L, Holdings, The Bank of New York (as trustee of an Indenture, as amended, relating to the senior discount notes issued by Holdings) (Trustee) and three principal noteholders of Holdings (the Noteholders) entered into a Settlement Agreement and Plan Term Sheet as of March 14, 2003 (Holdings Settlement Agreement). Under the Holdings Settlement Agreement, KLT Telecom paid to the Holdings bankruptcy estate approximately $13.8 million from the distribution that KLT Telecom received under the Teleport Settlement Agreement. The Holdings Settlement Agreement resolves all material issues and disputes among the parties to that agreement.
Because DTI filed for bankruptcy protection under the U.S. Bankruptcy Code, KLT Telecom no longer had control over nor could it exert significant influence over DTI. As a consequence, as of December 31, 2001, DTI was de-consolidated and presented on the cost basis. Because of this de-consolidation, KLT Telecom did not include in its financial results the ongoing results of operations, earnings or losses incurred by DTI since December 31, 2001.
Significant Balance
Sheet Changes
(June
30, 2003 compared to December 31, 2002)
o | Great Plains Energy's restricted cash and supplier collateral increased $88.5 million due to cash collateral provided | ||||
to Strategic Energy from suppliers to cover portions of credit exposure. | |||||
o | Great Plains Energy and consolidated KCP&L's assets and liabilities of discontinued operations are the result of the | ||||
disposition of RSAE. RSAE's assets and liabilities were reclassified and presented separately as prescribed | |||||
under SFAS No. 144. As of June 30, 2003, the RSAE disposition was complete and the assets and liabilities of | |||||
discontinued operations were removed. | |||||
o | Great Plains Energy's other current assets increased $11.9 million primarily due to an $8.8 million increase in | ||||
consolidated KCP&L´s other current assets. Consolidated KCP&L´s other current assets increased primarily due to | |||||
a $1.2 million increase in KCP&L´s gas derivative hedging instruments and increases in KCP&L´s prepaid expenses | |||||
of $7.3 million primarily due to prepaid supply contracts. | |||||
o | Great Plains Energy's other nonutility property and investments decreased $12.8 million primarily due to the June | ||||
2003 sale of a KLT Telecom building with a December 31, 2002 book value of $2.8 million and KLT Investments' 2003 | |||||
sale of $7.1 million of trading securities. |
63
o | Great Plains Energy and consolidated KCP&L´s regulatory assets increased $14.4 million primarily due to an $84.5 | ||||
million increase in KCP&L´s regulatory assets due to the $80.9 million cumulative effect of adopting SFAS No. 143 | |||||
on January 1, 2003, and KCP&L´s ability to defer items on the balance sheet resulting from the effects of the | |||||
ratemaking process. Current year asset retirement obligation activity of $3.6 million has also increased | |||||
regulatory assets. This increase was partially offset by a $64.6 million decrease due to the reclassification of | |||||
accrued nuclear decommissioning costs at January 1, 2003, to a contra regulatory asset as these amounts have | |||||
already been considered in the ratemaking process. Current year activity for the decommissioning cost accrual of | |||||
$5.9 million has also decreased the regulatory asset. | |||||
o | Great Plains Energy's notes payable increased $115.1 million primarily due to Great Plains Energy's additional | ||||
borrowings of $119.0 million on its short-term credit facility that was primarily used to make a $100.0 million | |||||
capital contribution to KCP&L and repay notes outstanding at December 31, 2002, related to the acquisition of an | |||||
additional interest in Strategic Energy and a $28.0 million increase in consolidated KCP&L´s notes payable. | |||||
Consolidated KCP&L´s notes payable increased primarily due to KCP&L borrowing $3.2 million on its short-term | |||||
credit facility and a $25.0 million inter-company loan from Great Plains Energy to HSS primarily related to the | |||||
disposition of RSAE. | |||||
o | Great Plains Energy and consolidated KCP&L´s commercial paper increased $16.7 million due to additional borrowings at | ||||
KCP&L as expenditures exceeded cash receipts. | |||||
o | Great Plains Energy's current maturities of long-term debt decreased $128.4 million due to KLT Investments paying | ||||
down $8.5 million of affordable housing notes offset by a $4.1 million increase in the current portion of | |||||
affordable housing notes and a $124.0 decrease in consolidated KCP&L´s current maturities of long-term debt. | |||||
Consolidated KCP&L´s current maturities of long-term debt decreased due to KCP&L retiring $124.0 million of | |||||
medium-term notes primarily with proceeds from the capital contribution from Great Plains Energy. | |||||
o | Great Plains Energy's accounts payable increased $32.2 million primarily due to a $22.6 million increase in Strategic | ||||
Energy's accounts payable due to the strong growth in its power supply coordination services and an $11.9 million | |||||
increase in consolidated KCP&L´s accounts payable due to the timing of cash payments. | |||||
o | Great Plains Energy's accrued taxes decreased $15.8 million primarily due to a $5.4 million decrease in consolidated | ||||
KCP&L´s accrued taxes and the reversal of a $15.8 million tax valuation allowance for DTI. Consolidated KCP&L´s | |||||
accrued taxes decreased primarily due to HSS' $21.5 million accrued tax benefit for capital losses associated | |||||
with the disposition of RSAE partially offset by KCP&L´s $11.9 million payment to Kansas for a portion of 2002 | |||||
property taxes. | |||||
o | Great Plains Energy and consolidated KCP&L´s asset retirement obligation increased $103.7 million and $102.4 million, | ||||
respectively due to adopting SFAS No. 143 on January 1, 2003. | |||||
o | Great Plains Energy and consolidated KCP&L´s accrued nuclear decommissioning costs decreased $64.6 million due to | ||||
KCP&L reclassifying accrued nuclear decommissioning cost to a contra regulatory asset due to the adoption of SFAS | |||||
No. 143 on January 1, 2003, and the effects of the ratemaking process. |
64
Capital Requirements and
Liquidity
Great Plains Energy operates through
its subsidiaries and has no material assets other than the stock of its subsidiaries.
Great Plains Energys ability to make payments on its debt securities and its ability
to pay dividends is dependent on its receipt of dividends from its subsidiaries and
proceeds from the sale of its securities.
Great Plains Energys capital requirements are principally comprised of KCP&Ls utility capital expenditures, KLT Gas capital expenditures, and KCP&Ls pension benefit plan funding requirements discussed below. Additional cash and capital requirements for the companies, including long-term debt requirements, are discussed below.
Great Plains Energys liquid resources at June 30, 2003, included cash flows from operations of subsidiaries, $78.0 million cash and cash equivalents on hand and $231.6 million of unused bank lines of credit. The unused lines consisted of $110.1 million from KCP&Ls short-term bank lines of credit, $29.5 million from Strategic Energys revolving credit facility, and $92.0 million from Great Plains Energys revolving credit facility. See the debt agreements section below for more information on these agreements.
Great Plains Energy and consolidated KCP&L generated positive cash flows from operating activities for the periods presented. The increase in cash flows from operating activities for Great Plains Energy and consolidated KCP&L year to date June 30, 2003, compared to the same period of 2002 is due to increased net income before non-cash expenses and the changes in working capital detailed in Note 3 to the consolidated financial statements. The individual components of working capital vary with normal business cycles and operations. Also, the timing of the Wolf Creek outage affects the refueling outage accrual, deferred income taxes and amortization of nuclear fuel.
Great Plains Energys and consolidated KCP&Ls cash used for investing activities varies with the timing of utility capital expenditures and purchases of investments and nonutility property. Investing activities are offset by the proceeds from the sale of properties and insurance recoveries. Utility capital expenditures and the allowance for borrowed funds used during construction increased $13.4 million year to date June 30, 2003, compared to 2002 primarily due to transmission plant and nuclear fuel additions partially offset by 2002 capital expenditures of $14.7 million related to the January 2002 ice storm and insurance proceeds from Hawthorn No. 5 received in 2003. Additionally, Great Plains Energy received proceeds of $14.9 million as a result of the June confirmation of the restructuring plan of DTI Holdings, Inc., Digital Teleport, Inc., and Digital Teleport of Virginia, Inc. and sale of substantially all of the assets of Digital Teleport, Inc. to a subsidiary of CenturyTel, Inc.
The change in Great Plains Energy and consolidated KCP&Ls cash flows from financing activities reflects the equity infusion of $100.0 million from Great Plains Energy to KCP&L and KCP&Ls subsequent redemption of $104.0 million of medium-term notes. Great Plains Energy essentially funded the infusion with proceeds from its $151.8 million common stock offering in late 2002; however, prior to the infusion, Great Plains Energy used the offering proceeds to repay short-term borrowings in late 2002 and then re-borrowed in early 2003 to make the equity infusion into KCP&L at the time of redemption. An additional $20.0 million of KCP&Ls medium-term notes were retired during the second quarter of 2003. The increase in dividends paid by Great Plains Energy is primarily attributable to the public offering of 6.9 million of common shares in late 2002.
KCP&L expects to meet day-to-day operating requirements including interest payments, construction requirements (excluding new generating capacity) and dividends with internally-generated funds. However, it might not be able to meet these requirements with internally-generated funds because of the effect of inflation on operating expenses, the level of MWh sales, regulatory actions, compliance with future environmental regulations and the availability of generating units. The funds Great Plains
65
Energy and consolidated KCP&L need to retire maturing debt (detailed below) will be provided from operations, the issuance of long and short-term debt and/or the issuance of equity or equity-linked instruments. In addition, the Company may issue debt, equity and/or equity-linked instruments to finance growth or take advantage of new opportunities.
Great Plains Energy filed a registration statement in April 2002 for the issuance of an aggregate amount up to $300 million of any combination of senior debt securities, subordinated debt securities, trust preferred securities, convertible securities, or common stock. The registration statement became effective in November 2002 and Great Plains Energy issued $151.8 million of common stock. The proceeds were used for repayment of debt and general corporate purposes.
As a registered public utility holding company, Great Plains Energy must receive authorization from the Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935 (35 Act) to issue equity or debt. Great Plains Energy is currently authorized to issue up to $450.0 million of debt and equity. Great Plains Energy has utilized $423.8 million of this amount as follows: (i) $39.0 million in preferred stock issued in connection with the October 1, 2001, reorganization; (ii) $225.0 million in revolving credit facilities and (iii) $159.8 million in common equity issued in a public offering and in connection with IECs acquisition of an indirect ownership interest in Strategic Energy. Great Plains Energy has filed an application with the SEC seeking authorization to issue an additional $750 million in debt and equity over the $450 million currently authorized and anticipates the SEC will act on the application in 2003.
KCP&L anticipates filing a shelf registration statement for up to $255 million of senior and subordinated debt securities, trust preferred securities and related guarantees in the current year. This will preserve KCP&Ls flexibility to access the capital markets.
In the third quarter of 2003, KCP&L will remarket its 1998 Series C EIRR bonds totaling $50.0 million. The bonds are classified as current liabilities in the June 30, 2003 balance sheet. The bonds were initially issued with a five-year fixed interest rate and a final maturity of 2017.
KCP&L has entered into a revolving agreement, which expires in October 2003, to sell all of its right, title and interest in the majority of its customer accounts receivable to Receivables Company, which in turn sells most of the receivables to outside investors. KCP&L expects the agreement to be renewed annually. See Note 4 to the consolidated financial statements.
Debt Agreements
Great Plains Energy syndicated a $225
million, revolving credit facility with a group of banks in the first quarter of 2003.
This facility replaced a $205 million syndicated facility and a $20 million credit
facility with a bank. The line has a 364-day term but may be extended for an additional
year at the Companys option. The facility contains a MAC clause that requires Great
Plains Energy to represent, prior to receiving funding, that no MAC has occurred. The
clause does, however, permit the Company to access the facility even in the event of a MAC
in order to repay maturing commercial paper. Available liquidity under this facility is
not impacted by a decline in credit ratings unless the downgrade occurs in the context of
a merger, consolidation or sale. A default by Great Plains Energy or any of its
significant subsidiaries of material other indebtedness totaling more than $25.0 million
is a default under this bank line. Under the terms of this agreement, Great Plains Energy
is required to maintain a consolidated indebtedness to consolidated capitalization ratio
not greater than 0.65 to 1.0 at all times and an interest coverage ratio greater than 2.25
to 1.0. At June 30, 2003, the Company was in compliance with these covenants.
Strategic Energy syndicated a secured revolving credit facility for up to $95 million with a group of banks in the second quarter of 2003. This facility is partially guaranteed by Great Plains Energy. The
66
new agreement replaced a $30 million bank line of credit and a $25 million letter of credit facility. The new facility enhances Strategic Energys liquidity including its ability to provide credit support through letters of credit for purchased power and regulatory requirements. The maximum amount available for loans and letters of credit under the facility is the lesser of $95 million or the borrowing base, as defined in the agreement. The borrowing base generally is the sum of certain Strategic Energy accounts receivable and the amount of the Great Plains Energy guarantee which was $25.0 million at June 30, 2003. At June 30, 2003, Strategic Energy had a minimum fixed charge ratio of at least 1.05 to 1.0; however, if the ratio drops below 1.05 to 1.0, Great Plains Energys guarantee amount is required to be increased based on quarterly calculations. At June 30, 2003, $32.4 million in letters of credit had been issued under the agreement, leaving $29.5 million of capacity available for loans and additional letters of credit. In July 2003, to increase the available borrowing base, Great Plains Energy increased its guarantee to $40 million. During July and early August 2003, approximately $25 million in additional letters of credit were issued under the agreement. The line has a 364-day term that may be extended for an additional year by Strategic Energy with mutual agreement of the parties. The facility contains a MAC clause that requires Strategic Energy to represent, prior to receiving funding, that no MAC has occurred. A default by Strategic Energy of other indebtedness, as defined in the facility, totaling more than $5.0 million is a default under facility. Under the terms of this agreement, Strategic Energy is required to maintain a minimum net worth of $30 million and a maximum debt to EBITDA ratio of 2.0 to 1.0. At June 30, 2003, Strategic Energy was in compliance with these covenants.
KCP&Ls primary sources of liquidity are cash flows from operations and bilateral credit lines totaling $130.0 million with six banks (as of June 30, 2003). KCP&L uses these lines to provide support for its issuance of commercial paper. KCP&L had $16.7 million of commercial paper and $3.2 million of notes payable outstanding at June 30, 2003, which were both repaid in July 2003. These bank facilities are each for a 364-day term and mature at various times throughout the year. The facilities can be extended for one year under their term out provisions. KCP&L has MAC clauses in two agreements covering $50.0 million of available bilateral credit lines. These two facilities require KCP&L to represent, prior to receiving funding, that no MAC has occurred. Under one of these agreements totaling $35 million, KCP&L is able to access the facility even in the event of a MAC in order to redeem maturing commercial paper. KCP&Ls available liquidity under these facilities is not impacted by a decline in credit ratings unless the downgrade occurs in the context of a merger, consolidation or sale. A default by KCP&L on other indebtedness is a default under these bank line agreements. Under the terms of certain bank line agreements, KCP&L is required to maintain a consolidated indebtedness to consolidated capitalization ratio not greater than 0.65 to 1.0 at all times. At June 30, 2003, KCP&L was in compliance with the covenant.
Under the indenture relating to KCP&Ls 8.3% Junior Subordinated Deferrable Interest Debentures, due 2037 (Debentures), which are held by KCP&L Financing I, KCP&L may not declare or pay any dividends on any shares of its capital stock if at the time (i) there is an event of default (as defined in the indenture), (ii) KCP&L is in default with respect to its payment of any obligations under its guarantee of preferred securities issued by KCP&L Financing I, or (iii) KCP&L has elected to defer payments of interest on the Debentures.
Great Plains Energy has agreements with KLT Investments associated with notes KLT Investments issued to acquire its affordable housing investments. Great Plains Energy has agreed not to take certain actions including, but not limited to, merging, dissolving or causing the dissolution of KLT Investments, or withdrawing amounts from KLT Investments if the withdrawals would result in KLT Investments not being in compliance with minimum net worth and cash balance requirements. The agreements also give KLT Investments lenders the right to have KLT Investments repurchase the notes if Great Plains Energys senior debt rating falls below investment grade, or if Great Plains Energy ceases to own at least 80% of KCP&Ls stock. At June 30, 2003, KLT Investments had $11.2 million in outstanding notes, including current maturities.
67
Pursuant to agreements with the MPSC and the KCC, KCP&L maintains its common equity at not less than 35% of total capitalization. Additionally, Great Plains Energy maintains its consolidated common equity at not less than 30% of total consolidated capitalization.
Pensions
KCP&L maintains defined benefit
plans for substantially all of its employees. The plans are funded on an actuarial basis
to provide assets sufficient to meet the benefit obligation to participants upon their
retirement and to meet the funding requirements of the Employee Retirement Income Security
Act of 1974 (ERISA).
Due to sharp declines in debt and equity returns since the third quarter of 2000, the value of plan assets to satisfy pension plan obligations has decreased significantly. As a result, under the minimum funding requirements of ERISA, contributions have increased accordingly. KCP&L will be required to fund approximately $9.7 million in 2003 ($7.7 million was funded as of June 2003) and $21.3 million in 2004. Contributions of $1.6 million and $1.0 million were made in 2002 and 2001, respectively.
Participants in the plans can elect to receive benefits in either a lump-sum payment or an annuity upon termination of their employment. A change in payment assumptions could result in increased cash requirements from pension plan assets with KCP&L being required to accelerate future funding.
Due to uncertain market conditions and other factors used to estimate future cash requirements, additional funding may be required in future years. Under the terms of the pension plans, KCP&L reserves the right to amend or terminate the plans, and from time to time benefits have changed.
Supplemental Capital
Requirements and Liquidity Information
Great Plains Energys and
consolidated KCP&Ls projected lease obligations have decreased approximately
11-12% for 2003 through 2006. The overall decrease is 6% of the total lease obligations of
both registrants. The decrease is due to the change in the projected cost of the
combustion turbines under the synthetic lease, lower projected interest rates and the
disposition of RSAE in June 2003. These lease obligations exclude a commitment to either
purchase the leased combustion turbines at termination of the construction leasing
agreement for a price equal to amounts expended by the Lessor or sell the turbines on
behalf of the Lessor while guaranteeing to the Lessor a residual value which may be up to
83.21% of the project cost. See Note 6 to the consolidated financial statements for
additional information.
Great Plains Energys other long-term obligations, net increased approximately 22% at June 30, 2003, over the $1,466.3 million level at December 31, 2002, reflecting increases of approximately $200 million, $90 million, $16 million and $15 million in 2004 through 2007, respectively, for new Strategic Energy purchased power contracts. All other contractual cash obligations for Great Plains Energy and consolidated KCP&L were relatively unchanged at June 30, 2003, compared to December 31, 2002.
Guarantees
In the normal course of business,
Great Plains Energy and certain of its subsidiaries enter into various agreements
providing financial or performance assurance to third parties on behalf of certain
subsidiaries. Such agreements include, for example, guarantees and indemnification of
letters of credit and surety bonds. These agreements are entered into primarily to support
or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone
basis, thereby facilitating the extension of sufficient credit to accomplish the
subsidiaries intended business purposes.
As prescribed in FASB Interpretation No. 45, the Company began recording a liability for the fair value of obligations it undertakes for guarantees issued after December 31, 2002. The interpretation does not encompass guarantees of the Companys own future performance, such as Great Plains Energys
68
guarantees to support Strategic Energy power purchases and regulatory requirements. KCP&L began recording an immaterial amount for the fair value of guarantees issued in 2003 for the residual value of vehicles and heavy equipment under an operating lease.
Great Plains Energys total guarantees at June 30, 2003, decreased $32.0 million from the December 31, 2002, total of $241.0 million reflecting the repayment of the RSAE line of credit ($25.0 million at December 31, 2002) and a decrease in the credit support guarantees Great Plains Energy provides on behalf of Strategic Energy for its power purchases and regulatory requirements.
Environmental Matters
KCP&Ls operations are
subject to regulation by federal, state and local authorities with regard to air and other
environmental matters. The generation and transmission of electricity produces and
requires disposal of certain hazardous products which are subject to these laws and
regulations. In addition to imposing continuing compliance obligations, these laws and
regulations authorize the imposition of substantial penalties for noncompliance, including
fines, injunctive relief and other sanctions. Failure to comply with these laws and
regulations could have a material adverse effect on KCP&L.
KCP&L operates in an environmentally responsible manner and seeks to use current technology to avoid and treat contamination. KCP&L regularly conducts environmental audits designed to ensure compliance with governmental regulations and to detect contamination. Governmental bodies, however, may impose additional or more restrictive environmental regulations that could require substantial changes to operations or facilities at a significant cost. See Note 6 to the consolidated financial statements.
Adoption of SFAS No. 149
SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. The accounting profession is
currently considering differing interpretations of the provisions of this statement
therefore, the effects, if any, on Great Plains Energys and consolidated
KCP&Ls financial condition and results of operations have not yet been
determined.
69
Great Plains Energy and consolidated KCP&L are exposed to market risks associated with commodity price and supply, interest rates and equity prices. Market risks are handled in accordance with established policies, which may include entering into various derivative transactions. In the normal course of business, Great Plains Energy and consolidated KCP&L also face risks that are either non-financial or non-quantifiable. Such risks principally include business, legal, operational and credit risks and are not represented in the following analysis.
Great Plains Energy and consolidated KCP&L interim period disclosures about market risk included in quarterly reports on Form 10-Q address material changes, if any from the most recently filed annual report on Form 10-K. Therefore, interim period disclosures should be read in connection with the quantitative and qualitative disclosures about market risk included in our 2002 combined annual report on Form 10-K. There have been no material changes in Great Plains Energys or consolidated KCP&Ls market risk since December 31, 2002.
Great Plains Energy and KCP&L carried out evaluations, under the supervision and with the participation of each companys management, including the chief executive officer and chief financial officer of those companies and those companies disclosure committee, of the effectiveness of the companies disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon these evaluations, the chief executive officer and chief financial officer of Great Plains Energy and KCP&L have concluded, as of the end of the period covered by this report, that the disclosure controls and procedures of those companies are functioning effectively to provide reasonable assurance that the information required to be disclosed by those companies in the reports that they file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms.
There has been no change to Great Plains Energys or KCP&Ls internal control over financial reporting that occurred during the quarterly period ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, those companies internal control over financial reporting.
70
On December 31, 2001, a subsidiary of KLT Telecom, DTI Holdings, Inc. (Holdings) and its subsidiaries Digital Teleport, Inc. (Digital Teleport) and Digital Teleport of Virginia, Inc. filed separate voluntary petitions in the Bankruptcy Court for the Eastern District of Missouri for reorganization under Chapter 11 of the U.S. Bankruptcy Code in Case Nos. 01-54369-399, 01-54370-399 and 01-54371-399. These cases were consolidated for joint procedural administration. In the Digital Teleport bankruptcy case, KLT Telecom, KLT Inc., KCP&L, Great Plains Energy, Digital Teleport and the Official Unsecured Creditors Committee of Digital Teleport entered into a Settlement Agreement as of December 23, 2002 (Teleport Settlement Agreement). The Teleport Settlement Agreement provides that unsecured creditors will receive up to 90 cents on each dollar of approved claims, and that the remaining estate balance after the payment of administrative expenses and all other claims will be distributed to KLT Telecom. The Teleport Settlement Agreement resolves all material issues and disputes among the parties to that agreement.
In the Holdings bankruptcy case, KLT Telecom, KLT Inc., Great Plains Energy, KCP&L, Holdings, The Bank of New York (as trustee of an indenture, as amended, relating to the senior discount notes issued by Holdings) (Trustee) and three principal noteholders of Holdings (the Noteholders) entered into a Settlement Agreement and Plan Term Sheet as of March 14, 2003 (Holdings Settlement Agreement). The Holdings Settlement Agreement provides, among other things, for the payment by KLT Telecom to the Holdings bankruptcy estate of approximately $13.8 million from the distribution that KLT Telecom will receive under the Teleport Settlement Agreement. The Holdings Settlement Agreement resolves all material issues and disputes that may exist among the parties to that agreement.
The Teleport Settlement Agreement and the Holdings Settlement Agreement provide that all claims and possible causes of action against KLT Telecom, KLT Inc., Great Plains Energy, KCP&L and all other entities currently or previously a member of the Great Plains Energy or KCP&L consolidated tax group are released by the other parties to those two agreements. Further, KLT Telecom received an assignment of any claims those other parties have against any officer or director of Holdings, Digital Teleport or any other person or entity.
The Teleport Settlement Agreement and the Holdings Settlement Agreement are incorporated into a joint Chapter 11 plan dated March 31, 2003 and filed by the three DTI entities. The Chapter 11 plan was confirmed by the Bankruptcy Court on June 11, 2003, and became effective on June 24, 2003. For further information regarding the DTI bankruptcy proceedings, see Note 7 to the consolidated financial statements, which is incorporated by reference.
Great Plains Energys annual meeting of shareholders was held on May 6, 2003. The shareholders elected ten directors and ratified the appointment of Deloitte & Touche LLP as independent auditors.
Election of Directors. Great Plains Energys board of directors consists of ten directors, who are elected annually. The ten persons named below were elected, as proposed in the proxy statement pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, to serve as directors until Great Plains Energys annual meeting in 2004 and until their successors are elected and qualified.
71
There were over 59,590,000 votes cast in the election of directors. The voting regarding each nominee was as follows:
Votes | |||||||
Nominee | Votes For | Withheld | Total Votes* | ||||
B. J. Beaudoin | 58,720,408 | 841,575 | 59,561,983 | ||||
D. L. Bodde | 58,575,241 | 841,575 | 59,416,816 | ||||
M. A. Ernst | 58,590,689 | 841,575 | 59,432,264 | ||||
R. C. Ferguson, Jr | 58,587,003 | 841,575 | 59,428,578 | ||||
W. K. Hall | 58,702,102 | 841,575 | 59,543,677 | ||||
L. A. Jimenez | 58,729,950 | 841,575 | 59,571,525 | ||||
J. A. Mitchell | 58,749,402 | 841,575 | 59,590,977 | ||||
W. C. Nelson | 58,516,842 | 841,575 | 59,358,417 | ||||
L. H. Talbott | 58,658,167 | 841,575 | 59,499,742 | ||||
R. H. West | 58,514,221 | 841,575 | 59,355,796 |
*No votes were cast against the nominees due to cumulative voting.
Ratification of Independent Auditors Great Plains Energy shareholders ratified the appointment of Deloitte & Touche LLP as independent auditors for 2003. The voting regarding the appointment of auditors was as follows:
Votes | |||||||||
Votes For | Against | Abstentions | Total Votes | ||||||
Deloitte & Touche LLP | 57,511,824 | 1,650,701 | 313,453 | 59,475,978 |
KCP&Ls board of directors consists of ten directors, who are elected annually. Great Plains Energy is KCP&Ls sole shareholder. By a unanimous written consent dated as of May 6, 2003, Great Plains Energy, as the sole shareholder, elected the ten directors of Great Plains Energy as the directors of KCP&L for the ensuing year and until their successors are duly elected and qualified, or until their resignations.
Bernard J. Beaudoin, Chairman, President and Chief Executive Officer of Great Plains Energy and Chairman of the Board and Chief Executive Officer of KCP&L, announced on March 13, 2003, his retirement which will be effective by year-end. A search firm has been engaged to select appropriate candidates as the successor. Until a successor is chosen, Mr. Beaudoin will continue his responsibilities.
On April 1, 2003, Great Plains Energy formed Great Plains Energy Services Incorporated (Services), which provides services at cost to Great Plains Energy and certain of its subsidiaries, including KCP&L, as a service company under the 35 Act. Approximately 400 KCP&L employees were transferred to Services. Great Plains Energy does not anticipate any material financial or operational effects on the Company or KCP&L resulting from the creation of Services and the transfer of KCP&L employees.
72
Great Plains Energy Documents
Exhibit | |||
Number | Description of Document | ||
10.1.a | Credit Agreement, dated as of June 11, 2003, by and among Strategic Energy, L.L.C., the | ||
financial institutions from time to time parties thereto as lenders, and LaSalle Bank National | |||
Association. | |||
10.1.b | Limited Guaranty issued by Great Plains Energy Incorporated, dated as of June 11, 2003, in favor | ||
of the lenders under that certain Credit Agreement, dated as of June 11, 2003, by and among | |||
Strategic Energy, L.L.C., the financial institutions from time to time parties thereto as | |||
lenders, and LaSalle Bank National Association. | |||
10.1.c | Guarantee Amount Amendment Agreement dated July 31, 2003, among Great Plains Energy | ||
Incorporated, Strategic Energy, L.L.C. and LaSalle Bank National Association. | |||
10.1.d | Guaranty issued by Great Plains Energy Incorporated, dated as of June 30, 2003, in favor of El | ||
Paso Merchant Energy, L.P. | |||
10.1.e | First Amendment to Guarantee by and between Great Plains Energy Incorporated and El Paso | ||
Merchant Energy, dated as of July 29, 2003. | |||
10.1.f | Second Amendment to Guaranty by and between Great Plains Energy Incorporated and Coral Power, | ||
L.L.C. dated as of May 9, 2003. | |||
10.1.g | Third Amendment to Guaranty by and between Great Plains Energy Incorporated and Coral Power, | ||
L.L.C. dated as of May 30, 2003. | |||
31.1.a | Rule 13a-14(a)/15d-14(a) Certifications of Bernard J. Beaudoin | ||
31.1.b | Rule 13a-14(a)/15d-14(a) Certifications of Andrea F. Bielsker | ||
32.1 | Section 1350 Certifications |
Kansas City Power & Light Company
Exhibit | |||
Number | Description of Document | ||
31.2.a | Rule 13a-14(a)/15d-14(a) Certifications of Bernard J. Beaudoin | ||
31.2.b | Rule 13a-14(a)/15d-14(a) Certifications of Andrea F. Bielsker | ||
32.2 | Section 1350 Certifications |
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Great Plains Energy Incorporated
Great Plains Energy Incorporated filed on April 16, 2003, a report on Form 8-K dated April 15, 2003, furnishing a press release regarding pre-earnings release information.
Great Plains Energy Incorporated filed on April 24, 2003, a report on Form 8-K dated April 23, 2003, furnishing a press release regarding 2003 first quarter earnings information and accompanying financials.
Great Plains Energy Incorporated filed on June 25, 2003, a report on Form 8-K dated June 23, 2003, including a press release announcing results from the approval of the joint bankruptcy plan filed by its subsidiaries DTI Holdings, Inc., Digital Teleport, Inc. and Digital Teleport of Virginia, Inc.
Great Plains Energy Incorporated filed on July 1, 2003, a report on Form 8-K dated June 30, 2003, including a press release announcing the divestiture of its interest in residential services provider, R.S. Andrews Enterprises, Inc.
Great Plains Energy Incorporated filed on July 24, 2003, a report on Form 8-K dated July 23, 2003, furnishing a press release announcing 2003 second quarter earnings information and affirming 2003 earnings guidance.
Kansas City Power & Light Company
Kansas City Power & Light Company filed on April 16, 2003, a report on Form 8-K dated April 15, 2003, furnishing a press release regarding pre-earnings release information.
Kansas City Power & Light Company filed on April 24, 2003, a report on Form 8-K dated April 23, 2003, furnishing a press release regarding 2003 first quarter earnings information and accompanying financials.
Kansas City Power & Light Company filed on July 1, 2003, a report on Form 8-K dated June 30, 2003, including a press release announcing the divestiture of its interest in residential services provider, R.S. Andrews Enterprises, Inc.
