[Federal Register Volume 59, Number 188 (Thursday, September 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23924]
[[Page Unknown]]
[Federal Register: September 29, 1994]
VOL. 59, NO. 188
Thursday, September 29, 1994
DEPARTMENT OF AGRICULTURE
Rural Electrification Administration
7 CFR Part 1718
RIN 0572-AB06
Loan Security Documents for Electric Borrowers
AGENCY: Rural Electrification Administration.
ACTION: Proposed rule.
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SUMMARY: The Rural Electrification Administration (REA) hereby proposes
new policies and requirements for the standard form of mortgage
ordinarily required of electric distribution borrowers. This proposed
rule is intended to continue to provide adequate security for loans
made to distribution borrowers, to update and clarify the provisions of
the mortgage, to generally confine the scope of the mortgage primarily
to basic issues of collateral and loan security, and to support
borrower access to other credit sources.
DATES: Written comments must be received by REA or carry a postmark or
equivalent by January 26, 1995.
ADDRESSES: Written comments should be addressed to Mr. F. Lamont Heppe,
Jr., Deputy Director, Program Support Staff, U.S. Department of
Agriculture, Rural Electrification Administration, room 2234-S, 14th
Street and Independence Avenue, SW., Washington, DC 20250-1500. REA
requires a signed original and 3 copies of all comments (7 CFR 1700.30
(e)). Comments will be available for public inspection during regular
business hours (7 CFR 1.27(b)).
FOR FURTHER INFORMATION CONTACT: Mr. Alex M. Cockey, Jr., Acting
Assistant Administrator--Electric, U.S. Department of Agriculture,
Rural Electrification Administration, room 4037-S, 14th Street &
Independence Avenue, SW., Washington, DC 20250-1500. Telephone: 202-
720-9547.
SUPPLEMENTARY INFORMATION: This proposed rule has been determined to be
not significant for the purposes of Executive Order 12866, and
therefore has not been reviewed by the Office of Management and Budget
(OMB). The Administrator of REA has determined that the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this rule. The
Administrator of REA has determined that this rule will not
significantly affect the quality of the human environment as defined by
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).
Therefore, this action does not require an environmental impact
statement or assessment. This rule is excluded from the scope of
Executive Order 12372, Intergovernmental Consultation, which may
require consultation with State and local officials. A Notice of Final
Rule titled Department Programs and Activities Excluded from Executive
Order 12372 (50 FR 47034) exempts REA electric loans and loan
guarantees from coverage under this Order. This rule has been reviewed
under Executive Order 12778, Civil Justice Reform. This rule: (1) Will
not preempt any State or local laws, regulations, or policies, unless
they present an irreconcilable conflict with this rule; (2) Will not
have any retroactive effect; and (3) Will not require administrative
proceedings before any parties may file suit challenging the provisions
of this rule.
The program described by this rule is listed in the Catalog of
Federal Domestic Assistance Programs under number 10.850 Rural
Electrification Loans and Loan Guarantees. This catalog is available on
a subscription basis from the Superintendent of Documents, the United
States Government Printing Office, Washington, DC 20402-9325.
Information Collection and Recordkeeping Requirements
The existing recordkeeping and reporting burdens contained in this
rule were approved by the Office of Management and Budget (OMB)
pursuant to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et
seq.), under control numbers 0572-0017, 0572-0032, and 0572-0103.
Additional information collection and recordkeeping requirements
contained in this proposed rule have been submitted to OMB for review.
Send questions or comments regarding these burdens or any other
aspect of these collections of information, including suggestions for
reducing the burden, to the Office of Information and Regulatory
Affairs, Office of Management and Budget, room 3201, NEOB, Washington,
DC 20503. Attention: Desk Officer for USDA.
Background
Starting in February 1991 with the publication of its proposed rule
on pre-loan policies and procedures for electric loans, REA has
undertaken a major effort to update, clarify, and simplify its policies
and procedures relating to electric borrowers. As part of this overall
effort, REA has been working on updating its mortgage and loan contract
with electric borrowers, and its policies and procedures governing the
granting of an accommodation or subordination of the government's lien
on electric borrowers' systems.