Kansas City Power & Light Company filed on July 24, 2003, a report on Form 8-K dated July 23, 2003, furnishing a press release announcing 2003 second quarter earnings information and affirming 2003 earnings guidance.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Great Plains Energy Incorporated and Kansas City Power & Light Company have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GREAT PLAINS ENERGY INCORPORATED | |||
---|---|---|---|
Dated: August 13, 2003 | By: /s/Bernard J. Beaudoin | ||
(Bernard J. Beaudoin) | |||
(Chief Executive Officer) | |||
Dated: August 13, 2003 | By: /s/Lori A. Wright | ||
(Lori A. Wright) | |||
(Principal Accounting Officer) |
KANSAS CITY POWER & LIGHT COMPANY | |||
---|---|---|---|
Dated: August 13, 2003 | By: /s/Bernard J. Beaudoin | ||
(Bernard J. Beaudoin) | |||
(Chief Executive Officer) | |||
Dated: August 13, 2003 | By: /s/Lori A. Wright | ||
(Lori A. Wright) | |||
(Principal Accounting Officer) |
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Exhibit 10.1.a
Execution Copy
CREDIT AGREEMENT
Dated as of June 11, 2003
Among
Strategic Energy, L.L.C.,
THE INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO AS
LENDERS
LaSalle Bank National Association
as Administrative Agent
And
PNC BANK, National Association
as Syndication
Agent
_____________________________
LaSalle Bank National
Association
And
PNC Capital Markets,
Co-Lead Arrangers
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Section |
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Page |
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ARTICLE I. |
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DEFINITIONS |
1 |
1.1. |
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Certain Defined Terms |
1 |
1.2. |
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References |
19 |
ARTICLE II. |
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THE REVOLVING LOAN FACILITIES |
20 |
2.1. |
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Revolving Loans |
20 |
2.2. |
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Rate Options for All Advances |
20 |
2.3. |
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Prepayments |
20 |
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(A) Optional Payments |
20 |
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(B) Mandatory Prepayments |
20 |
2.4. |
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Reduction of Commitments |
21 |
2.5. |
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Method of Borrowing |
21 |
2.6. |
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Method of Selecting Types and Interest Periods for Advances |
21 |
2.7. |
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Minimum Amount of Each Advance |
21 |
2.8. |
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Method of Selecting Types and Interest Periods for Conversion and Continuation of Advances |
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(A) Right to Convert/Breakage Costs |
22 |
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(B) Automatic Conversion and Continuation |
22 |
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(C) No Conversion Post-Default or Post-Unmatured Default |
22 |
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(D) Conversion/Continuation Notice |
22 |
2.9. |
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Default Rate |
22 |
2.10. |
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Method of Payment |
22 |
2.11. |
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Notes |
23 |
2.12. |
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Telephonic Notices |
23 |
2.13. |
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Promise to Pay; Interest and Commitment Fees; Interest Payment Dates; Interest and Fee Basis; Taxes; Loan and Control Accounts |
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(A) Promise to Pay |
23 |
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(B) Interest Payment Dates |
23 |
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(C) Commitment Fees |
24 |
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(D) Interest and Fee Basis;
Applicable Floating Rate
Margin, |
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(E) Taxes |
25 |
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(F) Loan Account |
28 |
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(G) Entries Binding |
28 |
2.14. |
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Notification of Advances, Interest Rates, Prepayments and Aggregate Revolving Loan Commitment Reductions |
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2.15. |
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Lending Installations |
28 |
2.16. |
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Non-Receipt of Funds by the Administrative Agent |
28 |
2.17. |
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Termination Date |
29 |
2.18. |
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Extension of Revolving Loan Termination Date |
29 |
2.19. |
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Replacement of Certain Lenders |
29 |
ARTICLE III. |
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THE LETTER OF CREDIT FACILITY |
30 |
3.1. |
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Obligation to Issue |
30 |
3.2. |
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[Intentionally Omitted] |
30 |
3.3. |
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Types and Amounts |
30 |
3.4. |
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Conditions |
30 |
3.5. |
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Procedure for Issuance of Letters of Credit |
31 |
3.6. |
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Letter of Credit Participation |
31 |
3.7. |
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Reimbursement Obligation |
32 |
3.8. |
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Letter of Credit Fees |
32 |
3.9. |
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Issuing Bank Reporting Requirements |
32 |
3.10. |
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Indemnification; Exoneration |
33 |
3.11. |
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Cash Collateral |
33 |
ARTICLE IV. |
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CHANGE IN CIRCUMSTANCES |
34 |
4.1. |
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Yield Protection |
34 |
4.2. |
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Changes in Capital Adequacy Regulations |
35 |
4.3. |
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Availability of Types of Advances |
35 |
4.4. |
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Funding Indemnification |
35 |
4.5. |
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Lender Statements; Survival of Indemnity |
36 |
ARTICLE V. |
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CONDITIONS PRECENDT |
36 |
5.1. |
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Initial Advances and Letters of Credit |
36 |
5.2. |
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Each Advance and Letter of Credit |
38 |
ARTICLE VI. |
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REPRESENTATIONS AND WARRANTIES |
38 |
6.1. |
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Organization; Corporate Powers |
38 |
6.2. |
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Authority |
39 |
6.3. |
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No Conflict; Governmental Consents |
39 |
6.4. |
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Financial Statements |
39 |
6.5. |
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No Material Adverse Change |
40 |
6.6. |
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Taxes |
40 |
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(A) Tax Examinations |
40 |
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(B) Payment of Taxes |
40 |
6.7. |
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Litigation; Loss Contingencies and Violations |
40 |
6.8. |
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Subsidiaries |
40 |
6.9. |
|
ERISA |
41 |
6.10. |
|
Accuracy of Information |
41 |
6.11. |
|
Securities Activities |
41 |
6.12. |
|
Material Agreements |
42 |
6.13. |
|
Compliance with Laws |
42 |
6.14. |
|
Assets and Properties |
42 |
6.15. |
|
Statutory Indebtedness Restrictions |
42 |
6.16. |
|
Insurance |
43 |
6.17. |
|
Labor Matters |
43 |
6.18. |
|
Environmental Matters |
43 |
6.19. |
|
Solvency |
43 |
6.20. |
|
Supplemental Disclosure |
44 |
ARTICLE VII. |
|
COVENANTS |
44 |
7.1. |
|
Reporting |
44 |
|
|
(A) Financial Reporting |
44 |
|
|
(B) Notice of Default |
46 |
|
|
(C) Lawsuits |
46 |
|
|
(D) ERISA Notices |
46 |
|
|
(E) Labor Matters |
48 |
|
|
(F) Other Indebtedness |
48 |
|
|
(G) Other Reports |
48 |
|
|
(H) Environmental Notices |
48 |
|
|
(I) Other Information |
49 |
7.2. |
|
Affirmative Covenants |
49 |
|
|
(A) Existence, Etc. |
49 |
|
|
(B) Corporate Powers; Conduct of Business |
49 |
|
|
(C) Compliance with Laws, Etc. |
49 |
|
|
(D) Payment of Taxes and Claims; Tax Consolidation |
49 |
|
|
(E) Insurance |
50 |
|
|
(F) Inspection of Property; Books and Records; Discussions |
50 |
|
|
(G) ERISA Compliance |
50 |
|
|
(H) Maintenance of Property |
50 |
|
|
(I) Environmental Compliance |
51 |
|
|
(J) Use of Proceeds |
51 |
|
|
(K) Collateral Documents |
51 |
|
|
(L) Addition of Guarantors;
Addition of Pledged Capital
Stock |
|
|
|
(M) Insurance and Condemnation Proceeds |
52 |
|
|
(N) Reportable Transaction |
52 |
7.3. |
|
Negative Covenants |
52 |
|
|
(A) Indebtedness |
52 |
|
|
(B) Sales of Assets |
53 |
|
|
(C) Liens |
53 |
|
|
(D) Investments |
54 |
|
|
(E) Contingent Obligations |
54 |
|
|
(F) Restricted Payments |
55 |
|
|
(G) Conduct of Business; Subsidiaries |
55 |
|
|
(H) Transactions with Shareholders and Affiliates |
55 |
|
|
(I) Restriction on Fundamental Changes |
56 |
|
|
(J) Sales and Leasebacks |
56 |
|
|
(K) Margin Regulations |
56 |
|
|
(L) ERISA |
56 |
|
|
(M) Corporate Documents |
57 |
|
|
(N) Fiscal Year |
57 |
|
|
(O) Hedging Obligations |
57 |
|
|
(P) Subordinated Debt |
57 |
|
|
(Q) Capital Expenditures |
57 |
7.4. |
|
Financial Covenants |
57 |
|
|
(A) Minimum Net Worth |
57 |
|
|
(B) Maximum Leverage Ratio |
58 |
ARTICLE VIII. |
|
DEFAULTS |
58 |
8.1. |
|
Defaults |
58 |
|
|
(A) Failure to Make Payments When Due |
58 |
|
|
(B) Breach of Certain Covenants |
58 |
|
|
(C) Breach of Representation or Warranty |
58 |
|
|
(D) Other Defaults |
58 |
|
|
(E) Default as to Other Indebtedness |
59 |
|
|
(F) Involuntary Bankruptcy; Appointment of Receiver, Etc. |
59 |
|
|
(G) Voluntary Bankruptcy; Appointment of Receiver, Etc. |
59 |
|
|
(H) Judgments and Attachments |
59 |
|
|
(I) Dissolution |
60 |
|
|
(J) Loan Documents; Failure of Security |
60 |
|
|
(K) Termination Event |
60 |
|
|
(L) Waiver of Minimum Funding Standard |
60 |
|
|
(M) Change of Control |
60 |
|
|
(N) Environmental Matters |
60 |
|
|
(O) Guarantor Revocation |
61 |
|
|
(P) Default Under Subordinated Debt |
61 |
|
|
(Q) Default under Contractual Obligations |
61 |
ARTICLE IX. |
|
ACCELARATION, DEFAULTING LENDERS; WAIVERS,
|
|
9.1. |
|
Termination of Commitments; Acceleration |
61 |
9.2. |
|
Defaulting Lender |
61 |
9.3. |
|
Amendments |
62 |
9.4. |
|
Preservation of Rights |
63 |
ARTICLE X. |
|
GENERAL PROVISIONS |
63 |
10.1. |
|
Survival of Representations |
63 |
10.2. |
|
Governmental Regulation |
64 |
10.3. |
|
Performance of Obligations |
64 |
10.4. |
|
Headings |
64 |
10.5. |
|
Entire Agreement |
64 |
10.6. |
|
Several Obligations; Benefits of this Agreement |
64 |
10.7. |
|
Expenses; Indemnification |
65 |
|
|
(A) Expenses |
65 |
|
|
(B) Indemnity |
65 |
|
|
(C) Waiver of Certain Claims; Settlement of Claims |
66 |
|
|
(D) Survival of Agreements |
66 |
10.8. |
|
Numbers of Documents |
66 |
10.9. |
|
Accounting |
66 |
10.10. |
|
Severability of Provisions |
67 |
10.11. |
|
Nonliability of Lenders |
67 |
10.12. |
|
GOVERNING LAW |
67 |
10.13. |
|
CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL |
|
|
|
(A) JURISDICATION |
67 |
|
|
(B) OTHER JURISDICTIONS |
67 |
|
|
(C) VENUE |
68 |
10.14. |
|
WAIVER OF JURY TRIAL. |
68 |
10.15. |
|
WAIVER OF BOND |
68 |
10.16. |
|
ADVICE OF COUNSEL |
68 |
10.17. |
|
No Strict Construction |
68 |
ARTICLE XI. |
|
THE ADMINISTRATIVE AGENT |
69 |
11.1. |
|
Appointment; Nature of Relationship |
69 |
11.2. |
|
Powers |
69 |
11.3. |
|
General Immunity |
69 |
11.4. |
|
No Responsibility for Loans, Creditworthiness, Recitals, Etc. |
69 |
11.5. |
|
Action on Instructions of Lenders |
70 |
11.6. |
|
Employment of Administrative Agents and Counsel |
70 |
11.7. |
|
Reliance on Documents; Counsel |
70 |
11.8. |
|
The Administrative Agent's Reimbursement and Indemnification |
70 |
11.9. |
|
Rights as a Lender |
71 |
11.10. |
|
Lender Credit Decision |
71 |
11.11. |
|
Successor Administrative Agent |
71 |
11.12. |
|
Collateral Documents |
71 |
ARTICLE XII. |
|
SETOFF; RATABLE PAYMENTS |
72 |
12.1. |
|
Setoff |
72 |
12.2. |
|
Ratable Payments |
72 |
12.3. |
|
Application of Payments |
73 |
12.4. |
|
Relations Among Lenders |
74 |
ARTICLE XIII. |
|
BENEFIT OF AGREEMENT; ASSIGNMENTS;
|
|
13.1. |
|
Successors and Assigns |
74 |
13.2. |
|
Participations |
74 |
|
|
(A) Permitted Participants; Effect |
74 |
|
|
(B) Voting Rights |
75 |
|
|
(C) Benefit Setoff |
75 |
13.3. |
|
Assignments |
75 |
|
|
(A) Permitted Assignments |
75 |
|
|
(B) Effect; Effective Date |
76 |
|
|
(C) The Register |
76 |
13.4. |
|
Confidentiality |
76 |
13.5. |
|
Dissemination of Information |
77 |
ARTICLE XIV. |
|
NOTICES |
77 |
14.1. |
|
Giving Notice |
77 |
14.2. |
|
Change of Address |
77 |
ARTICLE XV. |
|
COUNTERPARTS |
77 |
EXHIBITS AND SCHEDULES
Exhibits
EXHIBIT A |
-- |
Commitments (Definitions) |
EXHIBIT B-1 |
-- |
Form of Revolving Note (Definitions) |
EXHIBIT B-2 |
-- |
Form of Security Agreement |
EXHIBIT B-3 |
-- |
Trademark Security Agreement |
EXHIBIT B-4 |
-- |
GPE Limited Guaranty Agreement |
EXHIBIT C |
-- |
Form of Borrowing Notice (Section 2.8) |
EXHIBIT C-1 |
-- |
Form of Borrowing Base Certificate (Sections 5.1 and 7.1(A)(iv)) |
EXHIBIT D |
-- |
Form of Request for Letter of Credit (Section 3.4) |
EXHIBIT E |
-- |
Form of Assignment and Acceptance Agreement (Sections 2.20 and 13.3) |
EXHIBIT F-1 |
-- |
Form of Borrower's Counsel's Opinion (Section 5.1) |
EXHIBIT F-2 |
-- |
Form of Guarantor's Counsel's Opinion (Section 5.1) |
EXHIBIT G |
-- |
List of Closing Documents (Section 5.1) |
EXHIBIT H |
-- |
Form of Officer's Certificate (Sections 5.2 and 7.1(A)(iii)) |
EXHIBIT I |
-- |
Form of Compliance Certificate (Sections 5.2 and 7.1(A)(iii)) |
EXHIBIT J |
-- |
Form of Subordination Agreement |
EXHIBIT K |
-- |
Master Letter of Credit Agreement |
|
|
|
Schedules |
|
|
Schedule 1.1.1 |
-- |
Permitted Existing Indebtedness (Definitions) |
Schedule 1.1.2 |
-- |
Permitted Existing Investments (Definitions) |
Schedule 1.1.3 |
-- |
Permitted Existing Liens (Definitions) |
Schedule 1.1.4 |
-- |
Segregated Accounts (Definitions) |
Schedule 6.3 |
-- |
Conflicts; Governmental Consents (Section 6.3) |
Schedule 6.6 |
-- |
Taxes (Section 6.6(A)) |
Schedule 6.7 |
-- |
Litigation; Loss Contingencies (Section 6.7) |
Schedule 6.9 |
-- |
ERISA (Section 6.9) |
Schedule 6.12 |
-- |
Power Purchase Contracts (Section 6.12) |
Schedule 6.18 |
-- |
Environmental Matters (Section 6.18) |
CREDIT AGREEMENT
This Credit Agreement dated as of June 11, 2003 is entered into among Strategic Energy, L.L.C., a Delaware limited liability company, the institutions from time to time parties hereto as Lenders, whether by execution of this Agreement or an Assignment Agreement pursuant to Section 13.3, PNC Bank, National Association, in its capacity as Syndication Agent, and LaSalle Bank National Association, a national banking association, in its capacity as contractual representative for itself and the other Lenders. The parties hereto agree as follows:
Capitalized terms used in this Agreement and not otherwise defined herein shall have the following meanings, applicable both to the singular and the plural forms of the terms defined.
As used in this Agreement:
"Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower (i) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage of voting power) of the outstanding equity interests of another Person.
"Administrative Agent" means LaSalle Bank in its capacity as contractual representative for itself and the Lenders pursuant to Article XI hereof and any successor Administrative Agent appointed pursuant to Article XI hereof.
"Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made by the Lenders to the Borrower of the same Type and, in the case of Eurodollar Rate Advances, for the same Interest Period.
"Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person is the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of greater than ten percent (10%) or more of any class of voting securities (or other voting interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of Capital Stock, by contract or otherwise.
"Agents" means the Administrative Agent and the Syndication Agent.
"Aggregate Revolving Loan Commitment" means the aggregate of the Revolving Loan Commitments of all the Lenders, as reduced from time to time pursuant to the terms hereof. The initial Aggregate Revolving Loan Commitment is Ninety-Five Million and 00/100 Dollars ($95,000,000.00).
"Agreement" means this Credit Agreement, as it may be amended, restated, supplemented or otherwise modified and in effect from time to time.
1
"Agreement Accounting Principles" means generally accepted accounting principles as in effect from time to time at all applicable reporting times, applied in a manner consistent with that used in preparing the financial statements referred to in Section 6.4 hereof.
"Alternate Base Rate" means, for any day, a fluctuating rate of interest per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of (a) the Federal Funds Effective Rate for such day and (b) one-half of one percent (0.5%) per annum.
"Applicable Commitment Fee Percentage" means, as at any date of determination, the rate per annum then applicable in the determination of the amount payable under Section 2.13(C)(i) hereof determined in accordance with the provisions of Section 2.13(D)(ii) hereof.
"Applicable Eurodollar Margin" means, as at any date of determination, with respect to all Loans, the rate per annum then applicable to Eurodollar Rate Loans determined in accordance with the provisions of Section 2.13(D)(ii) hereof.
"Applicable Floating Rate Margin" means, as at any date of determination, with respect to all Loans, the rate per annum then applicable to Floating Rate Loans, determined in accordance with the provisions of Section 2.13(D)(ii) hereof.
"Applicable L/C Fee Percentage" means, as at any date of determination, a rate per annum equal to the Applicable Eurodollar Margin for Revolving Loans in effect on such date.
"Arrangers" means LaSalle Bank and PNC Capital Markets, in their capacity as the arrangers for the loan transactions evidenced by this Agreement.
"Assignment Agreement" means an assignment and acceptance agreement entered into in connection with an assignment pursuant to Section 13.3 hereof in substantially the form of Exhibit E.
"Authorized Officer" means any of the President and Chief Executive Officer, Chief Operating Officer or Vice President, Finance of the Borrower, acting singly.
"Benefit Plan" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) in respect of which the Borrower or any other member of the Controlled Group is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA.
"Borrower" means Strategic Energy, L.L.C., a Delaware limited liability company, together with its successors and assigns, including a debtor-in-possession on behalf of the Borrower.
"Borrowing Base" means, as of any date of calculation, an amount, as set forth on the most current Borrowing Base Certificate delivered to the Administrative Agent, equal to: (i) eighty-five percent (85%) of the Gross Amount of Eligible Receivables that were billed as of the date of such Borrowing Base Certificate; plus (ii) sixty-five percent (65%) of the Gross Amount of Eligible Receivables that were unbilled as of the date of such Borrowing Base Certificate (not to exceed 50% of the total Borrowing Base) plus, (iii) so long as (a) no GPE Cross Default (as defined in the GPE Guaranty) has occurred and is continuing, and (b) the GPE Credit Agreement (as defined in the GPE Guaranty) remains an unsecured obligation of GPE, 100% of the Base Guaranty Amount (as defined in the GPE Guaranty) as of the date of such Borrowing Base Certificate. The Borrower, the Lenders and the Administrative Agent acknowledge and agree that (i) the advance rates set forth in this definition with respect to Eligible Receivables are solely to establish the parameters for the Revolving Credit Availability, and (ii) this definition does not constitute nor shall it be deemed to constitute an express or implied representation or determination by the Administrative Agent or any of the Lenders that the recovery on Eligible Receivables in a forced liquidation scenario would be equal to the advance rates established herein.
2
"Borrowing Base Certificate" means a certificate, in substantially the form of Exhibit C-1 attached hereto and made a part hereof, setting forth the Borrowing Base and the component calculations thereof.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.6 hereof.
"Business Activity Report" means (A) a Notice of Business Activities Report from the State of Minnesota, Department of Revenue or (B) any similar report required by any other State relating to the ability of the Borrower to enforce its accounts receivable claims against account debtors located in any such state.
"Business Day" means (i) with respect to any borrowing, payment or rate selection of Loans bearing interest at the Eurodollar Rate, a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois and on which dealings in Dollars are carried on in the London interbank market and (ii) for all other purposes a day (other than a Saturday or Sunday) on which banks are open for business in Chicago, Illinois.
"Capital Expenditures" means, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including Capitalized Leases and Permitted Purchase Money Indebtedness) by the Borrower and its Subsidiaries during that period that, in conformity with Agreement Accounting Principles, are required to be included in or reflected by the property, plant, equipment or similar fixed asset accounts reflected in the consolidated balance sheet of the Borrower and its Subsidiaries.
"Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
"Capitalized Lease" of a Person means any lease of property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles.
"Cash Equivalents" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; (ii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or its branches or agencies, any such issuing bank having capital and retained earnings of at least $500,000,000 (fully protected against currency fluctuations for any such deposits with a term of more than ninety (90) days); (iii) shares of money market, mutual or similar funds having assets in excess of $100,000,000 and the investments of which are limited to investment grade securities (i.e., securities rated at least Baa3 by Moody's Investors Service, Inc. or at least BBB- by Standard & Poor's Ratings Group); and (iv) commercial paper of United States and foreign banks and bank holding companies and their subsidiaries and United States and foreign finance, commercial industrial or utility companies which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Ratings Group, or P-1 (or better) by Moody's Investors Service, Inc.; provided that the maturities of such Cash Equivalents shall not exceed 365 days.
3
"Change" is defined in Section 4.2 hereof.
"Change of Control" means an event or series of events by which:
(i) GPE ceases to own and control directly or indirectly, 51% or more of the Equity Interests of the Borrower; or
(ii) the Borrower consolidates with or merges into another corporation or conveys, transfers or leases all or substantially all of its property to any Person, or any corporation consolidates with or merges into the Borrower, in either event pursuant to a transaction in which the outstanding Capital Stock of the Borrower is reclassified or changed into or exchanged for cash, securities or other property.
"Closing Date" means June 11, 2003.
"Closing PUHCA Notice" is defined in Section 6.15 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time.
"Collateral" means all property and interests in property now owned or hereafter acquired by the Borrower or any of its Subsidiaries in or upon which a security interest, lien or mortgage is granted to the Administrative Agent, for the benefit of the Holders of Obligations, or to the Administrative Agent, for the benefit of the Lenders, whether under the Security Agreements, the Pledge Agreements, the Intellectual Property Agreements, under any of the other Collateral Documents or under any of the other Loan Documents; provided, however, that "Collateral" shall not include the Excluded Collateral.
"Collateral Documents" means all agreements, instruments and documents executed in connection with this Agreement, including, without limitation, the Security Agreements, the Pledge Agreements, the Intellectual Property Agreements, the Guarantees and all other security agreements, loan agreements, notes, guarantees, pledges, powers of attorney, consents, assignments, contracts, fee letters, mortgages, notices, leases, financing statements and all other written matter whether now or hereafter (including pursuant to Section 7.2(L) hereof) executed by or on behalf of the Borrower or any of its Subsidiaries and delivered to the Administrative Agent or any of the Lenders, together with all agreements and documents referred to therein or contemplated thereby.
"Commission" means the Securities and Exchange Commission and any Person succeeding to the functions thereof.
"Commitment" means, for each Lender, such Lender's Revolving Loan Commitment.
"Consolidated Assets" means the total assets of the Borrower and its Subsidiaries on a consolidated basis determined in accordance with Agreement Accounting Principles.
4
"Contaminant" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, polychlorinated biphenyls ("PCBs"), or any constituent of any such substance or waste, and includes but is not limited to these terms as defined in Environmental, Health or Safety Requirements of Law.
"Contingent Obligation", as applied to any Person, means any Contractual Obligation, contingent or otherwise, of that Person with respect to any Indebtedness of another or other obligation or liability of another, including, without limitation, any such Indebtedness, obligation or liability of another directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including Contractual Obligations (contingent or otherwise) arising through any agreement to purchase, repurchase, or otherwise acquire such Indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, or other financial condition, or to make payment other than for value received.
"Contractual Obligation", as applied to any Person, means any provision of any equity or debt securities issued by that Person or any indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument, in any case in writing, to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject.
"Controlled Group" means the group consisting of (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Borrower, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above.
"Conversion/Continuation Notice" is defined in Section 2.8(D) hereof.
"Cure Loan" is defined in Section 9.2(iii) hereof.
"Customary Permitted Liens" means:
(i) Liens (other than Environmental Liens and Liens in favor of the IRS or the PBGC) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or (if foreclosure, distraint, sale or other similar proceedings shall not have been commenced) which are being contested in good faith by appropriate proceedings properly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other similar Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings properly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles;
5
(iii) Liens (other than Environmental Liens and Liens in favor of the IRS or the PBGC) incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of Funded Indebtedness), appeal and performance bonds; provided that (A) all such Liens do not in the aggregate materially detract from the value of the Borrower's or such Subsidiary's assets or property taken as a whole or materially impair the use thereof in the operation of the businesses taken as a whole, and (B) all Liens securing bonds to stay judgments or in connection with appeals do not secure at any time an aggregate amount exceeding $1,000,000.00;
(iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of real property which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments, writs or warrants of attachment, or similar process against the Borrower or any of its Subsidiaries which do not constitute a Default under Section 8.1(H) hereof; and
(vi) any interest or title of the lessor in the property subject to any operating lease entered into by the Borrower or any of its Subsidiaries in the ordinary course of business.
"Default" means an event described in Article VIII hereof.
"Distributions" means (i) any dividend or other distribution, direct or indirect, on account of any Equity Interests of the Borrower now or hereafter outstanding, except a dividend payable solely in the Borrower's Capital Stock or in options, warrants or other rights to purchase such Capital Stock, and (ii) any redemption, retirement, purchase or other acquisition for value, direct or indirect, of any Equity Interests of the Borrower or any of its Subsidiaries now or hereafter outstanding; provided, however, that "Distributions" shall not include the conversion or exchange of Equity Interests of the Borrower pursuant to a conversion of the Borrower from a limited liability company to a corporation permitted under Section 7.2(A) hereof.
"DOL" means the United States Department of Labor and any Person succeeding to the functions thereof.
"Dollar" and "$" means dollars in the lawful currency of the United States.
"EBITDA" means, for any period, on a consolidated basis for the Borrower and its Subsidiaries, the sum of the amounts for such period, without duplication, of (i) Net Income, plus (ii) Interest Expense, plus (iii) charges against income for foreign, federal, state and local taxes to the extent deducted in computing Net Income, plus (iv) depreciation expense to the extent deducted in computing Net Income, plus (v) amortization expense, including, without limitation, amortization of goodwill and other intangible assets and Transaction Costs to the extent deducted in computing Net Income, plus (vi) other non-cash charges to the extent deducted in computing Net Income, less (vii) non-cash gains to the extent reflected in Net Income.
"Eligible Receivables" means accounts receivable created by the Borrower in the ordinary course of its business arising out of the sale of goods or rendition of services by the Borrower, which receivables are and at all times shall continue to meet standards of eligibility from time to time established in accordance with this Agreement. Standards of eligibility will be established by the Administrative Agent in its reasonable credit judgment and may be revised from time to time by the Administrative Agent in its reasonable credit judgment (which credit judgment shall be exercised in a manner that is not arbitrary or capricious and shall be exercised in a manner not inconsistent with the manner in which the initial ineligibility standards were determined) with notice to Lenders. In general, without limiting the foregoing, the following receivables are not Eligible Receivables:
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(i) (a) the following receivables (collectively, "Aged Receivables"): (1) receivables which remain unpaid ninety (90) days after the due date or one hundred ten (110) days of the date of the original applicable invoice, whichever is earlier; and
(b) all the receivables owing by a single account debtor and its Affiliates (including a receivable which is not an Aged Receivable), if twenty-five percent (25%) or more of the balance owing by such account debtor and its Affiliates are Aged Receivables, calculated without taking into account any credit balances of such account debtor and its Affiliates, or are otherwise ineligible for any reason;
(ii) receivables with respect to which the account debtor is a director, officer, employee, or Affiliate of the Borrower;
(iii) receivables with respect to which the account debtor is any federal governmental authority, the United States of America, or, in each case, any department, agency or instrumentality thereof, unless with respect to any such receivable, the Borrower has complied to the Administrative Agent's satisfaction with the provisions of the Federal Assignment of Claims Act or other applicable statutes, including, without limitation, executing and delivering to Administrative Agent all statements of assignment and/or notification which are in form and substance acceptable to Administrative Agent and which are deemed necessary by Administrative Agent to effectuate the assignment to the Administrative Agent of such receivables;
(iv) receivables not payable in freely transferable U.S. Dollars;
(v) receivables with respect to which the account debtor is located outside of the United States;
(vi) receivables with respect to which the account debtor has (a) asserted a counterclaim, (b) a right of setoff, or (c) a receivable owing from the Borrower but only to the extent of such counterclaim, setoff, rebate or receivable;
(vii) receivables with respect to which the Administrative Agent does not have a first and valid fully perfected and enforceable security interest for which notice has been provided to the Borrower subject only to Customary Permitted Liens and Permitted Existing Liens;
(viii) receivables with respect to which the account debtor is the subject of bankruptcy or a similar insolvency proceeding or has made an assignment for the benefit of creditors or whose assets have been conveyed to a receiver, trustee or assignee for the benefit of creditors;
(ix) receivables with respect to which the account debtor's obligation to pay the receivable is conditional upon the account debtor's approval or is otherwise subject to any contractual repurchase obligation or return right or consignment basis;
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(x) receivables with respect to which the account debtor is located in Minnesota (or any other jurisdiction which adopts a statute or other requirement with respect to which any Person that obtains business from within such jurisdiction or is otherwise subject to such jurisdiction's tax law requiring such Person to file a Business Activity Report or make any other required filings in a timely manner in order to enforce its claims in such jurisdiction's courts or arising under such jurisdiction's laws); provided, however, such receivables shall nonetheless be eligible if the Borrower has filed a Business Activity Report (or other applicable report or filing) with the applicable state office by the time required or is qualified to do business in such jurisdiction and, at the time the receivable was created, was qualified to do business in such jurisdiction or had on file with the applicable state office a current Business Activity Report (or other applicable report or filing);
(xi) receivables with respect to which the account debtor's obligation does not constitute its legal, valid and binding obligation, enforceable against it in accordance with its terms;
(xii) receivables with respect to which the Borrower has not yet delivered the applicable goods or performed the applicable service;
(xiii) any receivable which is not in conformity with the representations and warranties made by the Borrower to the Administrative Agent with respect thereto whether contained in this Agreement or the Security Agreement;
(xiv) receivables in connection with which the Borrower or any other party to such Receivable is in default in the performance or observance of any of the terms thereof in any material respect;
(xv) receivables the proceeds of which are required to be deposited in the Segregated Accounts, and
(xvi) receivables for which the prospect of payment or performance by the account debtor is or will be impaired as determined by the Administrative Agent in the exercise of its reasonable credit judgment (which credit judgment shall not be exercised in a manner that is arbitrary or capricious and shall be exercised in a manner not inconsistent with the manner in which the initial ineligibility standards were determined).
"Environmental, Health or Safety Requirements of Law" means all Requirements of Law derived from or relating to federal, state and local laws or regulations relating to or addressing pollution or protection of the environment, or protection of worker health or safety, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Subsection 9601 et seq., the Occupational Safety and Health Act of 1970, 29 U.S.C. Subsection 651 et seq., and the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Subsection 6901 et seq., in each case including any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder, and any state or local equivalent thereof.
"Environmental Lien" means a lien in favor of any Governmental Authority for (a) any liability under Environmental, Health or Safety Requirements of Law, or (b) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment.
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"Environmental Property Transfer Act" means any applicable requirement of law that conditions, restricts, prohibits or requires any notification or disclosure triggered by the closure of any property or the transfer, sale or lease of any property or deed or title for any property for environmental reasons, including, but not limited to, any so-called "Industrial Site Recovery Act" or "Responsible Property Transfer Act."
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time including (unless the context otherwise requires) any rules or regulations promulgated thereunder.
"Eurodollar Base Rate" means, with respect to a Eurodollar Rate Loan for any specified Interest Period, the per annum rate of interest at which United States dollar deposits in the approximate amount of the pro rata share of LaSalle Bank of such Eurodollar Rate Loan with a maturity approximately equal to such Interest Period are offered in the London interbank eurodollar market at 11:30 a.m. (Chicago time) two Business Days prior to the first day of such Interest Period, as displayed on the Bloomberg Financial Markets System, or other authoritative source selected by the Administrative Agent in its sole discretion, divided by a number determined by subtracting from 1.00 the maximum reserve percentage for determining reserves to be maintained by member banks of the Federal Reserve System for "Eurocurrency liabilities," such rate to remain fixed for such Interest Period. The Administrative Agent's determination of the Eurodollar Base Rate shall be conclusive, absent manifest error. Any Eurodollar Base Rate determined on the basis of the rate displayed on the Bloomberg Financial Markets System in accordance with the foregoing provisions of this subparagraph shall be subject to corrections, if any, made in such rate and displayed by the Bloomberg Financial Markets System within one hour of the time when such rate is first displayed by such service.
"Eurodollar Rate" means, with respect to a Eurodollar Rate Loan for the relevant Interest Period, the Eurodollar Base Rate applicable to such Interest Period plus the then Applicable Eurodollar Margin.
"Eurodollar Rate Advance" means an Advance which bears interest at the Eurodollar Rate.
"Eurodollar Rate Loan" means a Loan, or portion thereof, which bears interest at the Eurodollar Rate.
"Excluded Collateral" means (1) Provider Collateral under the Restricting Power Purchase Contracts; provided, however, that upon the release of any proceeds of such Provider Collateral to the Borrower pursuant to the terms of any Disbursement Agreement entered into in conjunction with the Restricting Power Purchase Contracts, such released amounts will cease to be "Excluded Collateral"; and (2) all cash and letter-of-credit rights held by Borrower as "Performance Assurance" as that term is defined in the Power Purchase Contracts, so long as such amounts are held by LaSalle Bank pursuant to that certain Custody Agreement dated as of March 26, 2003 between the Borrower and LaSalle Bank.
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"Federal Funds Effective Rate" means, for any day, an interest rate per annum 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 for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago time) on such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent in its sole discretion.
"Financing" means, with respect to any Person, the issuance or sale by such Person of any Equity Interests of such Person or any Indebtedness consisting of debt securities of such Person.
"Floating Rate" means, for any day for any Loan, a rate per annum equal to the Alternate Base Rate for such day, changing when and as the Alternate Base Rate changes, plus the then Applicable Floating Rate Margin.
"Floating Rate Advance" means an Advance which bears interest at the Floating Rate.
"Floating Rate Loan" means a Loan, or portion thereof, which bears interest at the Floating Rate.
"FPA" means the Federal Power Act, as amended, and all rules and regulations promulgated thereunder.
"Funded Indebtedness" means Indebtedness other than Contingent Obligations.
"Governmental Acts" is defined in Section 3.10(A) hereof.
"Governmental Authority" means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
"GPE" means Great Plains Energy Incorporated, a Missouri corporation.
"GPE Guaranty" means that certain Limited Guaranty dated as of the Closing Date in substantially the form of Exhibit B-4 attached hereto, duly executed by GPE in favor of the Administrative Agent for the benefit of the Holders of Obligations, as amended, restated or otherwise modified from time to time.
"Gross Amount of Eligible Receivables" means the outstanding face amount of Eligible Receivables, determined in accordance with Agreement Accounting Principles, consistently applied, less (i) all finance charges, late fees and other fees that are unearned, (ii) the value of any accrual which has been recorded by the Borrower with respect to downward price adjustments and (iii) and such other reserves as the Administrative Agent elects to establish in accordance with its reasonable credit judgment (which credit judgment shall be exercised in a manner that is not arbitrary or capricious and shall be exercised in a manner not inconsistent with the manner in which the initial ineligibility standards were determined).
"Gross Negligence" means recklessness, or actions taken or omitted with conscious indifference to or the complete disregard of consequences. Gross Negligence does not mean the absence of ordinary care or diligence, or an inadvertent act or inadvertent failure to act. If the term "gross negligence" is used with respect to the Agents, the Arrangers or any Lender or any indemnitee in any of the other Loan Documents, it shall have the meaning set forth herein.
"Guarantors" means (i) GPE and (ii) any other new Subsidiaries which have satisfied the provisions of Section 7.2(L) hereof, in each case, together with their respective successors and assigns.
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"Guaranty" means the GPE Guaranty and any guaranty hereafter (pursuant to Section 7.2(L) hereof) executed by a Subsidiary of Borrower in favor of the Administrative Agent for the ratable benefit of the Holders of Obligations, in each case, as amended, restated or otherwise modified from time to time.
"Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, commodity prices, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing; provided, however, that "Hedging Obligations" shall not include physical and financial agreements to purchase electric power entered into by the Borrower in the ordinary course of its business.
"Holders of Obligations" means the holders of the Obligations from time to time, including, without limitation, (i) each Lender in respect of its Loans, (ii) each Issuing Bank in respect of Reimbursement Obligations, (iii) the Agents, the Lenders and the Issuing Banks in respect of all other present and future obligations and liabilities of the Borrower of every type and description arising under or in connection with this Agreement or any other Loan Document, (iv) each Indemnitee in respect of the obligations and liabilities of the Borrower to such Person hereunder, and (v) their respective successors, transferees and assigns.
"Indebtedness" of any Person means, without duplication, such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property or assets now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances or other instruments, (e) Capitalized Lease Obligations, (f) Contingent Obligations, (g) obligations with respect to letters of credit issued under this Agreement or otherwise on the Borrower's behalf and (h) Hedging Obligations. The amount of Indebtedness of any Person at any date shall be without duplication (i) the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of any such Contingent Obligations at such date and (ii) in the case of Indebtedness of others secured by a Lien to which the property or assets owned or held by such Person is subject, the lesser of the fair market value at such date of any asset subject to a Lien securing the Indebtedness of others and the amount of the Indebtedness secured. Anything to the contrary contained in this Agreement notwithstanding, Borrower's Power Purchase Contracts, Distributions by the Borrower to the holders of its Equity Interests, and the obligation to make tax distributions under the terms of the Borrower's limited liability company operating agreement shall not be deemed to be Indebtedness.
"Indemnified Matters" is defined in Section 10.7(B) hereof.
"Indemnitees" is defined in Section 10.7(B) hereof.
"Intellectual Property Agreement" means any patent security agreement, trademark security agreement or copyright security agreement whether now or hereafter (including pursuant to Section 7.2(L) hereof) executed by the Borrower and its Subsidiaries in favor of the Administrative Agent for the benefit of the Holders of Obligations, in each case, as amended, restated or otherwise modified from time to time, including, without limitation, that certain Trademark Security Agreement dated as of the Closing Date in substantially the form of Exhibit B-3 attached hereto, duly executed by the Borrower in favor of the Administrative Agent for the benefit of the Holders of Obligations as amended, restated or otherwise modified from time to time.
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"Interest Expense" means, for any period, the total interest expense of the Borrower and its consolidated Subsidiaries, whether paid or accrued (including the interest component of Capitalized Leases, commitment and letter of credit fees) as reflected on the income statement of the Borrower and its consolidated Subsidiaries, all as determined in conformity with Agreement Accounting Principles.
"Interest Period" means, with respect to a Eurodollar Rate Loan, a period of one (1), two (2), three (3) or six (6) months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter; provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month, as the case may be. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the immediately preceding Business Day.
"Investment" means, with respect to any Person, (i) any purchase or other acquisition by that Person of any Indebtedness, Equity Interests or other securities, or of a beneficial interest in any Indebtedness, Equity Interests or other securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to the functions thereof.
"Issuing Banks" means (i) LaSalle Bank and (ii) any Lender which, at the Borrower's request, agrees, in each such Lender's sole discretion, to become an Issuing Bank for the purpose of issuing Letters of Credit, and their respective successors and assigns, in each case in such Lender's separate capacity as an issuer of Letters of Credit pursuant to Section 3.1. The designation of any Lender as an Issuing Bank after the date hereof shall be subject to the prior written consent of the Administrative Agent.
"LaSalle Bank" means LaSalle Bank National Association, a national banking association, together with its successors and assigns.
"L/C Draft" means a draft drawn on an Issuing Bank pursuant to a Letter of Credit.
"L/C Interest" shall have the meaning ascribed to such term in Section 3.6 hereof.
"L/C Obligations" means, without duplication, an amount equal to the sum of (i) the aggregate of the amount then available for drawing under each of the Letters of Credit, (ii) the face amount of all outstanding L/C Drafts corresponding to the Letters of Credit, which L/C Drafts have been accepted by the applicable Issuing Bank, (iii) the aggregate outstanding amount of all Reimbursement Obligations at such time and (iv) the aggregate face amount of all Letters of Credit requested by the Borrower but not yet issued (unless the request for an unissued Letter of Credit has been denied).
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"Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Administrative Agent, any office, branch, subsidiary or affiliate of such Lender or the Administrative Agent.
"Letter of Credit" means the letters of credit to be issued by the Issuing Banks pursuant to Section 3.1 hereof.
"Leverage Ratio" is defined in Section 7.4(B) hereof.
"Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement).
"Loan(s)" means, with respect to a Lender, such Lender's portion of any Advance made pursuant to Section 2.1 hereof, and collectively all Revolving Loans, whether made or continued as or converted to Floating Rate Loans or Eurodollar Rate Loans.
"Loan Account" is defined in Section 2.13(F) hereof.
"Loan Documents" means this Agreement, the Notes, any Guaranty and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, as the same may be amended, restated or otherwise modified and in effect from time to time.
"Margin Stock" shall have the meaning ascribed to such term in Regulation U.
"Master Letter of Credit Agreement" means the form of LaSalle Bank's Master Letter of Credit Agreement attached hereto as Exhibit K, as the same may be amended from time to time. In the event of a conflict in terms between this Agreement and the Master Letter of Credit Agreement, the Master Letter of Credit Agreement shall govern.
"Material Adverse Effect" means a material adverse effect upon (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower, (b) the ability of the Borrower or any of its Subsidiaries to perform their respective obligations under the Loan Documents in any material respect, or (c) the ability of the Lenders or the Administrative Agent to enforce in any material respect the Obligations.
"Material Subsidiary" means any Subsidiary of Borrower having assets or annual revenues in excess of $1,000,000.00.
"Multiemployer Plan" means a "Multiemployer Plan" as defined in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by either the Borrower or any member of the Controlled Group.
"Net Income" means, for any period, the net earnings (or loss) after taxes of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with Agreement Accounting Principles.
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"Net Worth" means, at a particular date, all amounts which would be included under shareholders' equity for any Person and its consolidated Subsidiaries determined in accordance with Agreement Accounting Principles.
"New Subsidiary" is defined in Section 7.3(G)(ii) hereof.
"Non Pro Rata Loan" is defined in Section 9.2 hereof.
"Notes" means the Revolving Notes.
"Notice of Assignment" is defined in Section 13.3(B) hereof.
"Obligations" means all Loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Agents, the Arrangers, any Lender, any Issuing Bank, any Affiliate of the Agents, the Arrangers or any Lender, or any Indemnitee, of any kind or nature, present or future, arising under this Agreement, the Notes or any other Loan Document, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees (in each case whether or not allowed), and any other sum chargeable to the Borrower under this Agreement or any other Loan Document.
"Other Taxes" is defined in Section 2.13(E)(ii) hereof.
"Participants" is defined in Section 13.2(A) hereof.
"Payment Date" means the last Business Day of each calendar quarter.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto.
"Permitted Acquisition" is defined in Section 7.3(G) hereof.
"Permitted Existing Indebtedness" means the Indebtedness of the Borrower and its Subsidiaries identified as such on Schedule 1.1.1 to this Agreement.
"Permitted Existing Investments" means the Investments of the Borrower and its Subsidiaries identified as such on Schedule 1.1.2 to this Agreement.
"Permitted Existing Liens" means the Liens on assets of the Borrower and its Subsidiaries identified as such on Schedule 1.1.3 to this Agreement.
"Permitted Purchase Money Indebtedness" is defined in Section 7.3(A)(vi) hereof.
"Permitted Refinancing Indebtedness" means any replacement, renewal, refinancing or extension of any Indebtedness permitted by this Agreement that (i) does not exceed the aggregate principal amount (plus accrued interest and any applicable premium and associated fees and expenses) of the Indebtedness being replaced, renewed, refinanced or extended, (ii) does not have a Weighted Average Life to Maturity at the time of such replacement, renewal, refinancing or extension that is less than the Weighted Average Life to Maturity of the Indebtedness being replaced, renewed, refinanced or extended, (iii) does not rank at the time of such replacement, renewal, refinancing or extension senior to the Indebtedness being replaced, renewed, refinanced or extended, and (iv) does not contain terms (including, without limitation, terms relating to security, amortization, interest rate, premiums, fees, covenants, event of default and remedies) materially less favorable to the Borrower or to the Lenders than those applicable to the Indebtedness being replaced, renewed, refinanced or extended.
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"Person" means any individual, corporation, firm, enterprise, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company or other entity of any kind, or any government or political subdivision or any agency, department or instrumentality thereof.
"Plan" means an employee benefit plan defined in Section 3(3) of ERISA in respect of which the Borrower or any member of the Controlled Group is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreement" means any pledge agreement hereafter (pursuant to Section 7.2(L) hereof) executed by the Borrower or any Subsidiary of the Borrower with respect to the Capital Stock of any other Subsidiary of the Borrower or such Subsidiary in favor of the Administrative Agent for the benefit of the Holders of Obligations, in each case, as amended, restated or otherwise modified from time to time.
"Power Purchase Contracts" is defined in Section 6.12 hereof.
"Prime Rate" means a rate per annum equal to the prime rate of interest announced from time to time by LaSalle Bank (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.
"Pro Rata Share" means:
(i) with respect to all payments, computations and determinations relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or such Lender's interest in Letters of Credit (including, without limitation, determinations of the commitment fee under Section 2.13(C)(i)), the Revolving Loan Pro Rata Share; and
(ii) for all other purposes, with respect to each Lender, the percentage obtained by dividing (A) the sum of such Lender's Revolving Loan Commitment at such time (in each case, as adjusted from time to time in accordance with the provisions of this Agreement) by (B) the Aggregate Revolving Loan Commitment at such time; provided, however, if all of the Commitments are terminated pursuant to the terms of this Agreement, then "Pro Rata Share" means the percentage obtained by dividing (x) the sum of such Lender's Revolving Loans and L/C Obligations by (y) the aggregate amount of all Revolving Loans and L/C Obligations.
"Provider Collateral" means those specified retail contracts, related items and proceeds thereof and any Segregated Accounts that are subject to a Lien pursuant to the terms of the Power Purchase Contracts.
"PUHCA" means the Public Utility Holding Company Act of 1935, as amended.
"Purchasers" is defined in Section 13.3(A) hereof.
"Rate Option" means the Eurodollar Rate or the Floating Rate.
"Register" is defined in Section 13.3(C) hereof.
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"Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by and to brokers and dealers of securities for the purpose of purchasing or carrying margin stock (as defined therein).
"Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying Margin Stock applicable to member banks of the Federal Reserve System.
"Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by foreign lenders for the purpose of purchasing or carrying margin stock (as defined therein).
"Reimbursement Obligation" is defined in Section 3.7 hereof.
"Release" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including the movement of Contaminants through or in the air, soil, surface water or groundwater.
"Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days after such event occurs, provided, however, that a failure to meet the minimum funding standards of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.
"Required Lenders" means Lenders whose Pro Rata Shares, in the aggregate, are greater than sixty-six and two-thirds percent (66-2/3%); provided, however, that, if any of the Lenders shall have failed to fund its Revolving Loan Pro Rata Share of any Revolving Loan requested by the Borrower, which such Lenders are obligated to fund under the terms of this Agreement and any such failure has not been cured, then for so long as such failure continues, "Required Lenders" means Lenders (excluding all Lenders whose failure to fund their applicable Pro Rata Shares of such Revolving Loans has not been so cured) whose Pro Rata Shares represent greater than sixty-six and two-thirds percent (66-2/3%) of the aggregate Pro Rata Shares of such Lenders; provided further, however, that, if the Commitments have been terminated pursuant to the terms of this Agreement, "Required Lenders" means Lenders (without regard to such Lenders' performance of their respective obligations hereunder) whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Loans and L/C Obligations are greater than sixty-six and two thirds percent (66-2/3%).
"Requirements of Law" means, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, Regulations T, U and X, ERISA, the Fair Labor Standards Act, the Worker Adjustment and Retraining Notification Act, Americans with Disabilities Act of 1990, and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or permit or environmental, labor, employment, occupational safety or health law, rule or regulation, including Environmental, Health or Safety Requirements of Law.
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"Restricted Payment" means (i) any redemption, purchase, retirement, defeasance, prepayment or other acquisition for value, direct or indirect, of any Indebtedness other than the Obligations prior to the stated maturity of such Indebtedness, (ii) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of, any Indebtedness (other than the Obligations), or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission and (iii) any payment of any management fee or similar consulting fee to any Affiliate of the Borrower.
"Restricting Power Purchase Contracts" means those Power Purchase Contracts which prohibit the grant of a junior lien on the related Provider Collateral to the Administrative Agent.
"Revolving Credit Availability" means, at any particular time, the amount by which (a) the lesser of (i) the Aggregate Revolving Loan Commitment at such time or (ii) the Borrowing Base at such time exceeds (b) the Revolving Credit Obligations at such time.
"Revolving Credit Obligations" means, at any particular time, the sum of (i) the outstanding principal amount of the Revolving Loans at such time, plus (ii) the L/C Obligations at such time.
"Revolving Loan" is defined in Section 2.1 hereof.
"Revolving Loan Commitment" means, for each Lender, the obligation of such Lender to make Revolving Loans and to purchase participations in Letters of Credit not exceeding the amount set forth on Exhibit A to this Agreement opposite its name thereon under the heading "Revolving Loan Commitment" or the signature page of the assignment and acceptance by which it became a Lender, as such amount may be modified from time to time pursuant to the terms of this Agreement or to give effect to any applicable assignment and acceptance.
"Revolving Loan Pro Rata Share" means, at any particular time and with respect to any Lender, the percentage obtained by dividing (A) such Lender's Revolving Loan Commitment (or the outstanding principal balance of such Lender's Revolving Loans and all L/C Obligations in which such Lender has an interest, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement) by (B) the Aggregate Revolving Loan Commitment (or the aggregate outstanding principal balance of the Revolving Loans and all L/C Obligations, if the Revolving Loan Commitments have been terminated pursuant to the terms of this Agreement).
"Revolving Loan Termination Date" means June 9, 2004 (unless extended pursuant to Section 2.18 hereof).
"Revolving Note" means a promissory note, in substantially the form of Exhibit B-1 hereto, duly executed by the Borrower and payable to the order of a Lender in the amount of its Revolving Loan Commitment, including any amendment, restatement, modification, renewal or replacement of such Revolving Note.
"Risk-Based Capital Guidelines" is defined in Section 4.2 hereof.
"Security Agreement" means (i) that certain Security Agreement dated as of the Closing Date, in substantially the form of Exhibit B-2 attached hereto, duly executed by the Borrower in favor of the Administrative Agent for the benefit of the Holders of Obligations as amended, restated or otherwise modified from time to time and (ii) any other security agreement hereafter (pursuant to Section 7.2(L) hereof) executed by each of the Borrower's Subsidiaries in favor of the Administrative Agent for the benefit of the Holders of Obligations, in each case, as amended, restated or otherwise modified from time to time.
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"Segregated Accounts" shall mean those deposit accounts listed on Schedule 1.1.4 hereto, which schedule may be revised from time to time by the Borrower submitting a revised Schedule to the Administrative Agent and the Lenders, such accounts being created for the purpose of providing performance assurance to certain of the Borrower's wholesale power supply counterparties and funded by payments made by the Borrower's retail customers receiving such supply.
"Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group.
"Solvent" means, when used with respect to any Person, that at the time of determination:
(i) the fair value of its assets (both at fair valuation and at present fair saleable value) is equal to or in excess of the total amount of its liabilities, including, without limitation, contingent liabilities; and
(ii) it is then able and expects to be able to pay its debts as they mature; and
(iii) it has capital sufficient to carry on its business as conducted and as proposed to be conducted.
With respect to contingent liabilities (such as litigation, guarantees and pension plan liabilities), such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represent the amount which can be reasonably be expected to become an actual or matured liability.
"Subordinated Debtholder" means either GPE, KLT Inc., KLT Energy Services Inc., Innovative Energy Consultants Inc. or Custom Energy Holdings, L.L.C.
"Subordinated Debt" means any unsecured intercompany Indebtedness owed by the Borrowers to the Subordinated Debtholder (whether or not evidenced by a promissory note) and subject to the terms of the Subordination Agreement.
"Subordination Agreement" means that certain Subordination Agreement dated as of the Closing Date (as amended, restated, supplemented or otherwise modified from time to time) between the Subordinated Debtholder and the Borrower in favor of the Administrative Agent on behalf of the Lenders with respect to the Subordinated Debt, in substantially the form of Exhibit J attached hereto.
"Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower.
"Syndication Agent" means PNC Bank, National Association in its capacity as syndication agent hereunder.
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"Taxes" is defined in Section 2.13(E)(i) hereof.
"Termination Date" means the earlier of (a) the Revolving Loan Termination Date, and (b) the date of termination of the Aggregate Revolving Loan Commitment pursuant to Section 2.4 hereof or the Commitments pursuant to Section 9.1 hereof.
"Termination Event" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any member of the Controlled Group from a Benefit Plan during a plan year in which the Borrower or such Controlled Group member was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations which results in the termination of employment of twenty percent (20%) of Benefit Plan participants who are employees of the Borrower or any member of the Controlled Group; (iii) the imposition of an obligation on the Borrower or any member of the Controlled Group under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Benefit Plan; (v) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; or (vi) the partial or complete withdrawal of the Borrower or any member of the Controlled Group from a Multiemployer Plan.
"Transaction Costs" means the fees, costs and expenses payable by the Borrower in connection with the execution, delivery and performance of the Loan Documents.
"Transferee" is defined in Section 13.5 hereof.
"Type" means, with respect to any Loan, its nature as a Floating Rate Loan or a Eurodollar Rate Loan.
"Unfunded Liabilities" means (i) in the case of Single Employer Plans, the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans, and (ii) in the case of Multiemployer Plans, the withdrawal liability that would be incurred by the Controlled Group if all members of the Controlled Group completely withdrew from all Multiemployer Plans.
"Unmatured Default" means an event which, but for the lapse of time or the giving of notice, or both, would constitute a Default.
"Weighted Average Life to Maturity" means when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness.
The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Any accounting terms used in this Agreement which are not specifically defined herein shall have the meanings customarily given them in accordance with generally accepted accounting principles in existence as of the date hereof.
1.2. References.
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The existence throughout the Agreement of references to the Borrower's Subsidiaries is for a matter of convenience only. Any references to Subsidiaries of the Borrower set forth herein shall not in any way be construed as consent by the Administrative Agent or any Lender to the establishment, maintenance or acquisition of any Subsidiary, except as may otherwise be permitted hereunder.
ARTICLE II. THE REVOLVING LOAN FACILITIES
Upon the satisfaction of the conditions precedent set forth in Sections 5.1 and 5.2, from and including the date of this Agreement and prior to the Termination Date, each Lender severally and not jointly agrees, on the terms and conditions set forth in this Agreement, to make revolving loans to the Borrower from time to time, in Dollars, in an amount not to exceed such Lender's Revolving Loan Pro Rata Share of Revolving Credit Availability at such time (each individually, a "Revolving Loan" and, collectively, the "Revolving Loans"); provided, however, at no time shall the Revolving Credit Obligations exceed the lesser of the Aggregate Revolving Loan Commitment or the Borrowing Base. Subject to the terms of this Agreement, the Borrower may borrow, repay and reborrow Revolving Loans at any time prior to the Termination Date. On the Termination Date, the Borrower shall repay in full the outstanding principal balance of the Revolving Loans. Each Advance under this Section 2.1 shall consist of Revolving Loans made by each Lender ratably in proportion to such Lender's respective Revolving Loan Pro Rata Share.
2.2. Rate Options for All Advances.
The Revolving Loans may be Floating Rate Advances or Eurodollar Rate Advances, or a combination thereof, selected by the Borrower in accordance with Section 2.8. The Borrower may select, in accordance with Section 2.8, Rate Options and Interest Periods applicable to portions of the Revolving Loans and the Term Loans; provided that there shall be no more than five (5) Interest Periods in effect with respect to all of the Loans at any time.
The Borrower may from time to time repay or prepay, without penalty or premium all or, in an aggregate of amount of $1,000,000.00 or any larger integral multiple thereof, part of outstanding Floating Rate Advances. The Borrower may from time to time pay, subject to the indemnification provisions contained in Section 4.4, all outstanding Eurodollar Rate Advances or, in a minimum aggregate amount of $1,000,000.00 or any larger integral multiple thereof, part of the outstanding Eurodollar Rate Advances, provided, that the Borrower may not so prepay Eurodollar Rate Advances unless it shall have provided at least three Business Days' written notice to the Administrative Agent of such prepayment.
(i) If at any time and for any reason the Revolving Credit Obligations are greater than the lesser of (i) the Aggregate Revolving Loan Commitment or (ii) the Borrowing Base, the Borrower shall immediately make a mandatory prepayment of the Obligations in an amount equal to such excess. In addition, if Revolving Credit Availability is at any time less than the amount of contingent L/C Obligations outstanding at any time, the Borrower shall deposit cash collateral with the Administrative Agent in an amount equal to the amount by which such L/C Obligations exceed such Revolving Credit Availability.
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(ii) Subject to the preceding provisions of this Section 2.3(B) and the indemnification provisions contained in Section 4.4, all of the mandatory prepayments made under this Section 2.3(B) shall be applied first to Floating Rate Loans and to any Eurodollar Rate Loans maturing on such date and then to subsequently maturing Eurodollar Rate Loans in order of maturity.
2.4. Reduction of Commitments.
(a) The Borrower may permanently reduce the Aggregate Revolving Loan Commitment in whole, or in part ratably among the Lenders, in an aggregate minimum amount of $1,000,000.00 with respect to each such Commitment and integral multiples of $500,000.00 in excess of that amount with respect to each such Commitment (unless the Aggregate Revolving Loan Commitment is reduced in whole), upon at least one Business Day's written notice to the Administrative Agent, which notice shall specify the amount of any such reduction; provided, however, that the amount of the Aggregate Revolving Loan Commitment may not be reduced below the aggregate principal amount of the outstanding Revolving Credit Obligations.
(b) All accrued commitment fees shall be payable on the effective date of any termination of the obligations of the Lenders to make Loans hereunder.
Not later than 1:00 p.m. (Chicago time) on each Borrowing Date, each Lender shall make available its Revolving Loan in funds immediately available in Indianapolis to the Administrative Agent at its address specified pursuant to Article XIV. The Administrative Agent will promptly make the funds so received from the Lenders available to the Borrower at the Administrative Agent's aforesaid address.
2.6. Method of Selecting Types and Interest Periods for Advances.
The Borrower shall select the Type of Advance and, in the case of each Eurodollar Rate Advance, the Interest Period applicable to each Advance from time to time. The Borrower shall give the Administrative Agent irrevocable notice in substantially the form of Exhibit C hereto (a "Borrowing Notice") not later than 11:30 a.m. (Chicago time) (a) on the Borrowing Date of each Floating Rate Advance and (b) three Business Days before the Borrowing Date for each Eurodollar Rate Advance, specifying: (i) the Borrowing Date (which shall be a Business Day) of such Advance; (ii) the aggregate amount of such Advance; (iii) the Type of Advance selected; and (iv) in the case of each Eurodollar Rate Advance, the Interest Period applicable thereto. The Borrower shall select Interest Periods so that, to the best of the Borrower's knowledge, it will not be necessary to prepay all or any portion of any Eurodollar Rate Advance prior to the last day of the applicable Interest Period in order to make mandatory prepayments as required pursuant to the terms hereof. Each Floating Rate Advance and all Obligations other than Loans shall bear interest from and including the date of the making of such Advance to (but not including) the date of repayment thereof at the Floating Rate, changing when and as such Floating Rate changes. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Loan will take effect simultaneously with each change in the Alternate Base Rate. Each Eurodollar Rate Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Eurodollar Rate Advance.
2.7. Minimum Amount of Each Advance.
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Each Advance (other than an Advance to repay a Reimbursement Obligation) shall be in the minimum amount of $1,000,000.00 (and in multiples of $500,000.00 if in excess thereof); provided, however, that any Floating Rate Advance may be in the amount of the Revolving Credit Availability; provided, further, that the portion of each Advance which is a Eurodollar Rate Advance shall be in the minimum amount of $100,000.00.
2.8. Method of Selecting Types and Interest Periods for Conversion and Continuation of Advances.
(A) Right to Convert/Breakage Costs.
The Borrower may elect from time to time, subject to the provisions of Section 2.2 and this Section 2.8, to convert all or any part of a Loan of any Type into any other Type or Types of Loans; provided that any conversion of any Eurodollar Rate Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. Notwithstanding anything in this Agreement or any of the other Loan Documents to the contrary, the Borrower shall be liable for all amounts pursuant to Section 4.4 as a result of the conversion prior to the end of the applicable Interest Period.
(B) Automatic Conversion and Continuation.
Floating Rate Loans shall continue as Floating Rate Loans unless and until such Floating Rate Loans are converted into Eurodollar Rate Loans. Eurodollar Rate Loans shall continue as Eurodollar Rate Loans until the end of the then applicable Interest Period therefor, at which time such Eurodollar Rate Loans shall be automatically converted into Floating Rate Loans unless the Borrower shall have given the Administrative Agent notice in accordance with Section 2.8(D) requesting that, at the end of such Interest Period, such Eurodollar Rate Loans continue as a Eurodollar Rate Loan.
(C) No Conversion Post-Default or Post-Unmatured Default.
Notwithstanding anything to the contrary contained in Section 2.8(A) or Section 2.8(B), no Loan may be converted into or continued as a Eurodollar Rate Loan (except with the consent of the Required Lenders) when any Default or Unmatured Default has occurred and is continuing.
(D) Conversion/Continuation Notice.
The Borrower shall give the Administrative Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of a Floating Rate Loan into a Eurodollar Rate Loan or continuation of a Eurodollar Rate Loan not later than 11:30 a.m. (Chicago time) three Business Days prior to the date of the requested conversion or continuation, specifying: (1) the requested date (which shall be a Business Day) of such conversion or continuation; (2) the amount and Type of the Loan to be converted or continued; and (3) the amount of Eurodollar Rate Loan(s) into which such Loan is to be converted or continued and the duration of the Interest Period applicable thereto.
After the occurrence and during the continuance of a Default, at the option of the Administrative Agent or at the direction of the Required Lenders, the interest rate(s) applicable to the Obligations and the fees payable under Section 3.8 with respect to Letters of Credit shall be increased by two percent (2.0%) per annum above the Floating Rate or Eurodollar Rate, as applicable.
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All payments of principal, interest, and fees hereunder shall be made, without setoff, deduction or counterclaim, in immediately available funds to the Administrative Agent at the Administrative Agent's address specified pursuant to Article XIV, or at any other Lending Installation of the Administrative Agent specified in writing by the Administrative Agent to the Borrower, by 2:00 p.m. (Chicago time) on the date when due and shall be made ratably among the Lenders (unless such amount is not to be shared ratably in accordance with the terms hereof). Each payment delivered to the Administrative Agent for the account of any Lender shall be delivered promptly by the Administrative Agent to such Lender in the same type of funds which the Administrative Agent received at its address specified pursuant to Article XIV or at any Lending Installation specified in a notice received by the Administrative Agent from such Lender. The Borrower authorizes the Administrative Agent to charge the account of the Borrower maintained with LaSalle Bank for each payment of principal, interest and fees as it becomes due hereunder. LaSalle Bank will notify the Borrower of any such charges.
Each Lender is authorized to record the principal amount of each of its Loans and each repayment with respect to its Loans on the schedule attached to its respective Notes; provided, however, that the failure to so record shall not affect the Borrower's obligations under any such Note.
The Borrower authorizes the Lenders and the Administrative Agent to extend Advances, issue Letters of Credit, effect selections of Types of Advances and to transfer funds based on telephonic notices made by any person or persons the Administrative Agent or any Lender in good faith believes to be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Administrative Agent a written confirmation, signed by an Authorized Officer, if such confirmation is requested by the Administrative Agent or any Lender, of each telephonic notice. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Lenders, (i) the telephonic notice shall govern absent manifest error and (ii) the Administrative Agent or the Lender, as applicable, shall promptly notify the Authorized Officer who provided such confirmation of such difference.
2.13. Promise to Pay; Interest and Commitment Fees; Interest Payment Dates; Interest and Fee Basis; Taxes; Loan and Control Accounts.
The Borrower unconditionally promises to pay when due the principal amount of each Loan and all other Obligations incurred by it, and to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the Notes.
Interest accrued on each Floating Rate Loan shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, and at maturity (whether by acceleration or otherwise). Interest accrued on each Eurodollar Rate Loan shall be payable on the last day of its applicable Interest Period, on any date on which the Eurodollar Rate Loan is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Eurodollar Rate Loan having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest accrued on the principal balance of all other Obligations shall be payable in arrears (i) on the last Business Day of each calendar month, commencing on the first such Business Day following the incurrence of such Obligation, (ii) upon repayment thereof in full or in part, and (iii) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise).
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(i) The Borrower shall pay to the Administrative Agent, for the account of the Lenders as provided herein below, from and after the Closing Date until the date on which the Aggregate Revolving Loan Commitment shall be terminated in whole, a commitment fee accruing at the rate of the then Applicable Commitment Fee Percentage, on the amount by which (x) the Aggregate Revolving Loan Commitment exceeds (y) the Revolving Credit Obligations from time to time. All such commitment fees payable under this clause (C)(i) shall be payable quarterly in arrears on the last Business Day of each calendar quarter occurring after the Closing Date (with the first such payment being calculated for the period from the Closing Date and ending on June 30, 2003), and, in addition, on the date on which the Aggregate Revolving Loan Commitment shall be terminated in whole. The Administrative Agent shall pay to each Lender a ratable share of such commitment fee based on the amount by which such Lender's Revolving Loan Commitment exceeds such Lender's Revolving Credit Obligations.
(ii) The Borrower agrees to pay to the Administrative Agent for the sole account of the Administrative Agent and the Arrangers (unless otherwise agreed between the Administrative Agent and the Arrangers and any Lender) the fees set forth in the letter agreements among the Administrative Agent, the Arrangers and the Borrower dated February 17, 2003, payable at the times and in the amounts set forth therein.
(i) Interest on all Obligations and all fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Obligation is incurred but not for the day of any payment on the amount paid if payment is received prior to 2:00 p.m. (Chicago time) at the place of payment. If any payment of principal of or interest on a Loan or any payment of any other Obligations shall become due on a day which is not a Business Day, such payment shall be made on the immediately preceding Business Day.
(ii) The Applicable Floating Rate Margin and Applicable Eurodollar Margin for all Loans and the Applicable Commitment Fee Percentage shall be determined from time to time by reference to the table set forth below, on the basis of the then applicable Leverage Ratio as described in this Section 2.13(D)(ii):
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Applicable |
Applicable |
Applicable | |
|
Eurodollar |
Floating Rate |
Commitment |
Leverage Ratio |
Margin |
Margin |
Fee Percentage |
Greater than or |
|
|
|
equal to 2.0 to 1.0 |
2.50% |
1.00% |
0.50% |
Greater than or |
|
|
|
equal to 1.5 to 1.0 |
|
|
|
and less than |
|
|
|
2.0 to 1.0 |
2.00% |
0.50% |
0.40% |
Greater than or |
|
|
|
equal to 1.0 to 1.0 |
|
|
|
and less than |
|
|
|
1.5 to 1.0 |
1.75% |
0.25% |
0.35% |
Greater than or |
|
|
|
equal to .5 to 1.0 |
|
|
|
and less than |
|
|
|
1.0 to 1.0 |
1.50% |
0.00% |
0.30% |
Less than 0.5 to 1.0 |
1.25% |
0.00% |
0.25% |
For purposes of this Section 2.13(D)(ii), the Leverage Ratio shall be determined as of the last day of each fiscal quarter based upon (a) for Funded Indebtedness as of the last day of each such fiscal quarter; and (b) for EBITDA, the actual amount for the four-quarter period ending on such day. Upon receipt of the financial statements delivered pursuant to Section 7.1(A)(i) (with regard to a month ending on the last day of a fiscal quarter) and (ii), as applicable, the Applicable Floating Rate Margin, Applicable Eurodollar Margin and Applicable Commitment Fee Percentage shall be adjusted, such adjustment being effective on the fifth Business Day following the Administrative Agent's receipt of such financial statements and the compliance certificate required to be delivered in connection therewith pursuant to Section 7.1(A)(iii); provided, that if the Borrower shall not have timely delivered its financial statements in accordance with Section 7.1(A)(i) (with regard to a month ending on the last day of a fiscal quarter) or (ii), as applicable, then commencing on the date upon which such financial statements should have been delivered and continuing until such financial statements are actually delivered, it shall be assumed for purposes of determining the Applicable Floating Rate Margin, Applicable Eurodollar Margin and Applicable Commitment Fee Percentage that the Leverage Ratio was greater than or equal to 2.0 to 1.0. With regard to the period commencing on the Closing Date until adjusted pursuant to the preceding provisions following the first delivery of financial statements pursuant to Section 7.1(A)(i), the Applicable Eurodollar Margin shall be 1.50% and the Applicable Floating Rate Margin shall be 0.00%.
(i) Any and all payments by the Borrower hereunder shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings or any liabilities with respect thereto including those arising after the date hereof as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority but excluding, in the case of each Lender and the Administrative Agent, such taxes (including income taxes, franchise taxes and branch profit taxes) as are imposed on or measured by such Lender's or Administrative Agent's, as the case may be, income by the United States of America or any Governmental Authority of the jurisdiction under the laws of which such Lender or Administrative Agent, as the case may be, is organized or maintains a Lending Installation (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings, and liabilities which the Administrative Agent or a Lender determines to be applicable to this Agreement, the other Loan Documents, the Revolving Loan Commitments, the Loans or the Letters of Credit being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the other Loan Documents to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13(E)) such Lender or the Administrative 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, and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. If a withholding tax of the United States of America or any other Governmental Authority shall be or become applicable (y) after the date of this Agreement, to such payments by the Borrower made to the Lending Installation or any other office that a Lender may claim as its Lending Installation, or (z) after such Lender's selection and designation of any other Lending Installation, to such payments made to such other Lending Installation, such Lender shall use reasonable efforts to make, fund and maintain its Loans through another Lending Installation of such Lender in another jurisdiction so as to reduce the Borrower's liability hereunder, if the making, funding or maintenance of such Loans through such other Lending Installation of such Lender does not, in the judgment of such Lender, otherwise adversely affect such Loans, or obligations under the Commitments or such Lender.
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(ii) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies which arise from any payment made hereunder, from the issuance of Letters of Credit hereunder, or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the other Loan Documents, the Commitments, the Loans or the Letters of Credit (hereinafter referred to as "Other Taxes").
(iii) The Borrower indemnifies each Lender and the Administrative Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any Governmental Authority on amounts payable under this Section 2.13(E)) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty (30) days after the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. A certificate as to any additional amount payable to any Lender or the Administrative Agent under this Section 2.13(E) submitted to the Borrower and the Administrative Agent (if a Lender is so submitting) by such Lender or the Administrative Agent shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to such deduction or withholding for or on account of any Taxes and to confirm that all such Taxes have been paid to the appropriate Governmental Authorities, the Borrower shall promptly (and in any event not later than thirty (30) days after receipt) furnish to each Lender and the Administrative Agent such certificates, receipts and other documents as may be required (in the judgment of such Lender or the Administrative Agent) to establish any tax credit to which such Lender or the Administrative Agent may be entitled.
(iv) Within thirty (30) days after the date of any payment of Taxes or Other Taxes by the Borrower, the Borrower shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof.
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(v) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.13(E) shall survive the payment in full of principal and interest hereunder, the termination of the Letters of Credit and the termination of this Agreement.
(vi) Without limiting the obligations of the Borrower under this Section 2.13(E), each Lender that is not created or organized under the laws of the United States of America or a political subdivision thereof shall deliver to the Borrower and the Administrative Agent on or before the Closing Date, or, if later, the date on which such Lender becomes a Lender pursuant to Section 13.3, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender, in a form satisfactory to the Borrower and the Administrative Agent, to the effect that such Lender is capable under the provisions of an applicable tax treaty concluded by the United States of America (in which case the certificate shall be accompanied by two executed copies of Form 1001 of the IRS) or under Section 1442 of the Code (in which case the certificate shall be accompanied by two copies of Form 4224 of the IRS, or, if such Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, two completed and signed copies of IRS Form W-8 or W-9 or the applicable successor form) of receiving payments of interest hereunder without deduction or withholding of United States federal income tax. Each such Lender further agrees to deliver to the Borrower and the Administrative Agent from time to time a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender substantially in a form satisfactory to the Borrower and the Administrative Agent, before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously delivered by it to the Borrower and the Administrative Agent pursuant to this Section 2.13(E)(vi). Further, each Lender which delivers a certificate accompanied by Form 1001 of the IRS covenants and agrees to deliver to the Borrower and the Administrative Agent within fifteen (15) days prior to January 1, 2004, and every third (3rd) anniversary of such date thereafter on which this Agreement is still in effect, another such certificate and two accurate and complete original signed copies of Form 1001 (or any successor form or forms required under the Code or the applicable regulations promulgated thereunder), and each Lender that delivers a Form W-8 or W-9 as prescribed above or a certificate accompanied by Form 4224 of the IRS covenants and agrees to deliver to the Borrower and the Administrative Agent within fifteen (15) days prior to the beginning of each subsequent taxable year of such Lender during which this Agreement is still in effect, another such Form W-8 or W-9 or another such certificate and two accurate and complete original signed copies of IRS Form 4224 (or any successor form or forms required under the Code or the applicable regulations promulgated thereunder). Each such certificate shall certify as to one of the following:
(a) that such Lender is capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax;
(b) that such Lender is not capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax as specified therein but is capable of recovering the full amount of any such deduction or withholding from a source other than the Borrower and will not seek any such recovery from the Borrower; or
(c) that, as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority after the date such Lender became a party hereto, such Lender is not capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax as specified therein and that it is not capable of recovering the full amount of the same from a source other than the Borrower.
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Each Lender shall promptly furnish to the Borrower and the Administrative Agent such additional documents as may be reasonably required by the Borrower or the Administrative Agent to establish any exemption from or reduction of any Taxes or Other Taxes required to be deducted or withheld and which may be obtained without undue expense to such Lender.
Each Lender shall maintain in accordance with its usual practice an account or accounts (a "Loan Account") evidencing the Obligations of the Borrower to such Lender owing to such Lender from time to time, including the amount of principal and interest payable and paid to such Lender from time to time hereunder and under the Notes.
The entries made in the Register and each Loan Account shall be conclusive and binding for all purposes, absent manifest error, unless the Borrower objects to information contained in the Register and each Loan Account within thirty (30) days of the Borrower's receipt of such information.
2.14. Notification of Advances, Interest Rates, Prepayments and Aggregate Revolving Loan Commitment Reductions.
Promptly after receipt thereof, the Administrative Agent will notify each Lender of the contents of each Aggregate Revolving Loan Commitment reduction notice, Borrowing Notice, Continuation/Conversion Notice, and repayment notice received by it hereunder. The Administrative Agent will notify each Lender of the interest rate applicable to each Eurodollar Rate Loan promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate.
Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or facsimile notice to the Administrative Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made.
2.16. Non-Receipt of Funds by the Administrative Agent.
Unless the Borrower or a Lender, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Lender, the proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Administrative Agent for the account of the Lenders, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan.
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This Agreement shall be effective until the Termination Date. Notwithstanding the termination of this Agreement on the Termination Date, until all of the Obligations (other than contingent indemnity obligations) shall have been fully and indefeasibly paid and satisfied, all financing arrangements among the Borrower and the Lenders shall have been terminated and all of the Letters of Credit shall have expired, been canceled or terminated, all of the rights and remedies under this Agreement and the other Loan Documents shall survive.
2.18. Extension of Revolving Loan Termination Date.
Unless the Commitments shall have been terminated in their entirety or a Default or Unmatured Default has occurred and is continuing, the Borrower may, by written notice to the Administrative Agent given no later than thirty (30) days but not sooner than ninety (90) days prior to the then applicable Revolving Loan Termination Date, request that the Administrative Agent and the Lenders extend the Revolving Loan Termination Date to a Business Day falling not more than 364 days after the then current Revolving Loan Termination Date. The Administrative Agent and the Lenders shall have no obligation to extend the Revolving Loan Termination Date and any decision to extend the Revolving Loan Termination Date must be agreed to by the Administrative Agent and all Lenders. Any decision to extend the Revolving Loan Termination Date shall be in the sole and absolute discretion of the Administrative Agent and the Lenders and shall be evidenced by a writing executed by each of them.
2.19. Replacement of Certain Lenders.
In the event a Lender ("Affected Lender") shall have: (i) failed to fund its applicable Pro Rata Share of any Advance requested by the Borrower, or to fund a Revolving Loan in respect of L/C Obligations, which such Lender is obligated to fund under the terms of this Agreement and which failure has not been cured, (ii) requested compensation from the Borrower under Sections 2.13(E), 4.1 or 4.2 to recover Taxes, Other Taxes or other additional costs incurred by such Lender which are not being incurred generally by the other Lenders, (iii) delivered a notice pursuant to Section 4.3 claiming that such Lender is unable to extend Eurodollar Rate Loans to the Borrower for reasons not generally applicable to the other Lenders or (iv) has invoked Section 10.2, then, in any such case, the Borrower or the Administrative Agent may make written demand on such Affected Lender (with a copy to the Administrative Agent in the case of a demand by the Borrower and a copy to the Borrower in the case of a demand by the Administrative Agent) for the Affected Lender to assign, and such Affected Lender shall use its best efforts to assign pursuant to one or more duly executed Assignment Agreements five (5) Business Days after the date of such demand, to one or more financial institutions that comply with the provisions of Section 13.3(A) which the Borrower or the Administrative Agent, as the case may be, shall have engaged for such purpose ("Replacement Lender"), all of such Affected Lender's rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Revolving Loan Commitment, all Loans owing to it, all of its participation interests in existing Letters of Credit, and its obligation to participate in additional Letters of Credit hereunder) in accordance with Section 13.3. The Administrative Agent agrees, upon the occurrence of such events with respect to an Affected Lender and upon the written request of the Borrower, to use its reasonable efforts to obtain the commitments from one or more financial institutions to act as a Replacement Lender. The Administrative Agent is authorized to execute one or more of such assignment agreements as attorney-in-fact for any Affected Lender failing to execute and deliver the same within five (5) Business Days after the date of such demand. Further, with respect to such assignment the Affected Lender shall have concurrently received, in cash, all amounts due and owing to the Affected Lender hereunder or under any other Loan Document, including, without limitation, the aggregate outstanding principal amount of the Loans owed to such Lender, together with accrued interest thereon through the date of such assignment, amounts payable under Sections 2.13(E), 4.1, and 4.2 with respect to such Affected Lender and compensation payable under Section 2.13(C) in the event of any replacement of any Affected Lender under clause (ii) or clause (iii) of this Section 2.19; provided that upon such Affected Lender's replacement, such Affected Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13(E), 4.1, 4.2, 4.4, and 10.7, as well as to any fees accrued for its account hereunder and not yet paid, and shall continue to be obligated under Section 11.8 with respect to obligations of the Affected Lender which accrued but were not yet paid under Section 11.8 at the time of the assignment to the Replacement Lender. Upon the replacement of any Affected Lender pursuant to this Section 2.19, the provisions of Section 9.2 shall continue to apply with respect to Borrowings which are then outstanding with respect to which the Affected Lender failed to fund its applicable Pro Rata Share and which failure has not been cured.
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ARTICLE III. THE LETTER OF CREDIT FACILITY
Subject to the terms and conditions of this Agreement and in reliance upon the representations, warranties and covenants of the Borrower herein set forth, each Issuing Bank hereby agrees to issue for the account of the Borrower through such Issuing Bank's branches as it and the Borrower may jointly agree, one or more Letters of Credit denominated in Dollars in accordance with this Article III, from time to time during the period, commencing on the date hereof and ending on the Business Day prior to the Termination Date.
No Issuing Bank shall have any obligation to and no Issuing Bank shall:
(i) issue any Letter of Credit if on the date of issuance, before or after giving effect to the Letter of Credit requested hereunder, the Revolving Credit Obligations at such time would exceed the lesser of the Aggregate Revolving Loan Commitment or the Borrowing Base at such time; or
(ii) issue any Letter of Credit which has an expiration date later than the date which is ten (10) Business Days immediately preceding the Termination Date.
In addition to being subject to the satisfaction of the conditions contained in Sections 5.1 and 5.2, the obligation of an Issuing Bank to issue any Letter of Credit is subject to the satisfaction in full of the following conditions:
(i) the Borrower shall have delivered to the applicable Issuing Bank at such times and in such manner as such Issuing Bank may reasonably prescribe, a request for issuance of such Letter of Credit in substantially the form of Exhibit D hereto, duly executed applications for such Letter of Credit, and such other applications, documents, instructions and agreements as may be required pursuant to the terms thereof, and the proposed Letter of Credit shall be reasonably satisfactory to such Issuing Bank as to form and content (if LaSalle Bank is the Issuing Bank, such documents will include, but not be limited to, LaSalle Bank's Master Letter of Credit Agreement); and
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(ii) as of the date of issuance no order, judgment or decree of any court, arbitrator or Governmental Authority shall purport by its terms to enjoin or restrain the applicable Issuing Bank from issuing such Letter of Credit and no law, rule or regulation applicable to such Issuing Bank and no request or directive (whether or not having the force of law) from a Governmental Authority with jurisdiction over such Issuing Bank shall prohibit or request that such Issuing Bank refrain from the issuance of Letters of Credit generally or the issuance of that Letter of Credit.
3.5. Procedure for Issuance of Letters of Credit.
(a) Subject to the terms and conditions of this Article III and provided that the applicable conditions set forth in Sections 5.1 and 5.2 hereof have been satisfied, the applicable Issuing Bank shall, on the requested date, issue a Letter of Credit on behalf of the Borrower in accordance with such Issuing Bank's usual and customary business practices and, in this connection, such Issuing Bank may assume that the applicable conditions set forth in Section 5.2 hereof have been satisfied unless it shall have received notice to the contrary from the Administrative Agent or a Lender or has knowledge that the applicable conditions have not been met.
(b) The applicable Issuing Bank shall give the Administrative Agent written or telex notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance of a Letter of Credit, provided, however, that the failure to provide such notice shall not result in any liability on the part of such Issuing Bank.
(c) No Issuing Bank shall extend or amend any Letter of Credit unless the requirements of this Section 3.5 are met as though a new Letter of Credit was being requested and issued.
3.6. Letter of Credit Participation.
Immediately upon the issuance of each Letter of Credit hereunder, each Lender with a Revolving Loan Pro Rata Share shall be deemed to have automatically, irrevocably and unconditionally purchased and received from the applicable Issuing Bank an undivided interest and participation in and to such Letter of Credit, the obligations of the Borrower in respect thereof, and the liability of such Issuing Bank thereunder (collectively, an "L/C Interest") in an amount equal to the amount available for drawing under such Letter of Credit multiplied by such Lender's Revolving Loan Pro Rata Share. Each Issuing Bank will notify each Lender promptly upon presentation to it of an L/C Draft or upon any other draw under a Letter of Credit. On or before the Business Day on which an Issuing Bank makes payment of each such L/C Draft or, in the case of any other draw on a Letter of Credit, on demand by the Administrative Agent, each Lender shall make payment to the Administrative Agent, for the account of the applicable Issuing Bank, in immediately available funds in an amount equal to such Lender's Revolving Loan Pro Rata Share of the amount of such payment or draw. The obligation of each Lender to reimburse the Issuing Banks under this Section 3.6 shall be unconditional, continuing, irrevocable and absolute. In the event that any Lender fails to make payment to the Administrative Agent of any amount due under this Section 3.6, the Administrative Agent shall be entitled to receive, retain and apply against such obligation the principal and interest otherwise payable to such Lender hereunder until the Administrative Agent receives such payment from such Lender or such obligation is otherwise fully satisfied; provided, however, that nothing contained in this sentence shall relieve such Lender of its obligation to reimburse the applicable Issuing Bank for such amount in accordance with this Section 3.6.
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3.7. Reimbursement Obligation.
The Borrower agrees unconditionally, irrevocably and absolutely to pay immediately to the Administrative Agent, for the account of the Lenders, the amount of each advance which may be drawn under or pursuant to a Letter of Credit or an L/C Draft related thereto (such obligation of the Borrower to reimburse the Administrative Agent for an advance made under a Letter of Credit or L/C Draft being hereinafter referred to as a "Reimbursement Obligation" with respect to such Letter of Credit or L/C Draft). If the Borrower at any time fails to repay a Reimbursement Obligation pursuant to this Section 3.7, the Borrower shall be deemed to have elected to borrow Revolving Loans from the Lenders, as of the date of the advance giving rise to the Reimbursement Obligation, equal in amount to the amount of the unpaid Reimbursement Obligation. Such Revolving Loans shall be made as of the date of the payment giving rise to such Reimbursement Obligation, automatically, without notice and without any requirement to satisfy the conditions precedent otherwise applicable to an Advance of Revolving Loans. Such Revolving Loans shall constitute a Floating Rate Advance, the proceeds of which Advance shall be used to repay such Reimbursement Obligation. If, for any reason, the Borrower fails to repay a Reimbursement Obligation on the day such Reimbursement Obligation arises and, for any reason, the Lenders are unable to make or have no obligation to make Revolving Loans, then such Reimbursement Obligation shall bear interest from and after such day, until paid in full, at the interest rate applicable to a Floating Rate Advance.
The Borrower agrees to pay (i) quarterly on the last Business Day of each calendar quarter, in arrears, to the Administrative Agent for the ratable benefit of the Lenders, except as set forth in Section 9.2, a letter of credit fee at a rate per annum equal to the Applicable L/C Fee Percentage on the average daily outstanding face amount available for drawing under all Letters of Credit, (ii) quarterly, in arrears, to the Administrative Agent for the sole account of each Issuing Bank, a letter of credit fronting fee of one-eighth of one percent (0.125%) per annum on the average daily outstanding face amount available for drawing under all Letters of Credit issued by such Issuing Bank, and (iii) to the Administrative Agent for the benefit of each Issuing Bank, all customary fees and other issuance, amendment, document examination, negotiation and presentment expenses and related charges in connection with the issuance, amendment, presentation of L/C Drafts, and the like customarily charged by such Issuing Banks with respect to standby and commercial Letters of Credit, including, without limitation, standard commissions with respect to commercial Letters of Credit, payable at the time of invoice of such amounts.
3.9. Issuing Bank Reporting Requirements.
In addition to the notices required by Section 3.5(C), each Issuing Bank shall, no later than the tenth Business Day following the last day of each month, provide to the Administrative Agent, upon the Administrative Agent's request, schedules, in form and substance reasonably satisfactory to the Administrative Agent, showing the date of issue, account party, amount, expiration date and the reference number of each Letter of Credit issued by it outstanding at any time during such month and the aggregate amount payable by the Borrower during such month. In addition, upon the request of the Administrative Agent, each Issuing Bank shall furnish to the Administrative Agent copies of any Letter of Credit and any application for or reimbursement agreement with respect to a Letter of Credit to which the Issuing Bank is party and such other documentation as may reasonably be requested by the Administrative Agent. Upon the request of any Lender, the Administrative Agent will provide to such Lender information concerning such Letters of Credit.
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3.10. Indemnification; Exoneration.
(A) In addition to amounts payable as elsewhere provided in this Article III, the Borrower hereby agrees to protect, indemnify, pay and save harmless the Administrative Agent, each Issuing Bank and each Lender from and against any and all liabilities and costs which the Administrative Agent, such Issuing Bank or such Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit other than, in the case of the applicable Issuing Bank, as a result of its Gross Negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction, or (ii) the failure of the applicable Issuing Bank to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Authority (all such acts or omissions herein called "Governmental Acts").
(B) As among the Borrower, the Lenders, the Administrative Agent and the Issuing Banks, the Borrower assumes all risks of the acts and omissions of, or misuse of such Letter of Credit by, the beneficiary of any Letters of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the Letter of Credit applications and Letter of Credit reimbursement agreements executed by the Borrower at the time of request for any Letter of Credit, neither the Administrative Agent, any Issuing Bank nor any Lender shall be responsible (in the absence of Gross Negligence or willful misconduct in connection therewith, as determined by the final judgment of a court of competent jurisdiction): (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of the Letters of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) for failure of the beneficiary of a Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, or other similar form of teletransmission or otherwise; (v) for errors in interpretation of technical trade terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (vii) for the misapplication by the beneficiary of a Letter of Credit of the proceeds of any drawing under such Letter of Credit; and (viii) for any consequences arising from causes beyond the control of the Administrative Agent, the Issuing Banks and the Lenders, including, without limitation, any Governmental Acts. None of the above shall affect, impair, or prevent the vesting of any Issuing Bank's rights or powers under this Section 3.10.
(C) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by any Issuing Bank under or in connection with the Letters of Credit or any related certificates shall not, in the absence of Gross Negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction, put the applicable Issuing Bank, the Administrative Agent or any Lender under any resulting liability to the Borrower or relieve the Borrower of any of its obligations hereunder to any such Person.
(D) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 3.10 shall survive the payment in full of principal and interest hereunder, the termination of the Letters of Credit and the termination of this Agreement.
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Notwithstanding anything to the contrary herein or in any application for a Letter of Credit, after the occurrence and during the continuance of Default, the Borrower shall, upon the Administrative Agent's or the Required Banks' demand, deliver to the Administrative Agent for the benefit of the Lenders and the Issuing Banks, cash, or other collateral of a type satisfactory to the Required Lenders, having a value, as determined by such Lenders, equal to the aggregate outstanding L/C Obligations. In addition, if the Revolving Credit Availability is at any time less than the amount of contingent L/C Obligations outstanding at any time, the Borrower shall deposit cash collateral with the Administrative Agent in an amount equal to the amount by which such L/C Obligations exceed such Revolving Credit Availability. Any such collateral shall be held by the Administrative Agent in a separate account appropriately designated as a cash collateral account in relation to this Agreement and the Letters of Credit and retained by the Administrative Agent for the benefit of the Lenders and the Issuing Banks as collateral security for the Borrower's obligations in respect of this Agreement and each of the Letters of Credit and L/C Drafts. Such amounts shall be applied to reimburse the Issuing Banks for drawings or payments under or pursuant to Letters of Credit or L/C Drafts, or if no such reimbursement is required, to payment of such of the other Obligations as the Administrative Agent shall determine. If no Default shall be continuing, amounts remaining in any cash collateral account established pursuant to this Section 3.11 which are not to be applied to reimburse an Issuing Bank for amounts actually paid or to be paid by such Issuing Bank in respect of a Letter of Credit or L/C Draft, shall be returned to the Borrower (after deduction of the Administrative Agent's expenses incurred in connection with such cash collateral account).
ARTICLE IV. CHANGE IN CIRCUMSTANCES
If any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) adopted after the date of this Agreement and having general applicability to all banks within the jurisdiction in which such Lender operates (excluding, for the avoidance of doubt, the effect of and phasing in of capital requirements or other regulations or guidelines passed prior to the date of this Agreement), or any interpretation or application thereof by any Governmental Authority charged with the interpretation or application thereof, or the compliance of any Lender therewith,
(i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding federal taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Loans, its L/C Interests, the Letters of Credit or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Rate Loans) with respect to its Loans, L/C Interests or the Letters of Credit, or
(iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding or maintaining the Loans, the L/C Interests or the Letters of Credit or reduces any amount received by any Lender or any applicable Lending Installation in connection with Loans or Letters of Credit, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of Loans or L/C Interests held or interest received by it or by reference to the Letters of Credit, by an amount deemed material by such Lender;
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and the result of any of the foregoing is to increase the cost to that Lender of making, renewing or maintaining its Loans, L/C Interests or Letters of Credit or to reduce any amount received under this Agreement, then, within 15 days after receipt by the Borrower of written demand by such Lender pursuant to Section 4.5, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, funding and maintaining its Loans, L/C Interests, Letters of Credit and its Revolving Loan Commitment.
4.2. Changes in Capital Adequacy Regulations.
If a Lender determines (i) the amount of capital required or expected to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a "Change" (as defined below), and (ii) such increase in capital will result in an increase in the cost to such Lender of maintaining its Loans, L/C Interests, the Letters of Credit or its obligation to make Loans hereunder, then, within 15 days after receipt by the Borrower of written demand by such Lender pursuant to Section 4.5, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans, its L/C Interests, the Letters of Credit or its obligation to make Loans hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the "Risk-Based Capital Guidelines" (as defined below) excluding, for the avoidance of doubt, the effect of any phasing in of such Risk-Based Capital Guidelines or any other capital requirements passed prior to the date hereof, or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement and having general applicability to all banks and financial institutions within the jurisdiction in which such Lender operates which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement.
4.3. Availability of Types of Advances.
If (i) any Lender determines that maintenance of its Eurodollar Rate Loans at a suitable Lending Installation would violate any applicable law, rule, regulation or directive, whether or not having the force of law, or (ii) the Required Lenders determine that (x) deposits of a type and maturity appropriate to match fund Eurodollar Rate Advances are not available or (y) the interest rate applicable to a Type of Advance does not accurately reflect the cost of making or maintaining such an Advance, then the Administrative Agent shall suspend the availability of the affected Type of Advance and, in the case of any occurrence set forth in clause (i) require any Advances of the affected Type to be repaid.
If any payment of a Eurodollar Rate Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment, conversion or otherwise, or a Eurodollar Rate Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower indemnifies each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurodollar Rate Advance.
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4.5. Lender Statements; Survival of Indemnity.
If reasonably possible, each Lender shall designate an alternate Lending Installation with respect to its Eurodollar Rate Loans to reduce any liability of the Borrower to such Lender under Sections 4.1 and 4.2 or to avoid the unavailability of a Type of Advance under Section 4.3, so long as such designation is not disadvantageous to such Lender. Each Lender requiring compensation pursuant to Section 2.13(E) or to this Article IV shall use its reasonable efforts to notify the Borrower and the Administrative Agent in writing of any Change, law, policy, rule, guideline or directive giving rise to such demand for compensation not later than thirty (30) days following the date upon which the responsible account officer of such Lender knows or should have known of such Change, law, policy, rule, guideline or directive. Any demand for compensation pursuant to this Article IV shall be in writing and shall state the amount due, if any, under Section 4.1, 4.2 or 4.4 and shall set forth in reasonable detail the calculations upon which such Lender determined such amount. Such written demand shall be rebuttably presumed correct for all purposes. Determination of amounts payable under such Sections in connection with a Eurodollar Rate Loan shall be calculated as though each Lender funded its Eurodollar Rate Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. The obligations of the Borrower under Sections 4.1, 4.2 and 4.4 shall survive payment of the Obligations and termination of this Agreement.
ARTICLE V. CONDITIONS PRECEDENT
5.1. Initial Advances and Letters of Credit.
The Lenders shall not be required to make the initial Loans or issue any Letters of Credit unless the Borrower has furnished to the Administrative Agent each of the following, with sufficient copies for the Lenders, all in form and substance satisfactory to the Administrative Agent, the Arrangers and the Lenders:
(i) Copies of a certificate of good standing shall have been ordered for the Borrower, certified by the appropriate governmental officer in its jurisdiction of organization;
(ii) Copies, certified by the Secretary or Assistant Secretary of the Borrower, of its Articles of Organization, Operating Agreement (together with all amendments thereto) and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of the Loan Documents;
(iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of each of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Loan Documents and to make borrowings hereunder, upon which certificate the Administrative Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower;
(iv) (a) A certificate, in form and substance satisfactory to the Administrative Agent, signed by the Vice President, Finance of the Borrower, stating that on Closing Date no Default or Unmatured Default has occurred and is continuing, (b) a Borrowing Base Certificate, in form and substance satisfactory to the Administrative Agent, signed by the Vice President, Finance of the Borrower, setting forth the Borrowing Base as of the Closing Date, (c) a compliance certificate in the form contemplated by Section 7.1(a)(iii) prepared as of the end of the fiscal quarter immediately preceding the Closing Date showing on a pro forma basis the effect of the Advances to be made and Letters of Credit to be issued on the Closing Date, and (d) a schedule of Distributions made by the Borrower in the twelve calendar months preceding the Closing Date;
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(v) Written opinions of the Borrower's and the Guarantor's counsel, addressed to the Administrative Agent and the Lenders, addressing the issues identified in Exhibit F-1 and F-2 hereto containing assumptions and qualifications acceptable to the Administrative Agent and the Lenders;
(vi) Notes payable to the order of each of the Lenders;
(vii) Evidence satisfactory to the Administrative Agent that there has been no material adverse change in the Borrower's business, financial condition, operation or prospects, as of the Borrower's consolidated financial statements dated December 31, 2002;
(viii) Evidence satisfactory to the Administrative Agent that there exists no injunction or temporary restraining order which, in the judgment of the Administrative Agent, would prohibit the making of the Loans or any litigation seeking such an injunction or restraining order;
(ix) Written money transfer instructions reasonably requested by the Administrative Agent, addressed to the Administrative Agent and signed by an Authorized Officer;
(x) Completion of a field audit of the Collateral, including, without limitation, accounts receivable of the Borrower, the results of which are satisfactory in all respects to the Administrative Agent and which, in the sole and absolute discretion of the Administrative Agent, support the definitions of Eligible Receivables, and the proposed advance rates thereon;
(xi) Evidence satisfactory to the Administrative Agent that the Borrower has paid to the Administrative Agent and the Arrangers the fees agreed to in the fee letter dated February 17, 2003, among the Administrative Agent, the Arrangers and the Borrower and the fees due on the Closing Date which the Administrative Agent, the Arrangers and the Borrower have agreed to herein;
(xii) (a) Audited Consolidated Financial Statements for the Borrower for the fiscal years ending in 2000, 2001 and 2002, and (b) Unaudited Interim Consolidated Financial Statements for the Borrower for each fiscal month and quarterly period ended after the latest fiscal year referred to in clause (a), and such financial statements shall not, in the judgment of the Administrative Agent, disclose any Material Adverse Change in the consolidated financial position of the Borrower from what was reflected in the financial statements previously furnished to the Administrative Agent;
(xiii) Results of a recent lien search in each relevant jurisdiction with respect to the Borrower, and such search shall reveal no liens on any of the assets of the Borrower except for the Permitted Existing Liens;
(xiv) All documents and instrument required to perfect the Administrative Agent's security interests in the Collateral shall have been executed and be in proper form for filing;
(xv) Certificates of insurance evidencing property and liability insurance reasonably satisfactory to the Administrative Agent.
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(xvi) A certificate from the Vice President, Finance of the Borrower which shall document that the Borrower is Solvent both before and after entering into this Agreement and the transactions contemplated hereby.
(xvii) Projected income statements, balance sheets and cash flow statements prepared by the Borrower and giving effect to the transactions contemplated hereby and the use of the proceeds therefrom in form and substance satisfactory to the Administrative Agent and the Lenders.
(xviii) Evidence satisfactory to the Administrative Agent that the Closing PUHCA Notice has been duly filed with the Securities Exchange Commission by Borrower.
(xix) Such other documents as the Administrative Agent or any Lender or its counsel may have reasonably requested, including, without limitation all of the documents reflected on the List of Closing Documents attached as Exhibit G to this Agreement.
5.2. Each Advance and Letter of Credit.
The Lenders shall not be required to make any Advance or issue any Letter of Credit, unless on the applicable Borrowing Date, or in the case of a Letter of Credit, the date on which the Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default; and
(ii) The representations and warranties contained in Article VI are true and correct as of such Borrowing Date except for changes in the Schedules to this Agreement reflecting transactions permitted by this Agreement.
Each Borrowing Notice with respect to each such Advance and the letter of credit application with respect to a Letter of Credit shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 5.2(i) and (ii) have been satisfied. Any Lender may require a duly completed officer's certificate in substantially the form of Exhibit H hereto and/or a duly completed compliance certificate in substantially the form of Exhibit I hereto as a condition to making an Advance.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and the other financial accommodations to the Borrower and to issue the Letters of Credit described herein, the Borrower represents and warrants as follows to each Lender and the Administrative Agent as of the Closing Date, and thereafter on each date as required by Section 5.2:
6.1. Organization; Corporate Powers.
The Borrower (i) is a limited liability company (or, if converted to a corporation as permitted by Section 7.2(A) hereof, a corporation) duly organized, validly existing and in existence under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business as a foreign entity and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing could not reasonably be expected to have a Material Adverse Effect, and (iii) has all requisite power and authority to own, operate and encumber its property and to conduct its business as presently conducted and as proposed to be conducted. GPE owns, directly or indirectly, over eighty-five percent (85%) of the outstanding Equity Interests of the Borrower.
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(A) The Borrower has the requisite power and authority to execute, deliver and perform each of the Loan Documents.
(B) The execution, delivery and performance of each of the Loan Documents which have been executed as required by this Agreement or otherwise on or prior to the Closing Date and to which the Borrower is party, and the consummation of the transactions contemplated thereby, have been duly approved by the board of directors and, if necessary, the members of the Borrower, and such approvals have not been rescinded. No other action or proceedings on the part of the Borrower are necessary to consummate such transactions.
(C) Each of the Loan Documents to which the Borrower is a party has been duly executed, delivered or filed, as the case may be, by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms (except as enforceability may be limited by bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally), is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained in the Loan Documents delivered to the Administrative Agent pursuant to Section 5.1 without the prior written consent of the Required Lenders, and the Borrower have, and, to the best of the Borrower's knowledge, all other parties thereto have, performed and complied with all the terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the Closing Date, and no unmatured default, default or breach of any covenant by any such party exists thereunder.
6.3. No Conflict; Governmental Consents.
The execution, delivery and performance of each of the Loan Documents to which the Borrower is a party do not and will not (i) conflict with the articles of organization or operating agreement of the Borrower, (ii) constitute a tortious interference with any Contractual Obligation of any Person or conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law (including, without limitation, PUHCA, FPA or any Environmental Property Transfer Act) or Contractual Obligation of the Borrower, or require termination of any Contractual Obligation, except such interference, breach, default or termination which individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect, (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the property or assets of the Borrower, other than Liens permitted by the Loan Documents, or (iv) require any approval of the Borrower's members except such as have been obtained. Except as set forth on Schedule 6.3 to this Agreement, the execution, delivery and performance of each of the Loan Documents to which the Borrower is a party do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by any Governmental Authority, including under any Environmental Property Transfer Act, except filings, consents or notices which have been made, obtained or given, or which, if not made, obtained or given, individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect.
Complete and accurate copies of the following financial statements and the following related information have been delivered to the Administrative Agent: the balance sheet of the Borrower as at December 31, 2000, 2001 and 2002 and the related combined statements of income, changes in stockholders' equity and cash flows of the Borrower for the fiscal years then ended, and the audit reports related thereto.
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6.5. No Material Adverse Change.
(A) Since December 31, 2002 up to the Closing Date, there has occurred no material adverse change in the business, financial condition, operations or prospects of the Borrower taken as a whole or any other event which has had or could reasonably be expected to result in a Material Adverse Effect.
(B) Since the Closing Date, there has occurred no event which has had or could reasonably be expected to result in a Material Adverse Effect.
All deficiencies which have been asserted against the Borrower as a result of any federal, state, local or foreign tax examination for each taxable year in respect of which an examination has been conducted have been fully paid or finally settled or are being contested in good faith, and as of the Closing Date no issue has been raised by any taxing authority in any such examination which, by application of similar principles, reasonably can be expected to result in assertion by such taxing authority of a material deficiency for any other year not so examined which has not been reserved for in the Borrower's consolidated financial statements to the extent, if any, required by Agreement Accounting Principles. Except as permitted pursuant to Section 7.2(D), Borrower does not anticipate any material tax liability with respect to the years which have not been closed pursuant to applicable law.
Except as described on Schedule 6.6, all tax returns and reports of the Borrower required to be filed have been timely filed, and all taxes, assessments, fees and other governmental charges thereupon and upon their respective property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid except those items which are being contested in good faith and have been reserved for in accordance with Agreement Accounting Principles. The Borrower has no knowledge of any proposed tax assessment against the Borrower that will have or could reasonably be expected to have a Material Adverse Effect.
6.7. Litigation; Loss Contingencies and Violations.
Except as set forth in Schedule 6.7 to this Agreement, which lists all pending litigation involving individual claims against the Borrower of more than $1,000,000.00, there is no action, suit, proceeding, arbitration or (to the Borrower's knowledge) investigation before or by any Governmental Authority or private arbitrator pending or, to the Borrower's knowledge, threatened against the Borrower or any property of any of them which will have or could reasonably be expected to have a Material Adverse Effect. There is no material loss contingency within the meaning of Agreement Accounting Principles which has not been reflected in the consolidated financial statements of the Borrower prepared and delivered pursuant to Section 7.1(A) for the fiscal period during which such material loss contingency was incurred. The Borrower is not (A) in violation of any applicable Requirements of Law which violation will have or could reasonably be expected to have a Material Adverse Effect, or (B) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority which will have or could reasonably be expected to have a Material Adverse Effect.
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As of the date of this Agreement and as of the Closing Date, the Borrower has no Subsidiaries.
Except as disclosed on Schedule 6.9, no Benefit Plan has incurred any accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code) whether or not waived. Neither the Borrower nor any member of the Controlled Group has incurred any liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. To Borrower's knowledge, Schedule B to the most recent annual report filed with the IRS with respect to each Benefit Plan and furnished to the Lenders is complete and accurate. Neither the Borrower nor any member of the Controlled Group is a participating employer in a Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan. Neither the Borrower nor any member of the Controlled Group has failed to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or other payment. Neither the Borrower nor any member of the Controlled Group is required to provide security to a Benefit Plan under Section 401(a)(29) of the Code due to a Benefit Plan amendment that results in an increase in current liability for the plan year. The Borrower does not maintain or contribute to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA. To Borrower's knowledge, each Plan which the Borrower maintains or contributes to and that is intended to be qualified under Section 401(a) of the Code as currently in effect is so qualified, and each trust related to any such Plan is exempt from federal income tax under Section 501(a) of the Code as currently in effect. The Borrower is in compliance in all material respects with the responsibilities, obligations and duties imposed on it by ERISA and the Code with respect to all Plans, except for such matters which could reasonably be expected to subject the Borrower to liability of less than $1,000,000.00. To Borrower's knowledge, neither the Borrower nor any fiduciary of any Plan has engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the Code which could reasonably be expected to subject the Borrower to liability in excess of $1,000,000.00. To Borrower's knowledge, neither the Borrower nor any member of the Controlled Group has taken or failed to take any action which would constitute or result in a Termination Event, which action or inaction could reasonably be expected to subject the Borrower to liability in excess of $1,000,000.00. Neither the Borrower nor any Subsidiary is subject to any liability under Sections 4062, 4063, 4064 or 4069 of ERISA and no other member of the Controlled Group is subject to any liability under Sections 4062, 4063, 4064 or 4069 of ERISA which could reasonably be expected to subject the Borrower to liability in excess of $1,000,000.00. The Borrower does not have, by reason of the transactions contemplated hereby, any obligation to make any payment to any employee pursuant to any Plan or existing contract or arrangement.
6.10. Accuracy of Information.
The information, exhibits and reports furnished by or on behalf of the Borrower to the Administrative Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents, the representations and warranties of the Borrower contained in the Loan Documents, and all certificates and documents delivered to the Administrative Agent and the Lenders pursuant to the terms thereof, taken as a whole, do not contain as of the date furnished any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.
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The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock.
The Borrower has not received notice or has knowledge that (i) it is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation applicable to it, or (ii) any condition exists which, with the giving of notice or the lapse of time or both, would constitute a default with respect to any such Contractual Obligation, in each case, except where such default or defaults, if any, individually or in the aggregate will not have or could not reasonably be expected to have a Material Adverse Effect. Set forth on Schedule 6.12 to this Agreement is a list of all power purchase contracts and all related security, performance assurance, disbursement and other related agreements to which Borrower is a party and pursuant to which Borrower has granted a Lien in certain assets not inconsistent with the restriction on Liens contained in Section 7.3(C) of this Agreement to secure its obligations thereunder, which Schedule 6.12 may be revised from time to time by the Borrower submitting a revised Schedule to the Administrative Agent and the Lenders so long as any additions to such Schedule conform to the restrictions on Liens contained in Section 7.3(C) of this Agreement (the "Power Purchase Contracts").
The Borrower is in compliance with all Requirements of Law applicable to them and their respective businesses, in each case where the failure to so comply individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.
The Borrower has good and marketable title to all of its material assets and properties (tangible and intangible, real or personal) owned by it or a valid leasehold interest in all of its material leased assets (except insofar as marketability may be limited by any laws or regulations of any Governmental Authority affecting such assets), and all such assets and property are free and clear of all Liens, except Liens permitted under Section 7.3(C). Substantially all of the assets and properties owned by, leased to or used by the Borrower are in adequate operating condition and repair, ordinary wear and tear excepted. Neither this Agreement nor any other Loan Document, nor any transaction contemplated under any such agreement, will affect any right, title or interest of the Borrower in and to any of such assets in a manner that would have or could reasonably be expected to have a Material Adverse Effect.
6.15. Statutory Indebtedness Restrictions.
The Borrower is a "subsidiary company" of a "holding company" within the meaning of PUHCA. The Borrower and GPE have all necessary authorization required for the transactions contemplated by the Loan Documents under PUHCA, FPA or any other state or federal laws or regulations similar or related thereto and the execution, delivery and performance of the Loan Documents to which the Borrower or GPE is a party do not and will not violate PUHCA or FPA or require any registration with, consent or approval of, or notice to, or any other action to, with or by any Governmental Authority under PUHCA, FPA or any other state or federal laws or regulations similar or related thereto, other than (i) the filing of a notice by Borrower under PUHCA with the Securities and Exchange Commission of the credit facility evidenced by the Loan Documents within ten (10) days of the Closing Date (the "Closing PUHCA Notice"), and (ii) the reporting of the GPE Guaranty and the Subordination Agreement in one or more quarterly certificates pursuant to Rule 24 of PUHCA (the "Quarterly PUHCA Notice"). Except as specified in the proceeding sentence, the Borrower is not subject to regulation under the Investment Company Act of 1940, or any other federal or state statute or regulation which limits its ability to incur indebtedness or its ability to consummate the transactions contemplated hereby.
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The Borrower maintains insurance policies and programs reasonably consistent with prudent industry practice.
As of the Closing Date, no attempt to organize the employees of the Borrower, and no labor disputes, strikes or walkouts affecting the operations of the Borrower, is pending, or, to the Borrower's knowledge, threatened, planned or contemplated.
(A) Except as disclosed on Schedule 6.18 to this Agreement
(i) the operations of the Borrower comply in all material respects with Environmental, Health or Safety Requirements of Law;
(ii) the Borrower has all permits, licenses or other authorizations required under Environmental, Health or Safety Requirements of Law and are in material compliance with such permits;
(iii) neither the Borrower nor any of their respective present property or operations, or, to the best of, the Borrower's knowledge, any of their respective past property or operations, are subject to or the subject of, any investigation known to the Borrower, any judicial or administrative proceeding, order, judgment, decree, settlement or other agreement respecting: (A) any material violation of Environmental, Health or Safety Requirements of Law; (B) any remedial action; or (C) any material claims or liabilities arising from the Release or threatened Release of a Contaminant into the environment;
(iv) there is not now, nor to the best of the Borrower's knowledge has there ever been on or in the property of the Borrower any landfill, waste pile, underground storage tanks, aboveground storage tanks, surface impoundment or hazardous waste storage facility of any kind, any polychlorinated biphenyls (PCBs) used in hydraulic oils, electric transformers or other equipment, or any asbestos containing material which in any such case could reasonably be expected to result in material liability for the Borrower; and
(v) the Borrower does not have any material Contingent Obligation in connection with any Release or threatened Release of a Contaminant into the environment.
(B) For purposes of this Section 6.18 "material" means any noncompliance or basis for liability which could reasonably be likely to subject the Borrower to liability in excess of $1,000,000.00.
After giving effect to the (i) Loans to be made on the Closing Date or such other date as Loans requested hereunder are made and the consummation of the other transactions contemplated by this Agreement and (ii) the payment and accrual of all Transaction Costs with respect to the foregoing, the Borrower is Solvent.
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6.20. Supplemental Disclosure.
At any time at the request of the Administrative Agent and at such additional times as the Borrower determines, the Borrower shall supplement each schedule or representation herein or in the other Loan Documents with respect to any matter hereafter arising which, if existing or occurring at the Closing Date, would have been required to be set forth or described in such schedule or as an exception to such representation or which is necessary to correct any information in such schedule or representation which has been rendered inaccurate thereby. If any such supplement to such schedule or representation discloses the existence or occurrence of events, facts or circumstances which are restricted or prohibited by the terms of this Agreement or any other Loan Documents, such supplement to such schedule or representation shall not be deemed an amendment thereof unless expressly consented to in writing by the Administrative Agent and the Required Lenders, and no such amendments, except as the same may be consented to in a writing which expressly includes a waiver, shall be or be deemed a waiver by the Administrative Agent or any Lender of any Default disclosed therein. Any items disclosed in any such supplemental disclosures shall be included in the calculation of any limits, baskets or similar restrictions contained in this Agreement or any of the other Loan Documents.
The Borrower covenants and agrees that so long as any Commitments are outstanding and thereafter until payment in full of all of the Obligations (other than contingent indemnity obligations), unless the Required Lenders shall otherwise give prior written consent:
The Borrower shall:
Furnish to the Lenders:
(i) Monthly Reports. As soon as practicable, and in any event within twenty (20) days after the end of each calendar month, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such period and the related consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such calendar month and for the period from the beginning of the then current fiscal year to the end of such calendar month, certified by the Vice President, Finance or other chief financial officer of the Borrower on behalf of the Borrower as fairly presenting the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in accordance with Agreement Accounting Principles except for the omission of full footnotes which may be required under Agreement Accounting Principles, subject to normal year end adjustments.
(ii) Annual Reports. As soon as practicable, and in any event within ninety (90) days after the end of each fiscal year, (a) the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, and in comparative form the corresponding figures for the previous fiscal year, and (b) an audit report on the items listed in clause (a) hereof of independent certified public accountants of recognized national standing, which audit report shall be unqualified and shall state that such financial statements fairly present the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in conformity with Agreement Accounting Principles and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards.
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(iii) Officer's Certificate. Together with each delivery of any financial statement (a) pursuant to clauses (i), and (ii) of this Section 7.1(A), an Officer's Certificate of the Borrower, substantially in the form of Exhibit H attached hereto and made a part hereof, stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof and (b) within forty-five (45) days after the end of each fiscal quarter in each fiscal year and, together with the delivery of financial statements pursuant to clause (ii) of this Section 7.1(A), a compliance certificate, substantially in the form of Exhibit I attached hereto and made a part hereof, signed by the Borrower's Vice President, Finance or other chief financial officer, which (i) demonstrate compliance, when applicable, with the provisions of Section 7.4, (ii) calculate the Leverage Ratio for purposes of determining the then Applicable Floating Rate Margin, Applicable Eurodollar Margin and Applicable Commitment Fee Percentage, and (iii) calculate the Borrower Fixed Charge Ratio (as defined in the GPE Guaranty), and, if the Borrower Fixed Charge Ratio is less than the Minimum Fixed Charge Ratio (as defined in the GPE Guaranty), calculate the GPE Guaranty Increase and the Additional Guaranty Amount (both as defined in the GPE Guaranty), (iv) states the aggregate amount of Capital Expenditures incurred by the Borrower since the Closing Date, and (v) identifies Indebtedness incurred in such fiscal quarter pursuant to Section 7.3(A)(vi) and (viii). A copy of the officer's certificate referred to in Subsection (b) above shall also be provided to GPE.
(iv) Borrowing Base Certificate. As soon as practicable, and in any event within twenty (20) days after the close of each calendar month, a Borrowing Base Certificate, together with such supporting documents as the Administrative Agent deems desirable, all certified as being true and correct by the Vice President, Finance or other chief financial officer of the Borrower. The Borrower may update the Borrowing Base Certificate and supporting documents more frequently than monthly and the most recently delivered Borrowing Base Certificate shall be the applicable Borrowing Base Certificate for purposes of determining the Borrowing Base at any time;
(v) Business Plans; Financial Projections. As soon as practicable and in any event not later than thirty (30) days after the beginning of each fiscal year, a copy of the business plan and forecast (including a projected balance sheet, income statement and a statement of cash flow) of the Borrower and its Subsidiaries for the next succeeding fiscal year prepared in such detail as shall be reasonably satisfactory to the Administrative Agent;
(vi) Accounts Receivable. As soon as practicable, and in any event within twenty (20) days after the close of each calendar month, a detailed scheduled of the Borrower's accounts receivable and an aging analysis of the Borrower's accounts payable;
(vii) Updated Schedules. As soon as practicable, and in any event within twenty (20) days of the close of each calendar month, an updated schedule of Power Purchase Contracts (Schedule 6.12) and Segregated Accounts (Schedule 1.1.4), provided that any updated schedule of Segregated Accounts shall include a listing the names of the Borrower's customers whose energy payments owing to the Borrower are being deposited therein;
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(viii) Credit and Collection Policy. As soon as practicable, and in any event within twenty (20) days after the close of the calendar month in which such change was instituted, notice of any changes to the credit and collection policy of the Borrower;
(ix) Distributions. As soon as practicable, and in any event within twenty (20) days after the close of the calendar month in which a Distribution was declared or paid, a schedule of all Distributions declared or made by the Borrower; and
(x) Quarterly Reports. As soon as practicable, but in any event within forty-five (45) days after the end of each fiscal quarter, a narrative analysis prepared by management of the Borrower of the financial condition and results of operations of the Borrower as of the end of such fiscal quarter.
Promptly upon any Authorized Officer of the Borrower obtaining knowledge (i) of any condition or event which constitutes a Default or Unmatured Default, or becoming aware that any Lender or Administrative Agent has given any written notice with respect to a claimed Default or Unmatured Default under this Agreement, or (ii) that any Person has given any written notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 8.1(E), deliver to the Administrative Agent and the Lenders an Officer's Certificate specifying (a) the nature and period of existence of any such claimed default, Default, Unmatured Default, condition or event, (b) the notice given or action taken by such Person in connection therewith, and (c) what action the Borrower has taken, is taking and proposes to take with respect thereto.
(i) Upon the Borrower obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any of its Subsidiaries or any property of the Borrower or any of its Subsidiaries not previously disclosed pursuant to Section 6.7, which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower or any of its Subsidiaries to liability in an amount aggregating $2,500,000.00 or more, give written notice thereof to the Administrative Agent and the Lenders and provide such other information as may be reasonably available to enable each Lender and the Administrative Agent and its counsel to evaluate such matters; and (ii) in addition to the requirements set forth in clause (i) of this Section 7.1(C), upon request of the Administrative Agent or the Required Lenders, promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to clause (i) above and provide such other information as may be reasonably available to it that would not violate any attorney-client privilege by disclosure to the Lenders to enable each Lender and the Administrative Agent and its counsel to evaluate such matters.
Deliver or cause to be delivered to the Administrative Agent and the Lenders, at the Borrower's expense, the following information and notices:
(i) (a) upon the Borrower obtaining knowledge that a Termination Event has occurred, a written statement of the Vice President, Finance or other chief financial officer of the Borrower describing such Termination Event and the action, if any, which the Borrower has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto and (b) within ten (10) Business Days after any member of the Controlled Group obtains knowledge that a Termination Event has occurred which could reasonably be expected to subject the Borrower to liability in excess of $1,000,000.00, a written statement of the Vice President, Finance or other chief financial officer of the Borrower describing such Termination Event and the action, if any, which the member of the Controlled Group has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto;
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(ii) upon the Borrower obtaining knowledge that a prohibited transaction (defined in Sections 406 of ERISA and Section 4975 of the Code) with regard to any Plan has occurred which could reasonably be expected to subject the Borrower to liability in excess of $1,000,000.00, a statement the Vice President, Finance or other chief financial officer of the Borrower describing such transaction and the action which the Borrower has taken, is taking or proposes to take with respect thereto;
(iii) upon the Borrower obtaining knowledge of a material increase in the benefits of any existing Plan which the Borrower maintains or contributes to or the establishment of any new Benefit Plan or the commencement of, or obligation to commence, contributions to any Benefit Plan or Multiemployer Plan to which neither the Borrower nor any member of the Controlled Group was previously contributing, notification of such increase, establishment, commencement or obligation to commence and the amount of such contributions;
(iv) upon the Borrower receiving notice of any unfavorable determination letter from the IRS regarding the qualification under Section 401(a) of the Code of a Plan which the Borrower maintains or contributes, copies of each such letter;
(v) upon the Borrower obtaining knowledge of the establishment of any foreign employee benefit plan which the Borrower maintains or contributes to or the commencement of, or obligation to commence, contributions to any foreign employee benefit plan to which the Borrower was not previously contributing, notification of such establishment, commencement or obligation to commence and the amount of such contributions;
(vi) upon the request of the Administrative Agent copies of each annual report (form 5500 series), including Schedule B thereto, filed with respect to each Benefit Plan;
(vii) upon the request of the Administrative Agent, copies of each actuarial report for any Benefit Plan or Multiemployer Plan and each annual report for any Multiemployer Plan;
(viii) upon the Borrower obtaining knowledge of the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by the Borrower or a member of the Controlled Group with respect to such request;
(ix) upon receipt by the Borrower or the Borrower obtains knowledge of the receipt by any member of the Controlled Group of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice;
(x) upon receipt by the Borrower or the Borrower obtains knowledge of the receipt by any member of the Controlled Group of a notice from a Multiemployer Plan regarding the imposition of withdrawal liability, copies of each such notice;
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(xi) after the Borrower fails to make, or the Borrower obtains knowledge of the failure of any member of the Controlled Group to make, a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or payment, a notification of such failure; and
(xii) after the Borrower knows or has reason to know, or Borrower obtains knowledge that any member of the Controlled Group knows or has reason to know, that (a) a Multiemployer Plan has been terminated, (b) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan.
Notify the Administrative Agent and the Lenders in writing, upon the Borrower's learning thereof, of (i) any material labor dispute to which the Borrower may become a party, including, without limitation, any strikes, lockouts or other disputes relating to such Persons' plants and other facilities and (ii) any material Worker Adjustment and Retraining Notification Act liability incurred with respect to the closing of any plant or other facility of the Borrower or any of its Subsidiaries.
Deliver to the Administrative Agent (i) a copy of each regular report, notice or communication regarding potential or actual defaults (including any accompanying officer's certificate) delivered by or on behalf of the Borrower to the holders of Funded Indebtedness pursuant to the terms of the agreements governing such Funded Indebtedness, such delivery to be made at the same time and by the same means as such notice or other communication is delivered to such holders, and (ii) a copy of each notice or other communication received by the Borrower from the holders of Funded Indebtedness pursuant to the terms of such Funded Indebtedness, such delivery to be made promptly after such notice or other communication is received by the Borrower.
Deliver or cause to be delivered to the Administrative Agent and the Lenders copies of (i) all financial statements, reports, proxy statements and notices, if any, sent or made available generally by the Borrower or the Guarantors to their respective securities holders or filed with the Commission under the Securities Exchange Act of 1934 and the rules promulgated thereunder by the Borrower or the Guarantors, (ii) all press releases made available generally by the Borrower or any of the Borrower's Subsidiaries to the public concerning material developments in the business of the Borrower or any such Subsidiary; and (iii) all notifications received from the Commission by the Borrower or any such Subsidiary or the Guarantors pursuant to the Securities Exchange Act of 1934 and the rules promulgated thereunder. The statements and reports required to be furnished by the Borrower pursuant to (i) above shall be deemed furnished for such purpose upon being publicly available on the Commission's EDGAR web page.
A copy of (i) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the Release by the Borrower or any of its Subsidiaries or any other Person of any Contaminant into the environment, and (ii) any notice alleging any violation of any Environmental, Health or Safety Requirements of Law by the Borrower or any of its Subsidiaries if, in either case, such notice or claim relates to an event which could reasonably be expected to subject the Borrower to liability in excess of $1,000,000.00.
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Upon receiving a request therefor from the Administrative Agent, prepare and deliver to the Administrative Agent and the Lenders such other information with respect to the Borrower, any of its Subsidiaries, or the Collateral, including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Administrative Agent.
The Borrower shall at all times maintain its existence as a limited liability company (but may convert to a corporation if (i) such conversion will not be adverse to the interests of the Lenders, and (ii) the Borrower enters into any amendments to the Loan Documents deemed appropriate by the Administrative Agent) and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses, except to the extent permitted by Section 7.3(I).
(B) Corporate Powers; Conduct of Business.
The Borrower, and shall cause each of its Subsidiaries to, shall qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified and where the failure to be so qualified will have or could reasonably be expected to have a Material Adverse Effect. The Borrower will carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted.
(C) Compliance with Laws, Etc.
The Borrower shall, and cause each of its Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, properties, assets or operations of such Person including, but not limited to, timely filing all Quarterly PUHCA Notices, and (b) obtain as needed all licenses and permits necessary for its operations and maintain such licenses and permits in good standing, unless failure to comply or obtain could not reasonably be expected to have a Material Adverse Effect.
(D) Payment of Taxes and Claims; Tax Consolidation.
The Borrower shall pay, and cause each of its Subsidiaries to, (i) all material taxes, assessments and other governmental charges imposed upon it or on any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, and (ii) all material claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by Section 7.3(C)) upon any of the Borrower's or such Subsidiary's property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assessments and governmental charges referred to in clause (i) above or claims referred to in clause (ii) above (and interest, penalties or fines relating thereto) need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with Agreement Accounting Principles shall have been made therefor. For purposes of clauses (i) and (ii) above, "material" shall mean an amount in excess of $10,000.00 in the aggregate.
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The Borrower shall, and cause each of its Subsidiaries to, maintain in full force and effect insurance policies and programs reasonably consistent with prudent industry practice. The Borrower shall deliver to the Administrative Agent insurance certificates and endorsements (y) to all "All Risk" physical damage insurance policies on all of the Borrower's tangible real and personal property and assets and business interruption insurance policies naming the Administrative Agent loss payee, and (z) to all general liability and other liability policies naming the Administrative Agent an additional insured. In the event the Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies or insurance required herein or to pay any premium in whole or in part relating thereto, then the Administrative Agent, without waiving or releasing any obligations or resulting Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which the Administrative Agent deems advisable. All sums so disbursed by the Administrative Agent shall constitute part of the Obligations, payable as provided in this Agreement.
(F) Inspection of Property; Books and Records; Discussions.
The Borrower shall, and if a Default or Unmatured Default has occurred and is continuing, cause each of its Subsidiaries to, permit any authorized representative(s) designated by any of the Lenders to visit and inspect any of the properties of the Borrower, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby (including, without limitation, in connection with environmental compliance, hazard or liability), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants, all upon reasonable notice and at such reasonable times during normal business hours, as often as may be reasonably requested. The Borrower shall keep and maintain in all material respects, proper books of record and account in which entries in conformity with Agreement Accounting Principles shall be made of all dealings and transactions in relation to their respective businesses and activities. If a Default has occurred and is continuing, the Borrower, upon the Administrative Agent's request, shall turn over any such records to the Administrative Agent or its representatives.
The Borrower shall, and cause each of its Subsidiaries to, establish, maintain and operate all Plans to which they contribute to in compliance with all material respects with the provisions of ERISA, the Code, all other applicable laws, and the regulations and interpretations thereunder and the respective requirements of the governing documents for such Plans, except for such matters that would reasonably be expected to result in liability of the Borrower or its Subsidiaries of less than $1,000,000.00.
The Borrower shall, and cause each of its Subsidiaries to, cause all property used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 7.2(H) shall prevent the Borrower from discontinuing the operation or maintenance of any of such property if such discontinuance is, in the judgment of the Borrower, desirable in the conduct of its business and not disadvantageous in any material respect to the Administrative Agent or the Lenders.
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The Borrower shall comply with all Environmental, Health or Safety Requirements of Law, except where noncompliance will not have or is not reasonably likely to subject the Borrower to liability in excess of $1,000,000.00.
The Borrower shall use the proceeds of the Revolving Loans to (i) repay existing Indebtedness, (ii) provide funds for the additional working capital needs and other general corporate purposes of the Borrower, and (iii) provide funds for the payment of fees and expenses incurred in connection with the negotiation and documentation of this Agreement and the Loan Documents. The Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds of the Loans to purchase or carry any Margin Stock. Letters of Credit issued hereunder will be used (i) to provide performance assurance of Borrower's obligations under the Power Purchase Contracts, and (ii) for other general corporate purposes of the Borrower.
Without in any way limiting the requirements and covenants set forth in the Collateral Documents, if, subsequent to the Closing Date, the Borrower or any Subsidiary shall acquire any intellectual property, securities, instruments, chattel paper or other personal property required to be delivered to the Administrative Agent as Collateral hereunder or under any of the Collateral Documents, the Borrower shall promptly (and in any event within five (5) Business Days) after any Authorized Officer of the Borrower acquires knowledge of same notify the Administrative Agent of same. The Borrower shall, and cause its Material Subsidiaries to, take such action at its own expense as reasonably requested by the Administrative Agent to ensure that the Administrative Agent has a first priority (subject to any applicable Lien permitted under Section 7.3(C)) perfected Lien to secure the Obligations in all owned real and personal property of the Borrower and its Material Subsidiaries. The Borrower shall, and cause its Material Subsidiaries to, adhere to the covenants set forth in the Collateral Documents, including, without limitation, the covenants regarding the location of personal property as set forth in the Security Agreements.
(L) Addition of Guarantors; Addition of Pledged Capital Stock and other Collateral.
The Borrower shall cause each Material Subsidiary to deliver to the Administrative Agent an executed Guaranty and appropriate corporate resolutions, opinions and other documentation in form and substance reasonably satisfactory to the Administrative Agent, such Guaranty and other documentation to be delivered to the Administrative Agent as promptly as possible but in any event within thirty (30) days of the acquisition or formation of a new Material Subsidiary or an existing Subsidiary becoming a Material Subsidiary. Simultaneously with any Material Subsidiary becoming a Guarantor, the Borrower shall (or, if the Capital Stock of such Material Subsidiary is owned by another Subsidiary, shall cause such other Subsidiary to) deliver to the Administrative Agent a Pledge Agreement, together with appropriate corporate resolutions, opinions, stock certificates, UCC filings or amendments and other documentation, in each case in form and substance reasonably satisfactory to the Administrative Agent and the Administrative Agent shall be reasonably satisfied that the Administrative Agent has a first priority perfected pledge of all of the Capital Stock of such Guarantor owned by the Borrower and its Subsidiaries, or in the case such Guarantor is a foreign Material Subsidiary, 66% of the Capital Stock of such Guarantor owned by the Borrower. Simultaneously with any Material Subsidiary becoming a Guarantor, the Borrower shall also cause such Material Subsidiary (or, if such Material Subsidiary is a foreign Material Subsidiary, upon the request of the Administrative Agent) to (i) execute and deliver a Security Agreement (and deliver the other documents required thereby, including, without limitation, restricted account agreements), if applicable, Intellectual Property Agreements and such other Collateral Documents as the Administrative Agent or the Required Lenders may require its or their sole and reasonable discretion; and (ii) deliver such other documentation as the Administrative Agent may reasonably require in connection with the foregoing, including, without limitation, appropriate UCC financing statements, certified resolutions and other organizational and authorizing documents of such Material Subsidiary, favorable opinions of counsel to such Material Subsidiary (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above and the perfection of the Administrative Agent's liens thereunder) and other items of the types required to be delivered by the Borrower and its Subsidiaries pursuant to Section 5.1 as of the Closing Date, all in form, content and scope reasonably satisfactory to the Administrative Agent.
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(M) Insurance and Condemnation Proceeds.
If a Default or Unmatured Default shall have occurred and be continuing, the Borrower shall direct all insurers under policies of property damage, boiler and machinery and business interruption insurance and payors of any condemnation claim or award relating to the Collateral to pay all proceeds (the "Proceeds") payable under such policies or with respect to such claim or award for any loss with respect to the Collateral directly to the Administrative Agent, for the benefit of the Administrative Agent and the Holders of the Obligations. If no Default or Unmatured Default shall have occurred and be continuing, promptly after the receipt of any Proceeds the Borrower shall repair or replace the Collateral or other assets the loss or damage of which gave rise to such Proceeds; provided, however, that upon the earlier to occur of (a) 120 days after the Borrower receives such Proceeds or (b) the occurrence of a Default or an Unmatured Default, the Borrower shall return any Proceeds not so used to repair or replace such Collateral or other assets at such time to the Administrative Agent. The Administrative Agent shall apply the same to the principal amount of the Obligations outstanding at the time of such receipt or hold them as cash collateral for the Obligations.
Borrower does not intend to treat the Loans and related transactions as being a "reportable transaction (within the meaning of Treasury Regulation Section 1.6011-4). In the event Borrower determines to take any action inconsistent with such intention, it will promptly notify the Administrative Agent thereof.
The Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) the Subordinated Debt;
(iii) Permitted Existing Indebtedness;
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(iv) Indebtedness in respect of obligations secured by Customary Permitted Liens;
(v) Indebtedness constituting Contingent Obligations permitted by Section 7.3(E);
(vi) secured or unsecured purchase money Indebtedness (including Capitalized Leases) incurred by the Borrower or any of its Subsidiaries after the Closing Date to finance the acquisition of fixed assets, if (1) at the time of such incurrence, no Default or Unmatured Default has occurred and is continuing or would result from such incurrence, (2) such Indebtedness has a scheduled maturity and is not due on demand, (3) such Indebtedness does not exceed the lower of the fair market value or the cost of the applicable fixed assets on the date acquired, (4) such Indebtedness does not exceed $5,000,000.00 in the aggregate outstanding at any time, and (5) any Lien securing such Indebtedness is permitted under Section 7.3(C) (such Indebtedness being referred to herein as "Permitted Purchase Money Indebtedness");
(vii) Indebtedness in respect of Hedging Obligations permitted under Section 7.3(O);
(viii) other future unsecured Indebtedness in an aggregate principal amount not to exceed $50,000,000.00; and
(ix) Any Permitted Refinancing Indebtedness.
Neither the Borrower nor any of its Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose of any property, whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except:
(i) the disposition in the ordinary course of business of equipment that is obsolete, excess or no longer useful in the Borrower's or the Subsidiary's business;
(ii) sales, assignments, transfers, leases, conveyances or other dispositions of other assets if such transaction (a) is for consideration consisting solely of cash, (b) is for not less than fair market value, and (c) when combined with all such other transactions (each such transaction being valued at book value) during the period from the Closing Date to the date of such proposed transaction, represents the disposition of not greater than five percent (5.0%) of the Borrower's Consolidated Assets at the end of the fiscal year immediately preceding that in which such transaction is proposed to be entered into.
Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective property or assets except:
(i) Liens securing the Obligations pursuant to the Collateral Documents;
(ii) Permitted Existing Liens;
(iii) Customary Permitted Liens;
(iv) purchase money Liens (including the interest of a lessor under a Capitalized Lease and Liens to which any property is subject at the time of the Borrower's acquisition thereof) securing Permitted Purchase Money Indebtedness; provided that such Liens shall not apply to any property of the Borrower or its Subsidiaries other than that purchased or subject to such Capitalized Lease;
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(v) Liens on the assets of the Borrower (other than the assets which are subject to Liens securing the Obligations) to secure its Contingent Obligations under surety bonds permitted under Section 7.3(A)(v) and Section 7.3(E); and
(vi) Liens arising out of the Power Purchase Contracts, but only to the extent such Liens pertain or relate to the Segregated Accounts or certain receivables the proceeds of which are required to be deposited in the Segregated Accounts.
In addition, neither the Borrower nor any of its Subsidiaries shall become a party to any agreement, note, indenture or other instrument, or take any other action, which would prohibit the creation of a Lien on any of its properties or other assets in favor of the Administrative Agent for the benefit of itself and the Lenders, as collateral for the Obligations; provided that (i) any agreement, note, indenture or other instrument in connection with Permitted Purchase Money Indebtedness (including Capitalized Leases) may prohibit the creation of a Lien in favor of the Administrative Agent for the benefit of itself and the Lenders on the items of property obtained with the proceeds of such Permitted Purchase Money Indebtedness, and (ii) the Power Purchase Contracts may limit or prohibit the creation of Liens pertaining or relating to the Segregated Accounts or certain receivables the proceeds of which are required to be deposited in the Segregated Accounts.
Except to the extent permitted pursuant to paragraph (G) below, neither the Borrower nor any of its Subsidiaries shall not directly or indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater than the amount thereof on the Closing Date;
(iii) Investments in trade receivables or received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business;
(iv) Investments consisting of deposit accounts maintained by the Borrower;
(v) Investments constituting Permitted Acquisitions; and
(vi) Investments in addition to those referred to elsewhere in this Section 7.3(D) in an amount not to exceed $2,500,000.00 in the aggregate at any time outstanding;
provided, however, that the Investments described in clause (v) above shall not be permitted if either a Default or an Unmatured Default shall have occurred and be continuing on the date thereof or would result therefrom.
Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create or become or be liable with respect to any Contingent Obligation, except: (i) recourse obligations resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (ii) obligations, warranties, and indemnities, not relating to Indebtedness of any Person, which have been or are undertaken or made in the ordinary course of business and not for the benefit of or in favor of an Affiliate of the Borrower or such Subsidiary; (iii) Contingent Obligations with respect to appeal and performance bonds obtained by the Borrower or any Subsidiary in the ordinary course of business; and (iv) Contingent Obligations with respect to surety bonds issued for the benefit of the Borrower in an amount not to exceed $250,000,000.00.
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Neither the Borrower nor any of its Subsidiaries may declare or make any Restricted Payment.
(G) Conduct of Business; Subsidiaries.
(i) Neither the Borrower nor any of its Subsidiaries shall engage in any business other than the businesses engaged in by the Borrower on the Closing Date and any business or activities which are substantially similar, related or incidental thereto.
(ii) Neither the Borrower nor its Subsidiaries shall create, acquire or capitalize any Subsidiary (a "New Subsidiary") after the date hereof pursuant to any transaction unless such transaction is permitted by or not otherwise prohibited by this Agreement and upon the creation or acquisition of each New Subsidiary, the Borrower or its Subsidiaries shall promptly deliver, and shall cause each New Subsidiary to promptly deliver to the Administrative Agent the documents, instruments and agreements required pursuant to Section 7.2(L).
(iii) Neither the Borrower nor any of its Subsidiaries shall make any Acquisitions other than Acquisitions meeting all of the following requirements (each such Acquisition constituting a "Permitted Acquisition"):
(a) no Default or Unmatured Default shall have occurred and be continuing or would result from such Acquisition or the incurrence of any Indebtedness in connection therewith;
(b) the Acquisition shall be consummated on a non-hostile basis and, in the case of an Acquisition of Equity Interests of an entity, such Acquisition shall be of not less than the amount of the Equity Interests required to give the Borrower direct or indirect voting control of such entity;
(c) the businesses being acquired shall be substantially similar to the businesses or activities engaged in by the Borrower on the Closing Date;
(d) the aggregate purchase price (including assumed liabilities) in connection with all such transactions during the term of this Agreement shall not exceed $25,000,000.00.
(H) Transactions with Shareholders and Affiliates.
Except to the extent required by applicable law, neither the Borrower nor any of its Subsidiaries shall directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder or holders of any of the Equity Interests of the Borrower, or with any Affiliate of the Borrower which is not its Subsidiary, on terms that are less favorable to the Borrower or its Subsidiaries, as applicable, than those that might be obtained in an arm's length transaction at the time from Persons who are not such a holder or Affiliate.
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(I) Restriction on Fundamental Changes.
Neither the Borrower nor any of its Subsidiaries shall enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of the Borrower's or any such Subsidiary's business or property, whether now or hereafter acquired, except transactions permitted under Sections 7.3(B).
Neither the Borrower nor any of its Subsidiaries shall become liable, directly, by assumption or by Contingent Obligation, with respect to any lease, whether an operating lease, a synthetic lease or a Capitalized Lease, of any property (whether real or personal or mixed) (i) which it or one of its Subsidiaries sold or transferred or is to sell or transfer to any other Person, or (ii) which it or one of its Subsidiaries intends to use for substantially the same purposes as any other property which has been or is to be sold or transferred by it to any other Person in connection with such lease, unless in either case the sale involved is not prohibited under Section 7.3(B) and the lease involved is not prohibited under Section 7.3(A).
Neither the Borrower nor any of its Subsidiaries shall use all or any portion of the proceeds of any credit extended under this Agreement to purchase or carry Margin Stock.
The Borrower shall not
(i) engage, or permit any of its Subsidiaries to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL which could reasonably be expected to result in liability to the Borrower of $1,000,000.00 or more;
(ii) incur any liability of $1,000,000.00 or more resulting from a to any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Code), with respect to any Benefit Plan, whether or not waived;
(iii) incur any liability of $500,000.00 or more resulting from a failure to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan;
(iv) incur any liability under Title IV of ERISA of $1,000,000.00 or more in connection with the termination of any Benefit Plan;
(v) fail to make any material contribution or payment to any Multiemployer Plan which the Borrower or any Controlled Group member may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto;
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(vi) fail to pay any required installment or any other material payment required under Section 412 of the Code on or before the due date for such installment or other payment; or
(vii) incur material increase in current liability for the plan year, resulting from the amendment of a Plan, such that the Borrower is required to provide security to such Plan under Section 401(a)(29) of the Code.
Neither the Borrower nor any of its Subsidiaries shall amend, modify or otherwise change any of the terms or provisions in any of their respective articles of organization or operating agreement as in effect on the date hereof in any manner adverse to the interests of the Lenders, without the prior written consent of the Required Lenders.
Neither the Borrower nor any of its Subsidiaries shall change its fiscal year for accounting or tax purposes from a calendar year.
The Borrower shall not and shall not permit any of its Subsidiaries to enter into any interest rate, commodity or foreign currency exchange, swap, collar, cap or similar agreements evidencing Hedging Obligations, other than interest rate, foreign currency or commodity exchange, swap, collar, cap or similar agreements entered into by the Borrower pursuant to which the Borrower has hedged its actual interest rate, foreign currency or commodity exposure.
The Borrower shall not amend, supplement or modify the terms of the Subordinated Debt or make any payment required as a result of any amendment or change thereto without the prior written consent of the Administrative Agent and the Required Lenders. Except as permitted in the Subordination Agreement as in effect on the date hereof, the Borrower shall not redeem, purchase, prepay (by setoff or otherwise), defease or repay any principal of, premium, if any, or other amount payable in respect of the Subordinated Debt.
Neither the Borrower nor any of its Subsidiaries shall make or incur any Capital Expenditure if, after giving effect thereto, the aggregate amount of all Capital Expenditures by the Borrower and its Subsidiaries after the Closing Date would exceed $10,000,000.00.
The Borrower shall comply with the following:
The Borrower shall not permit its Net Worth at any time to be less than $30,000,00.00, provided, however, that in the event that either (a) a GPE Cross Default has occurred and is continuing (and is not waived), or (b) a Default or Unmatured Default has occurred under the Credit Agreement and is continuing (and is not waived), the Borrower shall not permit its Net Worth at any time to be less than (x) the Net Worth of the Borrower as of the last day of the fiscal month immediately preceding the date of the first to occur of any continuing GPE Cross Default (which has not been waived) or any continuing Default or Unmatured Default (which has not been waived) under the Credit Agreement (the "Net Worth Trigger Date"), plus (y) 100% of Net Income (if positive) from and after the Net Worth Trigger Date.
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The Borrower shall not permit the ratio (the "Leverage Ratio") of (i) Funded Indebtedness, to (ii) EBITDA to be greater than 2.00 to 1.00.
The Leverage Ratio shall be calculated, in each case, determined as of the last day of each fiscal quarter based upon (a) for Funded Indebtedness, as of the last day of each such fiscal quarter; and (b) for EBITDA, the actual amount for the four-quarter period ending on such day
Each of the following occurrences shall constitute a Default under this Agreement:
(A) Failure to Make Payments When Due.
The Borrower shall (i) fail to pay within one (1) day of the date when due any of the Obligations consisting of principal with respect to the Loans or (ii) shall fail to pay within five (5) Business Days of the date when due any of the other Obligations under this Agreement or the other Loan Documents.
(B) Breach of Certain Covenants.
The Borrower shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on the Borrower under:
(i) Section 7.1(A) and such failure shall continue unremedied for ten (10) days;
(ii) Section 7.1(B) and such failure shall continue unremedied for two (2) days; or
(iii) Section 7.2(A), 7.2(F), 7.2(J), 7.3 or 7.4.
(C) Breach of Representation or Warranty.
Any representation or warranty made or deemed made by the Borrower to the Administrative Agent or any Lender herein or by the Borrower or any of its Subsidiaries in any of the other Loan Documents or in any statement or certificate at any time given by any such Person pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made (or deemed made).
The Borrower shall default in the performance of or compliance with any term contained in this Agreement (other than as covered by paragraphs (A), (B) or (C) of this Section 8.1), or the Borrower or any of its Subsidiaries shall default in the performance of or compliance with any term contained in any of the other Loan Documents, and such default shall continue for thirty (30) days after the occurrence thereof.
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(E) Default as to Other Indebtedness.
The Borrower or any of its Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness the outstanding principal amount of which Indebtedness is in excess of $5,000,000.00 ("Cross Default Indebtedness"), or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Cross Default Indebtedness, if the effect thereof is to permit the holder(s) of such Cross Default Indebtedness to accelerate the maturity of any such Cross Default Indebtedness or require a redemption or other repurchase of such Cross Default Indebtedness, or cause an acceleration, mandatory redemption, a requirement that the Borrower offer to purchase such Cross Default Indebtedness or other required repurchase of such Cross Default Indebtedness; or any such Cross Default Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Borrower or any of its Subsidiaries (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof.
(F) Involuntary Bankruptcy; Appointment of Receiver, Etc.
(i) An involuntary case shall be commenced against the Borrower or any of the Borrower's Subsidiaries and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of the Borrower's Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of the Borrower's Subsidiaries or over all or a substantial part of the property of the Borrower or any of the Borrower's Subsidiaries shall be entered; or an interim receiver, trustee or other custodian of the Borrower or any of the Borrower's Subsidiaries or of all or a substantial part of the property of the Borrower shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the property of the Borrower or any of the Borrower's Subsidiaries shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance.
(G) Voluntary Bankruptcy; Appointment of Receiver, Etc.
The Borrower or any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, (iii) consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property, (iv) make any assignment for the benefit of creditors or (v) take any corporate action to authorize any of the foregoing.
(H) Judgments and Attachments.
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Any money judgment(s) (other than a money judgment covered by insurance as to which the insurance company has not disclaimed or reserved the right to disclaim coverage), writ or warrant of attachment, or similar process against the Borrower or any of its Subsidiaries or any their respective assets involving in any single case or in the aggregate an amount in excess of $2,500,000.00 is or are entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or in any event later than fifteen (15) days prior to the date of any proposed sale thereunder.
Any order, judgment or decree shall be entered against the Borrower decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or the Borrower shall otherwise dissolve or cease to exist except as specifically permitted by this Agreement.
(J) Loan Documents; Failure of Security.
At any time, for any reason, (i) any Loan Document as a whole that materially affects the ability of the Administrative Agent or any of the Lenders to enforce the Obligations or enforce their rights against the Collateral ceases to be in full force and effect or any of the Borrower's or any of its Subsidiaries party thereto seeks to repudiate its obligations thereunder and the Liens intended to be created thereby are, or any of the Borrower or any such Subsidiary seeks to render such Liens, invalid and unperfected, or (ii) Liens on Collateral with a fair market value in excess of $100,000.00 in favor of the Administrative Agent contemplated by the Loan Documents shall, at any time, for any reason, be invalidated or otherwise cease to be in full force and effect, or such Liens shall not have the perfection or priority contemplated by this Agreement or the Loan Documents.
Any Termination Event occurs which the Required Lenders believe is reasonably likely to subject the Borrower to liability in excess of $1,000,000.00.
(L) Waiver of Minimum Funding Standard.
If the plan administrator of any Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Code and any Lender believes the substantial business hardship upon which the application for the waiver is based could reasonably be expected to subject the Borrower to liability in excess of $1,000,000.00.
A Change of Control shall occur.
The Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to (i) the Release by the Borrower or any of its Subsidiaries of any Contaminant into the environment, (ii) the liability of the Borrower arising from the Release by any other Person of any Contaminant into the environment, or (iii) any violation of any Environmental, Health or Safety Requirements of Law which by the Borrower or any of its Subsidiaries, which, in any case, has or is reasonably likely to subject the Borrower or any of its Subsidiaries to liability in excess of $1,000,000.00.
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Any guarantor of the Obligations shall terminate or revoke or refuse to perform any of its payment obligations under the applicable guarantee agreement or an Event of Default (as defined in such guarantee agreement) shall occur.
(P) Default Under Subordinated Debt.
A default or event of default shall occur with respect to the obligations arising under the Subordinated Debt or under any instrument or agreement executed in connection therewith and the holder(s) thereof shall take any action to accelerate the maturity thereof or to otherwise collect the amount outstanding with respect to the Subordinated Debt.
(Q) Default under Contractual Obligations.
A default or event of default shall occur under (i) any Power Purchase Agreement, or (ii) any other Contractual Obligation where such default or event of default could reasonably be expected to have a Material Adverse Effect.
A Default shall be deemed "continuing" until cured or until waived in writing in accordance with Section 9.3.
ARTICLE
IX. ACCELERATION, DEFAULTING LENDERS; WAIVERS,
AMENDMENTS
AND REMEDIES
9.1. Termination of Commitments; Acceleration.
If any Default described in Section 8.1(F), 8.1(G), or 8.1(I) occurs with respect to the Borrower, the obligations of the Lenders to make Loans hereunder and the obligation of the Administrative Agent to issue Letters of Credit hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent or any Lender. If any other Default occurs, the Required Lenders may terminate or suspend the obligations of the Lenders to make Loans hereunder and the obligation of the Issuing Banks to issue Letters of Credit hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower expressly waives.
In the event that any Lender fails to fund its applicable Pro Rata Share of any Advance requested or deemed requested by the Borrower (or requested by an Issuing Bank in connection with the participation in Letters of Credit), which such Lender is obligated to fund under the terms of this Agreement (the funded portion of such Advance being hereinafter referred to as a "Non Pro Rata Loan"), until the earlier of such Lender's cure of such failure and the termination of the Revolving Loan Commitments, the proceeds of all amounts thereafter repaid to the Administrative Agent by the Borrower and otherwise required to be applied to such Lender's share of all other Obligations pursuant to the terms of this Agreement shall be advanced to the Borrower (or Issuing Bank) by the Administrative Agent on behalf of such Lender to cure, in full or in part, such failure by such Lender, but shall nevertheless be deemed to have been paid to such Lender in satisfaction of such other Obligations. Notwithstanding anything in this Agreement to the contrary:
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(i) the foregoing provisions of this Section 9.2 shall apply only with respect to the proceeds of payments of Obligations and shall not affect the conversion or continuation of Loans pursuant to Section 2.10;
(ii) any such Lender shall be deemed to have cured its failure to fund its applicable Pro Rata Share of any Advance at such time as an amount equal to such Lender's original applicable Pro Rata Share of the requested principal portion of such Advance is fully funded to the Borrower (or Issuing Bank), whether made by such Lender itself or by operation of the terms of this Section 9.2, and whether or not the Non Pro Rata Loan with respect thereto has been repaid, converted or continued;
(iii) amounts advanced to the Borrower to cure, in full or in part, any such Lender's failure to fund its applicable Pro Rata Share of any Advance ("Cure Loans") shall bear interest at the rate applicable to Floating Rate Loans in effect from time to time, and for all other purposes of this Agreement shall be treated as if they were Floating Rate Loans;
(iv) regardless of whether or not a Default has occurred or is continuing, and notwithstanding the instructions of the Borrower as to its desired application, all repayments of principal which, in accordance with the other terms of this Agreement, would be applied to the outstanding Floating Rate Loans shall be applied first, ratably to all Floating Rate Loans constituting Non Pro Rata Loans, second, ratably to Floating Rate Loans other than those constituting Non Pro Rata Loans or Cure Loans and, third, ratably to Floating Rate Loans constituting Cure Loans;
(v) for so long as and until the earlier of any such Lender's cure of the failure to fund its applicable Pro Rata Share of any Advance and the termination of the Revolving Loan Commitments, the term "Required Lenders" for purposes of this Agreement shall mean Lenders (excluding all Lenders whose failure to fund their respective Pro Rata Shares of such Advance have not been so cured) whose applicable Pro Rata Shares represent greater than sixty-six and two-thirds percent (66-2/3%) of the aggregate Pro Rata Shares of such Lenders; and
(vi) for so long as and until any such Lender's failure to fund its Revolving Loan Pro Rata Share of any Advance is cured in accordance with Section 9.2(ii), (A) such Lender shall not be entitled to any commitment fees with respect to its Revolving Loan Commitment, and (B) such Lender shall not be entitled to any letter of credit fees, which commitment fees and letter of credit fees shall accrue in favor of the Lenders which have funded their respective applicable Pro Rata Share of such requested Advance, shall be allocated among such performing Lenders ratably based upon their relative Revolving Loan Commitments, and shall be calculated based upon the average amount by which the aggregate Revolving Loan Commitments of such performing Lenders exceeds the sum of (I) the outstanding principal amount of the Loans owing to such performing Lenders, plus (II) the outstanding Reimbursement Obligations owing to such performing Lenders, plus (III) the aggregate participation interests of such performing Lenders arising with respect to undrawn and outstanding Letters of Credit.
Subject to the provisions of this Article IX, the Required Lenders (or the Administrative Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender affected thereby:
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(i) Postpone or extend the Revolving Loan Termination Date or any other date fixed for any payment of principal of, or interest on, the Loans, the Reimbursement Obligations or any fees or other amounts payable to such Lender (except with respect to (a) any modifications of the provisions relating to prepayments of Loans and other Obligations and (b) a waiver of the application of the default rate of interest pursuant to Section 2.11 hereof.
(ii) Reduce the principal amount of any Loans or L/C Obligations, or reduce the rate or extend the time of payment of interest or fees thereon.
(iii) Reduce the percentage specified in the definition of Required Lenders or any other percentage of Lenders specified to be the applicable percentage in this Agreement to act on specified matters.
(iv) Increase the amount of the Revolving Loan Commitment of any Lender hereunder.
(v) Permit the Borrower to assign its rights under this Agreement.
(vi) Release any Guarantor or any Collateral having a value in excess of $5,000,000.00 during the term of this Agreement.
(vii) Amend this Section 9.3 or Section 12.2.
No amendment of any provision of this Agreement relating to the Administrative Agent shall be effective without the written consent of the Administrative Agent. The Administrative Agent may waive payment of the fee required under Section 13.3(B) without obtaining the consent of any of the Lenders.
No delay or omission of the Lenders or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan or the issuance of a Letter of Credit notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan or issuance of such Letter of Credit shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 9.3, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent and the Lenders until the Obligations have been paid in full.
10.1. Survival of Representations.
All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Notes and the making of the Loans herein contemplated.
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10.2. Governmental Regulation.
Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation.
10.3. Performance of Obligations.
The Borrower agrees that the Administrative Agent may, but shall have no obligation, after the occurrence and during the continuance of a Default, make any payment or perform any act required of the Borrower under any Loan Document. The Administrative Agent shall use its reasonable efforts to give the Borrower notice of any action taken under this Section 10.3 prior to the taking of such action or promptly thereafter provided the failure to give such notice shall not affect the Borrower's obligations in respect thereof. The Borrower agrees to pay the Administrative Agent, upon demand, the principal amount of all funds advanced by the Administrative Agent under this Section 10.3, together with interest thereon at the rate from time to time applicable to Revolving Loans that are Floating Rate Loans from the date of such advance until the outstanding principal balance thereof is paid in full. If the Borrower fails to make payment in respect of any such advance under this Section 10.3 within one (1) Business Day after the date the Borrower receives written demand therefor from the Administrative Agent, the Administrative Agent shall promptly notify each Lender and each Lender agrees that it shall thereupon make available to the Administrative Agent, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of such advance. If such funds are not made available to the Administrative Agent by such Lender within one (1) Business Day after the Administrative Agent's demand therefor, the Administrative Agent will be entitled to recover any such amount from such Lender together with interest thereon at the Federal Funds Effective Rate for each day during the period commencing on the date of such demand and ending on the date such amount is received. The failure of any Lender to make available to the Administrative Agent its Pro Rata Share of any such unreimbursed advance under this Section 10.3 shall neither relieve any other Lender of its obligation hereunder to make available to the Administrative Agent such other Lender's Pro Rata Share of such advance on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Administrative Agent. All outstanding principal of, and interest on, advances made under this Section 10.3 shall constitute Obligations.
Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents.
The Loan Documents embody the entire agreement and understanding among the Borrower, the Administrative Agent and the Lenders and supersede all prior agreements and understandings among the Borrower, the Administrative Agent and the Lenders relating to the subject matter thereof.
10.6. Several Obligations; Benefits of this Agreement.
The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other Lender (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns.
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10.7. Expenses; Indemnification.
The Borrower shall reimburse the Agents and the Arrangers for any reasonable costs and out-of-pocket expenses (including attorneys' and paralegals' fees and time charges of attorneys and paralegals for the Administrative Agent) paid or incurred by the Administrative Agent or the Arrangers in connection with the preparation, negotiation, execution, delivery, syndication, review, amendment, modification, and administration of the Loan Documents and the initial audit of the Collateral. The Borrower also agrees to reimburse the Administrative Agent and the Arrangers and the Lenders for any costs and out-of-pocket expenses (including attorneys' and paralegals' fees and time charges of attorneys and paralegals for the Administrative Agent and the Arrangers and the Lenders) paid or incurred by the Administrative Agent or the Arrangers or any Lender in connection with the collection of the Obligations and enforcement of the Loan Documents. In addition to expenses set forth above, the Borrower agrees to reimburse the Administrative Agent, promptly after the Administrative Agent's request therefor, for each audit, or other business analysis performed by or for the benefit of the Lenders in connection with this Agreement, the other Loan Documents or the Collateral in an amount equal to the Administrative Agent's then customary charges for each person employed to perform such audit or analysis plus all costs and expenses (including without limitation, travel expenses) incurred by the Administrative Agent in the performance of such audit or analysis.
The Borrower further agrees to defend, protect, indemnify, and hold harmless the Agents, the Arrangers and each and all of the Lenders and each of their respective Affiliates, and each of such Agents', Arrangers', Lender's, or Affiliate's respective officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article V) (collectively, the "Indemnitees") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of:
(i) this Agreement, the other Loan Documents, or any act, event or transaction related or attendant thereto or to the making of the Loans, and the issuance of and participation in Letters of Credit hereunder, the management of such Loans or Letters of Credit, the use or intended use of the proceeds of the Loans or Letters of Credit hereunder, or any of the other transactions contemplated by the Loan Documents; or
(ii) any liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or remedial action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future relating to violation of any Environmental, Health or Safety Requirements of Law arising from or in connection with the past, present or future operations of the Borrower or its predecessors in interest, or, the past, present or future environmental, health or safety condition of any respective property of the Borrower, the presence of asbestos-containing materials at any respective property of the Borrower or the Release or threatened Release of any Contaminant into the environment (collectively, the "Indemnified Matters");
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provided, however, the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters caused solely by or resulting solely from the willful misconduct or Gross Negligence of such Indemnitee or breach of contract by such Indemnitee with respect to the Loan Documents, in each case, as determined by the final non-appealed judgment of a court of competent jurisdiction. If the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees.
(C) Waiver of Certain Claims; Settlement of Claims.
The Borrower further agrees not to assert claims against any of the Indemnitees on any theory of liability for consequential, special, indirect, exemplary or punitive damages against any or all of such Indemnities. No settlement shall be entered into by the Borrower with respect to any claim, litigation, arbitration or other proceeding relating to or arising out of the transactions evidenced by this Agreement or the other Loan Documents (whether or not the Administrative Agent or any Lender or any Indemnitee is a party thereto) unless such settlement releases all Indemnitees from any and all liability with respect thereto.
The obligations and agreements of the Borrower under this Section 10.7 shall survive the termination of this Agreement.
All statements, notices, closing documents, and requests hereunder shall be furnished directly by the Borrower to the Administrative Agent and the Lenders.
Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. If any changes in generally accepted accounting principles are hereafter required or permitted and are adopted by the Borrower with the agreement of its independent public accountants and such changes result in a change in the method of calculation of any of the financial covenants, restrictions or standards herein or in the related definitions or terms used therein ("Accounting Changes"), the parties hereto agree to enter into negotiations, in good faith, in order to amend such provisions in a credit neutral manner so as to reflect equitably such Accounting Changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such changes as if such changes had not been made; provided, however, until such provisions are amended in a manner reasonably satisfactory to the Administrative Agent and the Required Lenders, no Accounting Change shall be given effect in such calculations and all financial statements and reports required to be delivered hereunder shall be prepared in accordance with Agreement Accounting Principles without taking into account such Accounting Changes. In the event such amendment is entered into with respect to any Accounting Changes, all references to this Agreement to Agreement Accounting Principles shall mean generally accepted accounting principles as of the date of such amendment.
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10.10. Severability of Provisions.
Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable.
10.11. Nonliability of Lenders.
The relationship between the Borrower and the Lenders and the Administrative Agent shall be solely that of borrower and lender. Neither the Administrative Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Administrative Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. The Lenders and the Administrative Agent shall have the obligations set forth in Section 13.4 with respect to confidential information of the Borrower.
ANY DISPUTE BETWEEN THE BORROWER AND THE AGENTS OR THE ARRANGERS OR ANY LENDER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAW APPLICABLE TO NATIONAL BANKS, TO THE EXTENT SUCH FEDERAL LAW IS OTHERWISE APPLICABLE.
10.13. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, MAY BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF CHICAGO, ILLINOIS. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
THE BORROWER AGREES THAT THE ADMINISTRATIVE AGENT, OR ANY LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) REALIZE ON ANY SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON ANY SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
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THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
EACH OF THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF SECTION 10.13, WITH ITS COUNSEL.
10.17. No Strict Construction.
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The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.
ARTICLE XI. THE ADMINISTRATIVE AGENT
11.1. Appointment; Nature of Relationship.
LaSalle is appointed by the Lenders as the Administrative Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Administrative Agent to act as the contractual representative of such Lender with the rights and duties expressly set forth herein and in the other Loan Documents. The Administrative Agent agrees to act as such contractual representative upon the express conditions contained in this Article XI. Notwithstanding the use of the defined term "Administrative Agent," it is expressly understood and agreed that the Administrative Agent shall not have any fiduciary responsibilities to any Lender by reason of this Agreement and that the Administrative Agent is merely acting as the representative of the Lenders with only those duties as are expressly set forth in this Agreement and the other Loan Documents. In its capacity as the Lenders' contractual representative, the Administrative Agent (i) does not assume any fiduciary duties to any of the Lenders, (ii) is a "representative" of the Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting as an independent contractor, the rights and duties of which are limited to those expressly set forth in this Agreement and the other Loan Documents. Each of the Lenders agrees to assert no claim against the Administrative Agent on any agency theory or any other theory of liability for breach of fiduciary duty, all of which claims each Lender waives.
The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties or fiduciary duties to the Lenders, or any obligation to the Lenders to take any action hereunder or under any of the other Loan Documents except any action specifically provided by the Loan Documents required to be taken by the Administrative Agent.
Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except to the extent such action or inaction is found in a final judgment by a court of competent jurisdiction to have arisen solely from the Gross Negligence, willful misconduct or breach of contract of such Person.
11.4. No Responsibility for Loans, Creditworthiness, Recitals, Etc.
Neither the Administrative Agent nor any of its 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 any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document; (iii) the satisfaction of any condition specified in Article V, except receipt of items required to be delivered solely to the Administrative Agent; (iv) the existence or possible existence of any Default or Unmatured Default or (v) the validity, effectiveness or genuineness of any Loan Document, for the perfection or priority of the Liens on any of the Collateral, or any other instrument or writing furnished in connection therewith. The Administrative Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties herein or in any of the other Loan Documents, or for the execution, effectiveness, genuineness, validity, legality, enforceability, collectibility, or sufficiency of this Agreement or any of the other Loan Documents or the transactions contemplated thereby, or for the financial condition of any guarantor of any or all of the Obligations or the Borrower.
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11.5. Action on Instructions of Lenders.
The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Administrative Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action.
11.6. Employment of Administrative Agents and Counsel.
The Administrative Agent may execute any of its duties as the Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorney-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning the contractual arrangement between the Administrative Agent and the Lenders and all matters pertaining to the Administrative Agent's duties hereunder and under any other Loan Document.
11.7. Reliance on Documents; Counsel.
The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent.
11.8. The Administrative Agent's Reimbursement and Indemnification.
The Lenders agree to reimburse and indemnify the Administrative Agent ratably in proportion to their respective Revolving Loan Commitments (i) for any amounts, which are not unreasonable or excessive, not reimbursed by the Borrower for which the Administrative Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other reasonable expenses incurred by the Administrative Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, or any reasonable costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent any of the foregoing is found in a final non-appealable judgment by a court of competent jurisdiction to have arisen solely from the Gross Negligence or willful misconduct of the Administrative Agent.
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With respect to its Revolving Loan Commitment, Loans made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower in which such Person is not prohibited hereby from engaging with any other Person.
11.10. Lender Credit Decision.
Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender 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 action under this Agreement and the other Loan Documents.
11.11. Successor Administrative Agent.
The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may appoint, on behalf of the Borrower and the Lenders, a successor Administrative Agent. Notwithstanding anything herein to the contrary, so long as no Default has occurred and is continuing, each such successor Administrative Agent shall be subject to approval by the Borrower, which approval shall not be unreasonably withheld. Such successor Administrative Agent shall be a commercial bank having capital and retained earnings of at least $500,000,000. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article XI shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Loan Documents.
(a) Each Lender authorizes the Administrative Agent to enter into each of the Collateral Documents to which it is a party and to take all action contemplated by such documents. Each Lender agrees that no Lender shall have the right individually to seek to realize upon the security granted by any Collateral Document, it being understood and agreed that such rights and remedies may be exercised solely by the Administrative Agent for the benefit of the Holders of Obligations upon the terms of the Collateral Documents.
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(b) In the event that any Collateral is hereafter pledged by any Person as collateral security for the Obligations, the Administrative Agent is hereby authorized to execute and deliver on behalf of the Holders of Obligations any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favor of the Administrative Agent on behalf of the Holders of Obligations.
(c) The Lenders hereby authorize the Administrative Agent, at its option and in its discretion, to release any Lien granted to or held by the Administrative Agent upon any Collateral or release any Guarantor from its obligations under a Guaranty (i) upon termination of the Commitments and payment and satisfaction of all of the Obligations at any time arising under or in respect of this Agreement or the Loan Documents or the transactions contemplated hereby or thereby; (ii) as permitted by, but only in accordance with, the terms of the applicable Loan Document; or (iii) if approved, authorized or ratified in writing by the Required Lenders, unless such release is required to be approved by all of the Lenders hereunder. Upon request by the Administrative Agent at any time, the Lenders will confirm in writing the Administrative Agent's authority to release particular types or items of Collateral pursuant to this Section 11.12(c).
(d) Upon any sale and transfer of Collateral or of a Subsidiary which is expressly permitted pursuant to the terms of any Loan Document, or consented to in writing by the Required Lenders or all of the Lenders, as applicable, and upon at least five Business Days' prior written request by the Borrower, the Administrative Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted to the Administrative Agent for the benefit of the Lenders herein or pursuant hereto upon the Collateral that was sold or transferred and release the applicable Guarantor from its obligations under the applicable Guaranty; provided, however, that (i) the Administrative Agent shall not be required to execute any such document on terms which, in the Administrative Agent's opinion, would expose the Administrative Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of the Borrower or any Subsidiary in respect of) all interests retained by the Borrower or any Subsidiary, including (without limitation) the proceeds of the sale, all of which shall continue to constitute part of the Collateral.
ARTICLE XII. SETOFF; RATABLE PAYMENTS
In addition to, and without limitation of, any rights of the Lenders under applicable law, if any Default occurs and is continuing, any indebtedness from any Lender to the Borrower (including all account balances (other than those funds contained in the Custody Agreement dated as of March 26, 2003 between the Borrower and LaSalle Bank to the extent such funds do not constitute property of the Borrower), whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due.
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If any Lender, whether by setoff or otherwise, has payment made to it upon its Loans (other than payments received pursuant to Sections 4.1, 4.2 or 4.4) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of the Loans held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of Loans. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligation or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to the obligations owing to them. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made.
12.3. Application of Payments.
Subject to the provisions of Section 9.2, the Administrative Agent shall, unless otherwise specified at the direction of the Required Lenders which direction shall be consistent with the last sentence of this Section 12.3, apply all payments and prepayments in respect of any Obligations and all proceeds of Collateral in the following order:
(A) first, to pay interest on and then principal of any portion of the Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower;
(B) second, to pay interest on and then principal of any advance made under Section 10.3 for which the Administrative Agent has not then been paid by the Borrower or reimbursed by the Lenders;
(C) third, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Administrative Agent;
(D) fourth, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Lenders and the issuer(s) of Letters of Credit;
(E) fifth, to pay interest due in respect of Loans and L/C Obligations;
(F) sixth, to the ratable payment or prepayment of principal outstanding on Loans and Reimbursement Obligations in such order as the Administrative Agent may determine in its sole discretion;
(G) seventh, to provide required cash collateral, if required pursuant to Section 3.11 and
(H) eighth, to the ratable payment of all other Obligations.
Unless otherwise designated (which designation shall only be applicable prior to the occurrence of a Default) by the Borrower, all principal payments in respect of Loans shall be applied first, to repay outstanding Floating Rate Loans, and then to repay outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier expiring Interest Periods being repaid or prepaid prior to those which have later expiring Interest Periods. The order of priority set forth in this Section 12.3 and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Administrative Agent, the Lenders and the issuer(s) of Letters of Credit as among themselves. The order of priority set forth in clauses (D) through (J) of this Section 12.3 may at any time and from time to time be changed by the Required Lenders without necessity of notice to or consent of or approval by the Borrower, or any other Person. The order of priority set forth in clauses (A) through (C) of this Section 12.3 may be changed only with the prior written consent of the Administrative Agent.
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12.4. Relations Among Lenders.
(A) Except with respect to the exercise of set-off rights of any Lender in accordance with Section 12.1, the proceeds of which are applied in accordance with this Agreement, and except as set forth in the following sentence, each Lender agrees that it will not take any action, nor institute any actions or proceedings, against the Borrower or any other obligor hereunder or with respect to any Loan Document, without the prior written consent of the Required Lenders or, as may be provided in this Agreement or the other Loan Documents, at the direction of the Administrative Agent.
(B) The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender. The Administrative Agent shall have the exclusive right on behalf of the Lenders to enforce on the payment of the principal of and interest on any Loan after the date such principal or interest has become due and payable pursuant to the terms of this Agreement.
ARTICLE XIII. BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 13.3 hereof. Notwithstanding clause (ii) of this Section 13.1, any Lender may at any time, without the consent of the Borrower or the Administrative Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Administrative Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 13.3 hereof in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Administrative Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor.
(A) Permitted Participants; Effect.
Subject to the terms set forth in this Section 13.2, any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any Revolving Loan Commitment of such Lender, any L/C Interest of such Lender or any other interest of such Lender under the Loan Documents on a pro rata or non-pro rata basis. Notice of such participation to the Borrower and the Administrative Agent shall be required prior to any participation becoming effective with respect to a Participant which is not a Lender or an Affiliate thereof. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents except that, for purposes of Article IV hereof, the Participants shall be entitled to the same rights as if they were Lenders. The Lender selling a participating interest on its Loan, and the Participant(s) therein, shall bear their own fees and expenses incurred in connection with any such participation, and the Borrower shall have no obligation for any such fees or expenses.
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Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan or Revolving Loan Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable pursuant to the terms of this Agreement with respect to any such Loan or Revolving Loan Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan or Revolving Loan Commitment, or releases a significant portion of the Collateral, if any, securing any such Loan.
The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 12.1 hereof in respect to its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 12.1 hereof with respect to the amount of participating interests sold to each Participant except to the extent such Participant exercises its right of setoff. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 12.1 hereof, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 12.2 as if each Participant were a Lender.
Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or a portion of its rights and obligations under this Agreement (including, without limitation, its Revolving Loan Commitment, all Loans owing to it, all of its participation interests in existing Letters of Credit, and its obligation to participate in additional Letters of Credit hereunder) in accordance with the provisions of this Section 13.3. Each assignment shall be of a constant, and not a varying, ratable percentage of all of the assigning Lender's rights and obligations under this Agreement. Such assignment shall be substantially in the form of Exhibit E hereto and shall not be permitted hereunder unless such assignment is either for all of such Lender's rights and obligations under the Loan Documents or, without the prior written consent of the Administrative Agent, involves loans and commitments in an aggregate amount of at least $5,000,000 (which minimum amount may be waived by the Required Lenders after the occurrence of a Default or Unmatured Default). The consent of the Administrative Agent and, prior to the occurrence of a Default or Unmatured Default, the Borrower (which consent, in each such case, shall not be unreasonably withheld), shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof. The Lender assigning an interest in its Loan, and the Purchase(s) thereof, shall bear their own fees and expenses incurred in connection with any such transaction, and the Borrower shall have no obligation for any such fees or expenses.
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Upon (i) delivery to the Administrative Agent of a notice of assignment, substantially in the form attached as Appendix I to Exhibit E hereto (a "Notice of Assignment"), together with any consent required by Section 13.3.(A) hereof, and (ii), in the case of an assignment to a Purchaser which is not a Lender or an Affiliate thereof, payment of a $3,500 fee to the Administrative Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment, Loans and L/C Obligations under the applicable assignment agreement are "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser, if not already a Lender, shall for all purposes be a Lender party to this Agreement and any other Loan Documents executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Administrative Agent shall be required to release the transferor Lender with respect to the percentage of the Aggregate Revolving Loan Commitment, Loans and Letter of Credit participations assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 13.3(B), the transferor Lender, the Administrative Agent and the Borrower shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Revolving Loan Commitment, as adjusted pursuant to such assignment.
The Administrative Agent shall maintain at its address referred to in Section 14.1 a copy of each assignment delivered to and accepted by it pursuant to this Section 13.3 and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Revolving Loan Commitment of and principal amount of the Loans owing to, each Lender from time to time and whether such Lender is an original Lender or the assignee of another Lender pursuant to an assignment under this Section 13.3. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.
Subject to Section 13.5, the Administrative Agent and the Lenders shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with such Person's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a prospective Transferee in connection with the contemplated participation or assignment or as required or requested by any Governmental Authority or representative thereof or pursuant to legal process and shall require any such Transferee to agree (and require any of its Transferees to agree) to comply with this Section 13.4. In no event shall the Administrative Agent or any Lender be obligated or required to return any materials furnished by the Borrower; provided, however, each prospective Transferee shall be required to agree that if it does not become a participant or assignee it shall return all materials furnished to it by or on behalf of the Borrower in connection with this Agreement.
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13.5. Dissemination of Information.
The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the Borrower; provided that prior to any such disclosure, such prospective Transferee shall agree to preserve in accordance with Section 13.4 the confidentiality of any confidential information described therein.
Except as otherwise permitted by Section 2.14 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Documents shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes).
The Borrower, the Administrative Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto.
This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Administrative Agent and the Lenders and each party has notified the Administrative Agent by telex or telephone, that it has taken such action.
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IN WITNESS WHEREOF, the Borrower, the Lenders and the Administrative Agent have executed this Credit Agreement as of the date first above written.
STRATEGIC ENERGY, L.L.C. |
|
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By: /s/Lee McCracken |
Name: Lee McCracken |
Title: Vice President, Finance |
|
Address: Two Gateway
Center |
Attention: Lee McCracken |
Telephone No.: 412-394-5674 |
Facsimile No.: 412-258-4866 |
LASALLE BANK NATIONAL ASSOCIATION |
|
|
By: /s/Mark H. Veach |
Name: Mark H. Veach |
Title: First Vice President |
|
Address: One American Square,
Suite
1600 |
Attention: Mark H. Veach |
Telephone No.: 317-756-7011 |
Facsimile No.: 317-756-7021 |
PNC BANK, National Association |
|
|
By: /s/Thomas A. Majeski |
Name: Thomas A. Majeski |
Title: Vice President |
|
Address: One PNC Plaza,
2nd
Floor |
Attention: Thomas A. Majeski |
Telephone No.: 412-762-2431 |
Facsimile No.: 412-762-6484 |
CITIZENS BANK OF PENNSYLVANIA |
|
|
By: /s/Dwayne R. Finney |
Name: Dwayne R. Finney |
Title: Vice President |
|
Address: 525 William Penn
Place, 29th
Floor |
Attention: Dwayne R. Finney |
Telephone No.: 412-867-2425 |
Facsimile No.: 412-552-6307 |
PROVIDENT BANK |
|
|
By: /s/William R. Dickson, Jr. |
Name: William R. Dickson, Jr. |
Title: Vice President |
|
Address: 309 Vine Street --
235D |
Attention: William R. Dickson, Jr. |
Telephone No.: 412-263-4759 |
Facsimile No.: 412-263-4732 |
FIFTH THIRD BANK |
|
|
By: /s/Jim Janovsky |
Name: Jim Janovsky |
Title: Vice President |
|
Address: 1404 East Ninth
Street |
Attention: Jim Janovsky |
Telephone No.: 412-937-1855 x 27 |
Facsimile No.: 412-937-9896 |
Exhibit 10.1.b
Execution Copy
LIMITED GUARANTY
This LIMITED GUARANTY (as the same may be amended from time to time, the "Guaranty") is made as of the 11th day of June, 2003, by Great Plains Energy Incorporated, a Missouri corporation (the "Guarantor"), in favor of the "Lenders" under that certain Credit Agreement, dated as of June 11, 2003, by and among Strategic Energy, L.L.C., a Delaware limited liability company (the "Borrower"), the financial institutions from time to time parties thereto as Lenders (collectively, the "Lenders") and LaSalle Bank National Association, a national banking association, in its capacity as contractual representative for the Holders of Obligations (the "Administrative Agent"), as it may be amended, modified or supplemented from time to time (the "Credit Agreement").
1. Definitions.
Capitalized terms used in this Agreement and not otherwise defined herein or in the Credit Agreement shall have the following meanings, applicable to both the singular and plural forms of the terms defined. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement.
As used in this Guaranty:
"Additional Guaranty Amount" means the cumulative amount of any GPE Guaranty Increases that have become effective during the term of this Guaranty. Such amount automatically, and without further action by the Guarantor or the Administrative Agent, increases upon a GPE Guaranty Increase becoming effective.
"Base Guaranty Amount" means an amount equal to $25,000,000; provided, however, that so long as no Default or Unmatured Default under the Credit Agreement or Event of Default or GPE Cross Default under this Guaranty has occurred and is continuing, the Guarantor may at its option amend this Guaranty pursuant to the Guaranty Amount Amendment Agreement to increase or decrease the amount of the Base Guaranty Amount subject to the limitation that the Base Guaranty Amount can not be reduced to less than $25,000,000.00 or increased to greater than $40,000,000.00. Changes in the Base Guaranty Amount become effective when all conditions to effectiveness of the related Guaranty Amount Amendment Agreement have been satisfied.
"Borrower Fixed Charge Ratio" means with respect to Borrower, a ratio, which shall be calculated as of the last day of each fiscal quarter of the Borrower for the four (4) fiscal quarter period ending on such day, of (i) the sum of the amounts of (a) EBITDA minus (b) Capital Expenditures (collectively, the "Fixed Charge Numerator") to (ii) the sum of the amounts of (a) Interest Expense to the extent payable in cash plus (b) scheduled amortization payments of the principal portion of all Funded Indebtedness made during such period plus (c) cash income taxes paid by the Borrower and its consolidated Subsidiaries during such period plus (d) Distributions paid during such period (collectively, the "Fixed Charge Denominator").
"Event of Default" means each of the following occurrences:
(A) Breach of Covenants or Obligations.
The Guarantor shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on the Guarantor under this Guaranty.
(B) Breach of Representation or Warranty.
Any representation or warranty made or deemed made by the Guarantor herein or in any statement or certificate at any time given by the Guarantor pursuant to this Guaranty shall be false or misleading in any material respect on the date as of which made (or deemed made).
(C) Involuntary Bankruptcy; Appointment of Receiver, Etc.
(i) An involuntary case shall be commenced against the Guarantor and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Guarantor in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Guarantor or over all or a substantial part of the property of the Guarantor shall be entered; or an interim receiver, trustee or other custodian of the Guarantor or of all or a substantial part of the property of the Guarantor shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the property of the Guarantor shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance.
(D) Voluntary Bankruptcy; Appointment of Receiver, Etc.
The Guarantor shall (i) commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, (iii) consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property, (iv) make any assignment for the benefit of creditors or (v) take any corporate action to authorize any of the foregoing.
Any order, judgment or decree shall be entered against the Guarantor decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or the Guarantor shall otherwise dissolve or cease to exist.
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(F) Failure of GPE Guaranty Increase to Become Effective.
A GPE Guaranty Increase fails to become effective because a GPE Cross Default has occurred and is continuing.
"Expenses" is defined in Section 2(ii) of this Guaranty.
"Fixed Charge Denominator" is defined within the definition of "Borrower Fixed Charge Ratio".
"GPE Credit Agreement" means that certain Credit Agreement dated as of March 7, 2003 among the Guarantor, the lenders party thereto and Bank One, NA, as Administrative Agent, as the same may be amended from time to time, and any renewal or extension thereof.
"GPE Cross Default" means a Default, which solely for purposes of this definition, shall have the same meaning as in the GPE Credit Agreement, and (ii) a default or event of default under any replacement or refinancing of the GPE Credit Agreement.
"GPE Guaranty Increase" means an amount, calculated as of the last day of a fiscal quarter with respect to which the Borrower Fixed Charge Ratio is less than the Minimum Fixed Charge Ratio, such amount to be equal to the positive amount by which the Fixed Charge Denominator must be reduced to permit the Borrower Fixed Charge Ratio to equal to the Minimum Fixed Charge Ratio. A GPE Guaranty Increase shall be effective as of the last day of the fiscal quarter with respect to which the Borrower Fixed Charge Ratio was calculated; provided, however, that a GPE Guaranty Increase shall not become effective on such date if a GPE Cross Default has occurred and is continuing.
"Guaranty Amount Amendment Agreement" means that certain amendment form attached hereto as Exhibit A and incorporated herein.
"Maximum Guaranty Amount" means an amount equal to the sum of the Base Guaranty Amount and the Additional Guaranty Amount, which amount automatically, and without further action by the Guarantor or the Administrative Agent, adjusts from time to time upon the effectiveness of changes in the Base Guaranty Amount and the Additional Guaranty Amount.
"Minimum Fixed Charge Ratio" means 1.05 to 1.00.
2. Guaranty.
(i) For value received and in consideration of any loan, advance or financial accommodation of any kind whatsoever heretofore, now or hereafter made, given or granted to the Borrower by the Lenders, the Guarantor unconditionally guarantees for the benefit of each of the Holders of Obligations the full and prompt payment when due and payable (by acceleration or otherwise) following the occurrence of a Default, and at all times thereafter, of all of the Obligations (including, without limitation, interest accruing following the filing of a bankruptcy petition by or against the Borrower, at the applicable rate specified in the Credit Agreement, whether or not such interest is allowed as a claim in bankruptcy); provided, however, that the liability of the Guarantor under this Guaranty shall be limited to the Expenses plus an amount equal to the Maximum Guaranty Amount in effect at such time.
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(ii) After the occurrence and during the continuance of a Default, the Guarantor shall (a) pay to the Administrative Agent, for the benefit of the Holders of Obligations, within three (3) days of the occurrence of the Default and in immediately available funds, the full amount of the Obligations (including any portion thereof which is not yet due and payable), and (b) pay to the Administrative Agent and reimburse the Administrative Agent for, on demand (but no sooner than three (3) days after the occurrence of the Default) and in immediately available funds, all reasonable and documented fees, costs and expenses (including, without limitation, all reasonable and documented court costs and attorneys' and paralegals' fees, costs and expenses) paid or incurred by the Administrative Agent or any of the Holders of Obligations in: (1) endeavoring to collect all or any part of the Obligations from, or in prosecuting any action against, the Guarantor relating to this Guaranty or the t ransactions contemplated thereby; and (2) preserving, protecting or defending the enforceability of, or enforcing, this Guaranty or their respective rights hereunder (all such costs and expenses are hereinafter referred to as the "Expenses"); provided, however, that the liability of the Guarantor under this Guaranty shall be limited to the Expenses plus an amount equal to the Maximum Guaranty Amount in effect at such time. The Guarantor hereby agrees that this Guaranty is an absolute guaranty of payment and is not a guaranty of collection.
3. Obligations Unconditional.
The Guarantor hereby agrees that its obligations under this Guaranty shall be unconditional, irrespective of:
(i) the validity, enforceability, avoidance, novation or subordination of any of the Obligations or any of the Loan Documents;
(ii) the absence of any attempt by, or on behalf of, any Holder of Obligations or the Administrative Agent to collect, or to take any other action to enforce, all or any part of the Obligations whether from or against the Borrower, any other guarantor of the Obligations or any other Person;
(iii) the election of any remedy by, or on behalf of, any Holder of Obligations or the Administrative Agent with respect to all or any part of the Obligations;
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(iv) the waiver, consent, extension, forbearance or granting of any indulgence by, or on behalf of, any Holder of Obligations or the Administrative Agent with respect to any provision of any of the Loan Documents;
(v) the failure of the Administrative Agent to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for the Obligations;
(vi) the election by, or on behalf of, any one or more of the Holders of Obligations, in any proceeding instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C. 101 et seq.) (the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the Bankruptcy Code;
(vii) any borrowing or grant of a security interest by the Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code;
(viii) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of the claims of any of the Holders of Obligations or the Administrative Agent for repayment of all or any part of the Obligations or any Expenses; or
(ix) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Borrower or the Guarantor.
4. Enforcement; Application of Payments.
If payment under this Guaranty is not made by the Guarantor as required under Section 2(ii) of this Guaranty, the Administrative Agent may proceed directly and at once, without notice, against the Guarantor to obtain performance of and to collect and recover the full amount, or any portion, of the Obligations (subject to the limitations set forth in Section 2 of this Guaranty), without first proceeding against the Borrower or any other Person, or against any security or collateral for the Obligations. Subject only to the terms and provisions of the Credit Agreement, the Administrative Agent shall have the exclusive right to determine the application of payments and credits, if any, from the Guarantor, the Borrower or from any other Person on account of the Obligations or any other liability of the Guarantor to any Holder of Obligations.
5. Representations and Warranties.
The Guarantor represents and warrants as follows to each Lender and the Administrative Agent as of the date hereof:
(i) The Guarantor (a) is a corporation duly organized, validly existing and in existence under the laws of the jurisdiction of its organization, (b) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Guarantor, and (c) has all requisite corporate power and authority to own, operate and encumber its property;
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(ii) The Guarantor has the requisite corporate power and authority to execute, deliver and perform this Guaranty and any other document required to be delivered by it under the Credit Agreement, and this Guaranty has been duly executed and delivered and constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms; and
(iii) The execution, delivery and performance of this Guaranty do not and will not (a) conflict with the Articles of Incorporation or By-Laws of the Guarantor, (b) require any approval of the Guarantor's shareholders except such as has been obtained, (c) require any approval or consent of any Person or Governmental Authority, or under the terms of any material agreement except as such has been obtained, and (d) will not result in or require the creation of any lien or security interest upon or with respect to any of the properties or assets of the Guarantor.
6. Covenants.
The Guarantor covenants and agrees that during the term of this Guaranty the Guarantor shall (i) promptly upon either of the chief executive officer or chief financial officer, of the Guarantor obtaining knowledge of any condition or event which constitutes an Event of Default or a GPE Cross Default, deliver to the Administrative Agent an officer's certificate specifying (a) the nature and period of existence of any such Event of Default or GPE Cross Default, (b) the notice given or action taken by any other Person in connection therewith, and (c) what action the Guarantor has taken, is taking or proposes to take with respect thereto, and (ii) promptly notify the Administrative Agent of any event or action which results in the GPE Credit Agreement becoming a secured obligation of the Guarantor.
7. Waivers.
(i) The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of receivership or bankruptcy of the Borrower, protest or notice with respect to the Obligations, all setoffs and counterclaims and all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty, and all other demands whatsoever (and shall not require that the same be made on the Borrower as a condition precedent to the Guarantor's obligations hereunder), and covenants that this Guaranty will not be discharged, except by complete payment (in cash) and performance of the Obligations (subject to the limitations set forth in Section 2 of this Guaranty) and any other obligations contained herein. The Guarantor further waives all notices of the existence, creation or incurring of new or additional indebtedness, arising either from additional loans extended to the Borrower or otherwise, and also waives all notices that the principal amount, or any portion thereof, and/or any interest on any instrument or document evidencing all or any part of the Obligations is due, notices of any and all proceedings to collect from the maker, any endorser or any other guarantor of all or any part of the Obligations, or from any other Person, and, to the extent permitted by law, notices of exchange, sale, surrender or other handling of any security or collateral, given to the Administrative Agent to secure payment of all or any part of the Obligations.
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(ii) The Holders of Obligations, either themselves or acting through the Administrative Agent, may from time to time in their sole discretion, without notice or demand and without affecting the liability of the Guarantor hereunder: (a) renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to, all or any part of the Obligations, or otherwise modify, amend or change the terms of any of the Loan Documents; (b) accept partial payments on all or any part of the Obligations; (c) take and hold security or collateral for the payment of all or any part of the Obligations, this Guaranty, or any other guaranties of all or any part of the Obligations or other liabilities of the Borrower, (d) exchange, enforce, waive and release any such security or collateral; (e) apply such security or collateral and direct the order or manner of sale thereof as in their discretion they may determine; (f) settle, release, exchange, enforce, waive, compromise or collect or otherwise liquidate all or any part of the Obligations, this Guaranty, any other guaranty of all or any part of the Obligations, and any security or collateral for the Obligations or for any such guaranty; and/or (g) otherwise deal with the Borrower or any other Person that may become liable for all or any part of the Obligations. Any of the foregoing may be done in any manner, without affecting or impairing the obligations of the Guarantor hereunder.
8. Setoff.
At any time after all or any part of the Obligations have become due and payable (by acceleration or otherwise) following the occurrence of a Default, each Holder of Obligations and the Administrative Agent may, without notice to the Guarantor and regardless of the acceptance of any security or collateral for the payment hereof, appropriate and apply toward the payment of all or any part of the Obligations (subject to the limitations set forth in Section 2 of this Guaranty) (i) any indebtedness due or to become due from such Holder of Obligations or the Administrative Agent to the Guarantor, and (ii) any moneys, credits or other property belonging to the Guarantor, at any time held by or coming into the possession of such Holder of Obligations or the Administrative Agent or any of their respective affiliates.
9. Financial Information.
The Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrower and any and all endorsers and/or other guarantors of all or any part of the Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Obligations, or any part thereof, that diligent inquiry would reveal, and the Guarantor hereby agrees that none of the Holders of Obligations nor the Administrative Agent shall have any duty to advise the Guarantor of information known to any of them regarding such condition or any such circumstances. In the event any Holder of Obligations, in its sole discretion, undertakes at any time or from time to time to provide any such information to the Guarantor, such Holder of Obligations shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which such Holder of Obligations, pursuant to acc epted or reasonable commercial finance or banking practices, wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to the Guarantor.
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10. No Marshaling; Reinstatement.
The Guarantor consents and agrees that none of the Holders of Obligations nor the Administrative Agent nor any Person acting for or on behalf of the Holders of Obligations or the Administrative Agent shall be under any obligation to marshal any assets in favor of the Guarantor or against or in payment of any or all of the Obligations. The Guarantor further agrees that, to the extent that the Borrower, the Guarantor or any other guarantor of all or any part of the Obligations makes a payment or payments to any Holder of Obligations or the Administrative Agent, or any Holder of Obligations or the Administrative Agent receives any proceeds of Collateral, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to the Borrower, the Guarantor, such other guarantor or any other Person, or their respective estates, trustees, receivers or any other pa rty, including, without limitation, the Guarantor, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the part of the Obligations which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the time immediately preceding such initial payment, reduction or satisfaction.
11. Subrogation; Assignment of Claims.
The Guarantor hereby agrees not to (i) exercise any rights of subrogation (whether contractual, under Section 509 of the Bankruptcy Code, under common law, or otherwise) to the claims of the Lenders and the Administrative Agent against Borrower or any contractual, statutory or common law rights of contribution, reimbursement, indemnification and similar rights and "claims" (as such term is defined in the Bankruptcy Code) against Borrower which arise in connection with, or as a result of, this Guaranty or, (ii) assign or transfer to any Person any claim the Guarantor has or may have against the Borrower, until, in each case, such time as the Obligations have been indefeasibly paid in full (in cash) and all financing commitments contained in the Credit Agreement have been terminated.
12. Enforcement; Amendments; Waivers.
No delay on the part of any of the Holders of Obligations or the Administrative Agent in the exercise of any right or remedy arising under this Guaranty, the Credit Agreement, any of the other Loan Documents or otherwise with respect to all or any part of the Obligations, the Collateral or any other guaranty of or security for all or any part of the Obligations shall operate as a waiver thereof, and no single or partial exercise by any such Person of any such right or remedy shall preclude any further exercise thereof. No modification or waiver of any of the provisions of this Guaranty shall be binding upon the Holders of Obligations or the Administrative Agent, except as expressly set forth in a writing duly signed and delivered by the party making such modification or waiver and approved by the Administrative Agent. Failure by any of the Holders of Obligations or the Administrative Agent at any time or times hereafter to require strict perf ormance by the Borrower, the Guarantor, any other guarantor of all or any part of the Obligations or any other Person of any of the provisions, warranties, terms and conditions contained in any of the Loan Documents now or at any time or times hereafter executed by such Persons and delivered to the Administrative Agent or any Holder of Obligations shall not waive, affect or diminish any right of the Administrative Agent or such Holder of Obligations at any time or times hereafter to demand strict performance thereof and such right shall not be deemed to have been waived by any act or knowledge of the Administrative Agent or any Holder of Obligations, or their respective agents, officers or employees, unless such waiver is contained in an instrument in writing, directed and delivered to the Borrower or the Guarantor, as applicable, specifying such waiver, and is signed by the party or parties necessary to give such waiver under the Credit Agreement. No waiver of any Default by the Administrative Agent or any Holder of Obligations shall operate as a waiver of any other Default or the same Default on a future occasion, and no action by the Administrative Agent or any Holder of Obligations permitted hereunder shall in any way affect or impair the Administrative Agent's or any Holder of Obligations' rights and remedies or the obligations of the Guarantor under this Guaranty. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest owing by the Borrower to any of the Holders of Obligations shall be conclusive and binding on the Guarantor irrespective of whether the Guarantor was a party to the suit or action in which such determination was made.
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13. Effectiveness; Termination.
This Guaranty shall become effective upon its execution by the Guarantor and shall continue in full force and effect until the Obligations shall have been indefeasibly paid (in cash) and discharged and the financing commitments contained in the Credit Agreement shall have been terminated. The Guarantor may terminate or revoke this Guaranty; provided, however that such termination or revocation shall not be effective until ten (10) Business Days after written notice of such revocation or termination, specifically referring hereto, signed by the Guarantor, is actually received by the Lenders. Such notice shall not affect (i) the liability of the Guarantor for any Obligations, and (ii) the right and power of any of the Holders of Obligations or the Administrative Agent to enforce their rights under this Guaranty, which in either case arose prior to the effective time of such revocation or termination. If any Holder of Obligations grants loans or takes other action after the Guarantor terminates or revokes this Guaranty but before the Administrative Agent receives such written notice, the rights of such Holder of Obligations with respect thereto shall be the same as if such termination or revocation had not occurred.
14. Successors and Assigns.
This Guaranty shall be binding upon the Guarantor and upon its successors and assigns and shall inure to the benefit of the Holders of Obligations and the Administrative Agent and their respective successors and assigns permitted pursuant to the Credit Agreement; all references herein to the Borrower and to the Guarantor shall be deemed to include their respective successors and assigns. The successors and assigns of the Guarantor and the Borrower shall include, without limitation, their respective receivers, trustees or debtors-in-possession. All references to the singular shall be deemed to include the plural where the context so requires.
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15. Officer Authority.
The undersigned hereby certifies that he/she has all necessary authority to grant and execute this Guaranty on behalf of the Guarantor.
16. Governing Law.
This Guaranty shall be governed by and interpreted and enforced in accordance with the internal laws (without regard to conflicts of law provisions) of the State of Illinois. Without limiting the foregoing, any dispute between the Administrative Agent and the Guarantor arising out of or related to the relationship established between them in connection with this Guaranty, and whether arising in contract, tort, equity, or otherwise, shall be resolved in accordance with the internal laws, and not the conflicts of law provisions, of the State of Illinois.
17. Consent to Jurisdiction; Counterclaims; Forum Non Conveniens.
(a) Exclusive Jurisdiction
Except as provided in subsection (b) of this Section 17, the Administrative Agent, on behalf of itself and the Holders of Obligations, and the Guarantor agree that all disputes between them arising out of or related to the relationship established between them in connection with this Guaranty, whether arising in contract, tort, equity, or otherwise, shall be resolved only by state or federal courts located in Chicago, Illinois, but the parties acknowledge that any appeals from those courts may have to be heard by a court located outside of Chicago, Illinois.
(b) Other Jurisdictions.
The Administrative Agent shall have the right to proceed against the Guarantor or its real or personal property in a court in any location to enable the Administrative Agent to obtain personal jurisdiction over the Guarantor or to enforce a judgment or other court order entered in favor of the Administrative Agent. The Guarantor shall not assert any permissive counterclaims in any proceeding brought by the Administrative Agent under this clause (b) arising out of or relating to this Guaranty.
(c) Venue; Forum Non Conveniens.
Each of the Guarantor and the Administrative Agent waives any objection that it may now or hereafter have (including, without limitation, any objection to the laying of venue or based on forum non conveniens) to the location of the court in which any proceeding with respect to this Guaranty or any other document executed or delivered in connection herewith is commenced in accordance with this Section 16.
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18. Waiver of Jury Trial.
Each of the Guarantor and the Administrative Agent waives any right to trial by jury in any dispute, whether sounding in contract, tort, or otherwise, between the Administrative Agent and the Guarantor arising out of or related to the transactions contemplated by this Guaranty or any other instrument, document or agreement executed or delivered in connection herewith. Either the Guarantor or the Administrative Agent may file an original counterpart or a copy of this Guaranty with any court as written evidence of the consent of the parties hereto to the waiver of their right to trial by jury.
19. Waiver of Bond.
The Guarantor waives the posting of any bond otherwise required of the Administrative Agent in connection with any judicial process or proceeding to enforce any judgment or other court order entered in favor of the Administrative Agent, or to enforce by specific performance, temporary restraining order, or preliminary or permanent injunction, this Guaranty or any other agreement or document between the Administrative Agent and the Guarantor.
20. Advice of Counsel.
The Guarantor represents and warrants that it has consulted with its legal counsel regarding all waivers under this Guaranty, including without limitation those under Section 7 and Sections 17 through 19 hereof, that it believes that it fully understands all rights that it is waiving and the effect of such waivers, that it assumes the risk of any misunderstanding that it may have regarding any of the foregoing, and that it intends that such waivers shall be a material inducement to the Administrative Agent and the Holders of Obligations to extend the indebtedness guaranteed hereby.
21. Notices.
All notices and other communications required or desired to be served, given or delivered hereunder shall be in writing or by a telecommunications device capable of creating a printed record and shall be addressed to the party to be notified as follows:
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if to the Guarantor, at: |
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Great Plains Energy, Incorporated |
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1201 Walnut |
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Kansas City, Missouri 64106 |
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Attention: Andrea F. Bielsker |
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Telecopy: 816-556-2924 |
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Confirmation: 816-556-2059 |
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if to the Administrative Agent, at: |
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LaSalle Bank National Association |
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One American Square, Suite 1600 |
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Indianapolis, Indiana 46282 |
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Attention: Mark H. Veach |
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Telecopy: 317-756-7021 |
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Confirmation: 317-756-7011 |
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if to the Lenders, at: |
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LaSalle Bank National Association |
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One American Square, Suite 1600 |
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Indianapolis, Indiana 46282 |
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Attention: Mark H. Veach |
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Telecopy: 317-756-7021 |
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Confirmation: 317-756-7011 |
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PNC Bank, National Association |
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One PNC Plaza, 2nd Floor |
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249 Fifth Avenue |
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Pittsburgh, PA 15222-2707 |
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Attention: Thomas A. Majeski |
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Telecopy: 412-762-6484 |
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Confirmation: 412-762-2431 |
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Citizens Bank of Pennsylvania |
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525 William Penn Place, 29th Floor |
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Pittsburgh, PA 15219-1729 |
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Attention: Dwayne R. Finney |
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Telecopy: 412-552-6307 |
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Confirmation: 412-867-2425 |
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Provident Bank |
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309 Vine Street -- 235D |
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Cincinnati, OH 45202 |
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Attention: William R. Dickson, Jr. |
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Telecopy: 412-263-4732 |
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Confirmation: 412-263-4759 |
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Fifth Third Bank |
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1404 E. Ninth Street |
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Cleveland, OH 44114 |
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Attention: Jim Janovsky |
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Telecopy: 412-937-9896 |
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Confirmation: 412-937-1855 x 27 |
or, as to each party, at such other address as designated by such party in a written notice to the other party. All such notices and communications shall be deemed to be validly served, given or delivered (i) three (3) days following deposit in the United States mails, with proper postage prepaid; (ii) upon delivery thereof if delivered by hand to the party to be notified; (iii) upon delivery thereof to a reputable overnight courier service, with delivery charges prepaid; or (iv) upon confirmation of receipt thereof if transmitted by a telecommunications device.
22. Severability.
Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Guaranty.
23. Merger.
This Guaranty represents the final agreement of the Guarantor with respect to the matters contained herein and may not be contradicted by evidence of prior or contemporaneous agreements, or subsequent oral agreements, between the Guarantor and the Administrative Agent or any Holder of Obligations.
24. Execution in Counterparts.
This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
25. No Strict Construction.
The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.
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[Signature Page Follows]
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IN WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor as of the day and year first set forth above.
GREAT PLAINS ENERGY INCORPORATED |
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By: /s/Andrea F. Bielsker |
Name: Andrea F. Bielsker |
Title: Senior Vice President-Finance, Chief Financial |
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Acknowledged and
Accepted as at June 11, 2003
LASALLE BANK NATIONAL ASSOCIATION,
as Administrative Agent
By: /s/Mark H. Veach
Name: March H. Veach
Title: First Vice President
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EXHIBIT A
TO
Limited Guaranty
Form of Guaranty Amount Amendment Agreement
TO: LaSalle Bank National Association, as contractual representative for the Lenders, (the "Administrative Agent") under that certain Credit Agreement, dated as of June 11, 2003 (the "Credit Agreement"), by and among Strategic Energy, L.L.C. (the "Borrower"), the financial institutions from time to time parties thereto as lenders (the "Lenders") and the Administrative Agent.
Unless otherwise defined herein, terms defined or used in that certain Limited Guaranty dated as of June 11, 2003 from Great Plains Energy, Incorporated (the "Guarantor") in favor of the Lenders under the Credit Agreement (the "GPE Guaranty") shall have the same meanings in this Guaranty Amount Amendment Agreement.
Upon the Effective Date (as hereinafter defined), the Guarantor amends the GPE Guaranty to [increase/decrease] the Base Guaranty Amount to $__________ (which amount is not less than $25,000,000.00 nor more than $40,000,000.00).
The Guarantor hereby represents and warrants that:
(i) The Guarantor (a) is a corporation duly organized, validly existing and in existence under the laws of the jurisdiction of its organization, (b) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Guarantor, and (c) has all requisite corporate power and authority to own, operate and encumber its property;
(ii) The Guarantor has the requisite corporate power and authority to execute, deliver and perform this Guaranty Amount Amendment Agreement and any other document required to be delivered by it under the Credit Agreement or the GPE Guaranty, and this Guaranty Amount Amendment Agreement has been duly executed and delivered and constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms;
(iii) The execution, delivery and performance of this Guaranty Amount Amendment Agreement do not and will not (a) conflict with the Articles of Incorporation or By-Laws of the Guarantor, (b) require any approval of the Guarantor's shareholders except such as has been obtained, (c) require any approval or consent of any Person or Governmental Authority, or under the terms of any material agreement except as such has been obtained, and (d) will not result in or require the creation of any lien or security interest upon or with respect to any of the properties or assets of the Guarantor other than pursuant to the Loan Documents;
(iv) No Default or Unmatured Default has occurred and is continuing under the Credit Agreement; and
(v) No Event of Default or GPE Cross Default has occurred and is continuing under the GPE Guaranty.
This Guaranty Amount Amendment Agreement, and the amendment of the GPE Guaranty contemplated thereby, will become effective on the date that all of the following conditions precedent have been met (or waived) as determined by the Administrative Agent in its sole discretion (the "Effective Date"): (i) execution of this Guaranty Amount Amendment Agreement by the Guarantor, the Borrower and the Administrative Agent, (ii) the representations and warranties contained herein shall be true and correct in all respects, and (iii) in the event that the change in the Base Guaranty Amount referenced herein would result in the Borrower being required to make a mandatory prepayment under Section 2.3(B) of the Credit Agreement, the Borrower makes a pre-payment under the Credit Agreement equal to the amount of the mandatory prepayment that would be caused by the change in the Base Guaranty Amount contemplated hereby.
Except as expressly set forth herein, this Guaranty Amount Amendment Agreement shall not be deemed to waive or modify any provision of the GPE Guaranty and, as so modified, the GPE Guaranty is hereby reaffirmed and remains in full force and effect. This Guaranty Amount Amendment Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. THIS GUARANTY AMOUNT AMENDMENT AGREEMENT SHALL BE GOVERNED BY, CONSTRUED UNDER AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAW, AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS. This Guaranty Amount Amendment Agreement may be delivered by facsimile and executed in one or more counterparts and by different parties in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which counterparts taken together shall constitute but one and the same agreement.
[Signature Page Follows]
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GREAT PLAINS ENERGY INCORPORATED |
Acknowledged and Agreed:
STRATEGIC ENERGY, L.L.C.
By:
Name:
Title:
Date:
LASALLE BANK NATIONAL ASSOCIATION,
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Exhibit 10.1.c
GUARANTY AMOUNT AMENDMENT AGREEMENT
TO: LaSalle Bank National Association, as contractual representative for the Lenders, (the "Administrative Agent") under that certain Credit Agreement, dated as of June 11, 2003 (the "Credit Agreement"), by and among Strategic Energy, L.L.C. (the "Borrower"), the financial institutions from time to time parties thereto as lenders (the "Lenders") and the Administrative Agent.
Unless otherwise defined herein, terms defined or used in that certain Limited Guaranty dated as of June 11, 2003 from Great Plains Energy, Incorporated (the "Guarantor") in favor of the Lenders under the Credit Agreement (the "GPE Guaranty") shall have the same meanings in this Guaranty Amount Amendment Agreement.
Upon the Effective Date (as hereinafter defined), the Guarantor amends the GPE Guaranty to increase the Base Guaranty Amount to $40,000,000.00.
The Guarantor hereby represents and warrants that:
(i) The Guarantor (a) is a corporation duly organized, validly existing and in existence under the laws of the jurisdiction of its organization, (b) is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing could reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), operations, performance, properties or prospects of the Guarantor, and (c) has all requisite corporate power and authority to own, operate and encumber its property;
(ii) The Guarantor has the requisite corporate power and authority to execute, deliver and perform this Guaranty Amount Amendment Agreement and any other document required to be delivered by it under the Credit Agreement or the GPE Guaranty, and this Guaranty Amount Amendment Agreement has been duly executed and delivered and constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms;
(iii) The execution, delivery and performance of this Guaranty Amount Amendment Agreement do not and will not (a) conflict with the Articles of Incorporation or By-Laws of the Guarantor, (b) require any approval of the Guarantor's shareholders except such as has been obtained, and (c) require any approval or consent of any Person or Governmental Authority, or under the terms of any material agreement except as such has been obtained;
(iv) No Default or Unmatured Default has occurred and is continuing under the Credit Agreement; and
(v) No Event of Default or GPE Cross Default has occurred and is continuing under the GPE Guaranty.
This Guaranty Amount Amendment Agreement, and the amendment of the GPE Guaranty contemplated thereby, will become effective on the date that all of the following conditions precedent have been met (or waived) as determined by the Administrative Agent in its sole discretion (the "Effective Date"): (i) execution of this Guaranty Amount Amendment Agreement by the Guarantor, the Borrower and the Administrative Agent, (ii) the representations and warranties contained herein shall be true and correct in all respects, and (iii) in the event that the change in the Base Guaranty Amount referenced herein would result in the Borrower being required to make a mandatory prepayment under Section 2.3(B) of the Credit Agreement, the Borrower makes a pre-payment under the Credit Agreement equal to the amount of the mandatory prepayment that would be caused by the change in the Base Guaranty Amount contemplated hereby.
Except as expressly set forth herein, this Guaranty Amount Amendment Agreement shall not be deemed to waive or modify any provision of the GPE Guaranty and, as so modified, the GPE Guaranty is hereby reaffirmed and remains in full force and effect. This Guaranty Amount Amendment Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. THIS GUARANTY AMOUNT AMENDMENT AGREEMENT SHALL BE GOVERNED BY, CONSTRUED UNDER AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAW, AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS, OF THE STATE OF ILLINOIS. This Guaranty Amount Amendment Agreement may be delivered by facsimile and executed in one or more counterparts and by different parties in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which counterparts taken together shall constitute but one and the same agreement.
[Signature Page Follows]
GREAT PLAINS ENERGY INCORPORATED |
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Acknowledged and Agreed:
STRATEGIC ENERGY, L.L.C. |
By: /s/Lee M. McCracken |
Name: Lee M. McCracken |
Title: Vice President, Finance |
Date: 8/4/03 |
LASALLE BANK NATIONAL ASSOCIATION, |
Exhibit 10.1.d
GUARANTY
This Guaranty, dated as of June 30, 2003, is made by Great Plains Energy Incorporated (herein called "Guarantor"), a Missouri corporation with its principal place of business located at 1201 Walnut, Kansas City, Missouri 64106, in favor of El Paso Merchant Energy, L.P. (herein called "Creditor") with its principal place of business located at 1001 Louisiana, Houston, Tx 77002.
Creditor and Strategic Energy, L.L.C., a Delaware limited liability company and a related company of Guarantor (Guarantor has an indirect ownership interest in Strategic Energy, L.L.C.), with its principal place of business located at Two Gateway Center, Pittsburgh, PA 15222, (herein called "Debtor") have entered into or hereafter may enter into contracts, agreements or commitments (i) for the sale, purchase, exchange, transmission or transportation of electricity or (ii) which constitute or cover swaps, options or other derivative transactions relative to electricity or the price thereof (herein collectively called the "Agreements"). In order to induce Creditor to extend or to continue to extend credit to Debtor pursuant to the Agreements, Guarantor has agreed to provide to Creditor this Guaranty and acknowledges adequate consideration, including the fact that it will benefit directly and/or indirectly from the Agreement, and hereby further agrees as follows:
Section 1. Guaranty. Guarantor hereby unconditionally guarantees the punctual and complete payment when due (whether at stated maturity, by acceleration or otherwise), of any and all indebtedness, liabilities, and obligations under the Agreements of Debtor to Creditor now or hereafter existing, whether absolute or contingent, joint and/or several, secured or unsecured, direct or indirect (all such indebtedness, liabilities and obligations are being herein collectively called the "Obligations"). This Guaranty is a guarantee of payment and not of collection. Guarantor acknowledges that it is jointly and severally liable for payment of the Obligations.
Section 2. Demands. If Debtor fails or refuses to pay any Obligations when due, and Creditor elects to exercise its rights under this Guaranty, Creditor shall make a demand upon Guarantor (hereinafter referred to as a "Payment Demand"). A Payment Demand shall be in writing and shall reasonably and briefly specify in what manner and what amount Debtor has failed to pay and an explanation of why such payment is due, with a specific statement that Creditor is calling upon Guarantor to pay under this Guaranty. A Payment Demand satisfying the foregoing requirements when delivered to Guarantor pursuant to Section 9 of this Guaranty shall be the only requirement with respect to Obligations before Guarantor is required to pay such Obligations hereunder and shall be deemed sufficient notice to Guarantor that it must pay the Obligations within ten (10) days after its receipt of the Payment Demand. A single written Payment Demand that complies with the terms of this Section 2 shall be effective as to any specific failure to pay during the continuance of such failure to pay, until Debtor or Guarantor has cured such failure to pay, and additional written demands concerning such failure to pay shall not be required until such failure to pay is cured.
Section 3. Guaranty Absolute. Creditor may, at any time and from time to time, without the consent of or notice to Guarantor, and without impairing, reducing, affecting or releasing the Obligations of Guarantor hereunder:
(a) change the manner, place or terms of payment of, or renew, extend or alter, any or all of the Obligations;
(b) amend, waive, terminate or otherwise modify, alter, extend or supplement, any document or agreement relating to any of the Obligations;
(c) release the Debtor or any other person liable in any manner for payment of any or all of the Obligations;
(d) take, substitute, surrender, exchange or release any collateral for any or all of the Obligations; or
(e) except as to applicable statutes of limitation, exercise or refrain from exercising any rights against Debtor or any other person or otherwise act or refrain from acting or otherwise fail to be diligent.
Section 4. Waiver. Except with respect to the limited terms and conditions otherwise provided in Sections 2, 7 or 10 hereof, Guarantor hereby waives:
(a) notice of acceptance of this Guaranty, of the creation and/or existence of any of the Agreements or Obligations, and of any action by Creditor in reliance hereon or in connection herewith;
(b) promptness, diligence, presentment, demand for payment, notice of dishonor or nonpayment, protest and notice of protest with respect to the Obligations;
(c) any requirement that suit be brought against, or any other action by Creditor be taken against, or any notice of default or other notice be given to, or any demand be made on, the Debtor or any other person, or that any other action be taken or not taken as a condition to Guarantor's obligations under this Guaranty or as a condition to enforcement of this Guaranty against Guarantor, and
(d) all other notices.
Section 5. Effect of Certain Events. Guarantor agrees that Guarantor's liability hereunder will not be released, reduced, affected or impaired by the occurrence of any one or more of the following events:
(a) The liquidation, dissolution, assignment for the benefit of creditors, insolvency, bankruptcy, reorganization, release, merger, receivership or discharge of Debtor, or the arrangement, composition or readjustment or other similar proceeding affecting the status, composition, identity, existence, assets or obligations of Debtor, or the disaffirmance or termination of any of the Obligations or Agreements in or as a result of any such proceeding;
(b) The renewal, consolidation, extension, modification, supplementation, termination or amendment from time to time of any of the Agreements that might otherwise affect the Obligations;
(c) Except as to applicable statutes of limitation, the failure, delay, lack of diligence, waiver or refusal by Creditor to exercise, in whole or part, any right or remedy held by Creditor with respect to the Agreements or the Obligations;
(d) The sale, encumbrance, transfer or other modification of the ownership of Debtor or the change in the financial condition or management of Debtor;
(e) Lack of consideration or any other deficiency in the formation of the Agreement and any and all amendments and modifications thereof;
(f) Lack of organizational power or authority of Guarantor or Debtor; or
(g) Any changes to the ownership of the Debtor or its asset structure, including but not limited to sale, merger, acquisition, encumbrance, lien, hypothecation or otherwise.
Section 6. Representations and Warranties. Guarantor hereby represents and warrants to Creditor as follows:
(a) Guarantor is a corporation, duly organized, validly existing and in good standing under the laws of the state of its organization, and is duly qualified and in good standing in each jurisdiction where the nature of its business or the character of the assets and properties owned or held under lease by it requires such qualification, except where the failure to so quality could not reasonably be expected to have a material adverse effect on Guarantor. Guarantor has all requisite power and authority, organizational or otherwise, to conduct in all material respects its business and to own, or hold under lease, its material assets or properties and to execute and deliver, and perform all of its obligations under this Guaranty;
(b) The execution, delivery and performance by Guarantor of this Guaranty are within the Guarantor's organizational powers, have been duly authorized by all necessary corporate action and do not contravene the organizing documents of Guarantor or any law or material contractual restriction binding on or affecting Guarantor;
(c) This Guaranty is the legal, valid and binding obligation of Guarantor enforceable against the Guarantor in accordance with its terms except as the enforceability of this Guaranty may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors rights generally and by general principles of equity; and
(d) Debtor is a majority-owned indirect subsidiary of Guarantor and Guarantor will benefit, directly or indirectly, from the Guaranty granted hereby.
Section 7. Setoffs and Counterclaims. Without limiting Guarantor's own defenses and rights hereunder, Guarantor reserves to itself all rights, setoffs, counterclaims and other defenses to which Debtor or any other affiliate of Guarantor is or may be entitled to, relating to or arising from or out of the Agreements or otherwise, except for defenses relating to, arising from or out of the bankruptcy, insolvency, dissolution or liquidation of Debtor.
Section 8. Amendments, etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by Creditor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
Section 9. Addresses for Notices. All notices and other communications provided for hereunder shall (i) be in writing and shall be addressed to the parties at their respective addresses set forth above or at such other addresses as shall be designated in a written notice to the other party and (ii) except as otherwise provided herein, when mailed, be effective five days after being deposited in the U.S. mail, registered or certified mail, return receipt requested, postage prepaid, and, in the case of personal delivery, when delivered at the aforesaid address. Notwithstanding anything herein to the contrary, any notice of termination provided by Guarantor to Creditor shall be transmitted to Creditor only by certified mail, return receipt requested.
Section 10. No Waiver; Remedies. Except as to applicable statutes of limitation or repose, no failure on the part of Creditor to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
Section 11. Continuing Guaranty; Termination. This Guaranty is an absolute and continuing guaranty, except as specifically set forth herein. This Guaranty shall terminate on the first to occur of (a) thirty (30) days after Creditor receives written notice from Guarantor of such termination, and (b) June 30, 2004 (the "Termination Date"). From and after the Termination Date, Guarantor shall have no liability whatsoever for any Obligations created or incurred after the Termination Date, but no such termination of this Guaranty shall affect Guarantor's obligations hereunder for any Obligations created or incurred on or before the Termination Date. Notwithstanding anything to the contrary herein, this Guaranty shall continue to be effective or reinstated, as the case may be, if at any time payment, or any part thereof, for any of the Obligations created, incurred or otherwise contracted for on or before the Termination Date, is rescinded or must otherwise be returned by Creditor upon the insolvency, bankruptcy or reorganization of Debtor, or otherwise under applicable law or at equity, all as though such payment had not been made. Guarantor's obligations hereunder may not be assigned without Creditor's written consent. This Guaranty shall be binding upon Guarantor, its successors and assigns, and shall inure to the benefit of and be enforceable by Creditor and its successors and assigns.
Section 12. Governing Law. This Guaranty and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Texas, without reference to conflict of laws principles of said state.
Section 13. Additional Events of Default. Notwithstanding anything to the contrary in any document or agreement now or hereafter existing between Creditor and Debtor, Guarantor agrees that, solely for the purposes of this Guaranty, the Obligations of Debtor shall, whether or not then due under any such document or agreement, automatically be deemed and become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Guarantor, upon the occurrence of any of the following events: (i) Guarantor or Debtor shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); (ii) an involuntary case is commenced against Guarantor or Debtor, and the petition is not controverted within ten days, or is not dismissed within sixty days, after commencement of the case; (iii) a custod ian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of Guarantor or Debtor; (iv) Guarantor or Debtor commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to it or there is commenced against Guarantor or Debtor any such proceeding which remains undismissed for a period of sixty days or any order of relief or other order approving any such case or proceeding is entered; (v) Guarantor or Debtor is adjudicated insolvent or bankrupt; (vi) Guarantor or Debtor suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of sixty days; (vii) Guarantor or Debtor makes a general assignment for the benefit of creditors; (viii) any organizational action is taken by Guarantor or Debtor for the pur pose of effecting any of the foregoing; or (ix) any representation or warranty made by Guarantor herein shall prove to be untrue in any material respect on the date as of which made.
Section 14. Severability. If any provision of this Guaranty or the application thereof to any party or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provision to parties or circumstances other than those as to which it is invalid or unenforceable, shall continue to be valid and enforceable.
Section 15. Limitation on Guarantor's Liability. Notwithstanding anything herein to the contrary, the liability of Guarantor under this Guaranty shall be limited to the following:
(a) Guarantor's liability hereunder shall be and is specifically limited to payments expressly required to be made by Debtor under the Agreements, and to the extent that they have been expressly disclaimed under such Agreements Guarantor shall not be liable or otherwise subject hereunder to any indirect, special, incidental, consequential, exemplary, punitive or tort damages; and
(b) Guarantor's aggregate liability to Creditor under this Guaranty is limited to and shall not exceed Twelve Million Five Hundred Thousand Dollars ($12,500,000.00).
Section 16. Entire Agreement. This Guaranty embodies the entire agreement and understanding between Guarantor and Creditor and supersedes all prior and contemporaneous agreements and understandings relating to the subject matter hereof. The headings in this Guaranty are for purposes of reference only, and shall not affect the meaning hereof.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed and delivered by its duly authorized officer as of the date first above written.
GREAT PLAINS ENERGY INCORPORATED |
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By: |
/s/Andrea F. Bielsker |
Name: |
Andrea F. Bielsker |
Title: |
Senior Vice President - Finance, Chief Financial Officer and Treasurer |
Exhibit 10.1.e
First Amendment to Guaranty
This First Amendment to Guaranty (the "First Amendment") is made and entered into as of July 29, 2003, by and between Great Plains Energy Incorporated (the "Guarantor") and El Paso Merchant Energy, L.P. (the "Creditor"), and, each a "Party" and collectively the "Parties".
Witnesseth:
Whereas, Guarantor issued a certain guaranty dated as of June 30, 2003 in favor of Creditor (the "Guaranty") relating to certain agreements or contracts between Strategic Energy, L.L.C. and the Creditor, and
Whereas, the Parties wish to amend the Guaranty as set forth below.
Therefore, in consideration of the premises and of the mutual agreements herein contained, the receipt and sufficiency of which is acknowledged by Guarantor and Creditor, the Parties agree as follows:
Section 1. Amendment of Section 11(b). Section 11(b) of the Guaranty is hereby amended in its entirety to read as follows:
"(b) Guarantor's aggregate liability to Creditor under this Guaranty is limited to and shall not exceed Sixteen Million Dollars ($16,000,000)."
Section 2. General. This First Amendment shall be effective as of the date first above written. Except as specifically amended herein, the Guaranty shall remain in full force and effect in accordance with its terms, and the Guaranty, as amended hereby, is hereby ratified and confirmed.
In witness whereof, the Parties have signed this First Amendment as of the date first written above.
Great Plains Energy Incorporated
/s/Andrea F. Bielsker
Andrea F. Bielsker
Senior Vice President - Finance, Chief
Financial Officer and Treasurer
El Paso Merchant Energy, L.P.
By:_______________________________
Name:_____________________________
Title:______________________________
Exhibit 10.1.f
Second Amendment to Guaranty
This Second Amendment to Guaranty (the "Second Amendment") is made and entered into as of May 9, 2003, by and between Great Plains Energy Incorporated (the "Guarantor") and Coral Power, L.L.C. (the "Creditor"), and, each a "Party" and collectively the "Parties".
Witnesseth:
Whereas, Guarantor issued a certain guaranty dated as of September 12, 2002 in favor of Creditor relating to certain agreements or contracts between Strategic Energy, L.L.C. ("Strategic") and the Creditor, which guaranty was amended by that certain First Amendment to Guaranty dated as of March 7, 2003 (as so amended, the "Guaranty"), and
Whereas, Guarantor and Creditor wish to further amend the Guaranty as set forth below.
Therefore, in consideration of the premises and of the mutual agreements herein contained, the receipt and sufficiency of which is acknowledged by Guarantor and Creditor, the Parties agree as follows:
Section 1. Amendment of Section 11(b). Section 11(b) of the Guaranty is hereby amended in its entirety to read as follows:
"(b) Guarantor's aggregate liability to Creditor under this Guaranty is limited to and shall not exceed Eleven Million Five Hundred Thousand Dollars ($11,500,000)."
Section 2. Effectiveness of Amendment. This Second Amendment shall be effective as of the date first above written. Except as specifically amended herein, the Guaranty shall remain in full force and effect in accordance with its terms.
In witness whereof, the Parties have signed this Second Amendment as of the date first written above.
Great Plains Energy Incorporated Coral Power, L.L.C. |
Exhibit 10.1.g
Third Amendment to Guaranty
This Third Amendment to Guaranty (the "Second Amendment") is made and entered into as of May 30, 2003, by and between Great Plains Energy Incorporated (the "Guarantor") and Coral Power, L.L.C. (the "Creditor"), and, each a "Party" and collectively the "Parties".
Witnesseth:
Whereas, Guarantor issued a certain guaranty dated as of September 12, 2002 in favor of Creditor relating to certain agreements or contracts between Strategic Energy, L.L.C. ("Strategic") and the Creditor, which guaranty was amended by that certain First Amendment to Guaranty and Second Amendment to Guaranty dated as of March 7, 2003, and May 9, 2003, respectively (as so amended, the "Guaranty"), and
Whereas, Guarantor and Creditor wish to further amend the Guaranty as set forth below.
Therefore, in consideration of the premises and of the mutual agreements herein contained, the receipt and sufficiency of which is acknowledged by Guarantor and Creditor, the Parties agree as follows:
Section 1. Amendment of Section 11(b). Section 11(b) of the Guaranty is hereby amended in its entirety to read as follows:
"(b) Guarantor's aggregate liability to Creditor under this Guaranty is limited to and shall not exceed Twelve Million Two Hundred Thousand Dollars ($12,200,000)."
Section 2. Effectiveness of Amendment. This Third Amendment shall be effective as of the date first above written. Except as specifically amended herein, the Guaranty shall remain in full force and effect in accordance with its terms.
In witness whereof, the Parties have signed this Third Amendment as of the date first written above.
Great Plains Energy Incorporated |
/s/Andrea F. Bielsker |
Andrea F. Bielsker |
Senior Vice President - Finance, Chief |
Financial Officer and Treasurer |
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Coral Power, L.L.C. |
By: |
Name: |
Title: |
Exhibit 31.1.a
CERTIFICATIONS
I, Bernard J. Beaudoin, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Great Plains Energy Incorporated; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report: |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: |
August 13, 2003 |
/s/Bernard J. Beaudoin |
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Bernard J. Beaudoin |
Exhibit 31.1.b
CERTIFICATIONS
I, Andrea F. Bielsker, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Great Plains Energy Incorporated; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report: |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: |
August 13, 2003 |
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/s/Andrea F. Bielsker |
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Andrea F. Bielsker |
Exhibit 31.2.a
CERTIFICATIONS
I, Bernard J. Beaudoin, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Kansas City Power & Light Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report: |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: |
August 13, 2003 |
/s/Bernard J. Beaudoin |
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Bernard J. Beaudoin |
Exhibit 31.2.b
CERTIFICATIONS
I, Andrea F. Bielsker, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Kansas City Power & Light Company; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report: |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(c) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: |
August 13, 2003 |
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/s/Andrea F. Bielsker |
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Andrea F. Bielsker |
Exhibit 32.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Great Plains Energy Incorporated (the "Company") for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Bernard J. Beaudoin, as Chairman of the Board, President and Chief Executive Officer of the Company, and Andrea F. Bielsker, as Senior Vice President - Finance, Chief Financial Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Bernard J. Beaudoin |
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Name: |
Bernard J. Beaudoin |
Date: |
August 13, 2003 |
/s/Andrea F. Bielsker |
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Name: |
Andrea F. Bielsker |
Date: |
August 13, 2003 |
This certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 except to the extent this Exhibit 32.1 is expressly and specifically incorporated by reference in any such filing.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Great Plains Energy Incorporated and will be retained by Great Plains Energy Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Kansas City Power & Light Company (the "Company") for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Bernard J. Beaudoin, as Chairman of the Board and Chief Executive Officer of the Company, and Andrea F. Bielsker, as Senior Vice President - Finance, Chief Financial Officer and Treasurer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his or her knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Bernard J. Beaudoin |
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Name: |
Bernard J. Beaudoin |
Date: |
August 13, 2003 |
/s/Andrea F. Bielsker |
|
Name: |
Andrea F. Bielsker |
Date: |
August 13, 2003 |
This certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. This certification shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 except to the extent this Exhibit 32.2 is expressly and specifically incorporated by reference in any such filing.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Kansas City Power & Light Company and will be retained by Kansas City Power & Light Company and furnished to the Securities and Exchange Commission or its staff upon request.