Because of the magnitude and complexity of the task, the effort was
divided into several phases. The first phase concentrated on updating
and streamlining REA's policies and procedures for granting a lien
accommodation or subordination under the current mortgage.
On December 2, 1991, REA published an advance notice of proposed
rulemaking (ANPR) in the Federal Register (56 FR 61201) inviting
comments on possible changes to REA's loan security documents and its
policies and procedures governing lien accommodations and
subordinations. Comments were received from 42 organizations, including
comments filed on behalf of the G&T Manager's Association proposing a
form of Mortgage Bond and Note Indenture. That proposal was modeled
closely on the American Bar Foundation Mortgage Bond Indenture Form
published in 1981 (the ``Model Indenture'') but also included features
contained in mortgage indentures previously used by REA assisted
borrowers.
On June 30, 1992, REA held a public meeting on REA's loan security
documents and its policies and procedures for granting lien
accommodations and subordinations under the electric mortgage. Eighteen
organizations gave testimony and responded to questions from
representatives of REA and the Department of Agriculture's Office of
General Counsel. Written comments were also received following the
public meeting from several participants and 14 other organizations,
mostly borrowers.
On March 5, 1993, REA published a proposed rule on lien
accommodations and subordinations of REA mortgages in the Federal
Register, at 58 FR 12552. Comments were received from 32 individuals
and organizations. After considering the comments, the final rule was
published in the Federal Register on October 19, 1993 at 58 FR 53835. A
significant feature of that new rule is the granting of advance
approval for lien accommodations for additional secured notes and
refunding notes when specified objective criteria are met.
The proposed rule published here is the result of continuing
efforts to update REA's loan security documents, policies and
procedures. In addition to reviewing the Model Indenture and the
proposed form filed in response to the 1991 ANPR, REA has reviewed
numerous other mortgage documents in developing the form being
published for comment as part of this proposed rule. These resources
included three separate instruments issued by three unrelated, former
REA borrowers, namely Chugach Electric Association (Alaska-1991),
Guadalupe Valley Electric Cooperative, Inc. (Texas-1991), and Old
Dominion Electric Cooperative (Virginia-1992). REA also reviewed
mortgage documentation currently being used by the National Rural
Utilities Cooperative Finance Corporation (``CFC'') and CoBank in
securing loans made by them to former REA electric borrowers in various
states. In June of 1993, the National Rural Electric Cooperative
Association (``NRECA''), a trade association to which most REA electric
borrowers belong, proposed to REA a form of distribution mortgage that
had been developed by an ad hoc committee sponsored by NRECA. That
proposal was also reviewed and considered in developing the form of
mortgage included in this proposed rule.
The proposed new form of mortgage for distribution borrowers is
intended to achieve the following objectives:
To continue to provide adequate security for loans made or
guaranteed by REA and other mortgagees;
To update and clarify the provisions of the mortgage;
To limit the scope of the multi-party mortgage document
primarily to basic issues of collateral and loan security, leaving
lenders and borrowers the flexibility to address other issues in their
respective loan contracts or other documents, which in the case of REA
also includes REA regulations; and
To support borrower access to other credit sources,
including lenders that have no prior lending history with rural
electric systems, by adopting provisions used in other modern mortgage
indentures to the extent possible.
The proposed mortgage published today does not include several
``operational controls'' that are included in the current mortgage,
such as mortgagee approval of extensions or additions to plant. After
REA has had an opportunity to evaluate responses to this proposal, it
intends to develop and publish for comment an updated form of loan
contract for distribution borrowers that correlates with the new form
of mortgage and more accurately reflects contemporary REA practices and
policies. Although it seems likely that some of these existing
operational controls will be updated and included in a new form of REA
loan contract, it is anticipated that others will not.
The proposed mortgage published here is for distribution borrowers.
REA also intends to develop in the near future proposed standard forms
of the mortgage and loan contract for power supply borrowers.
The rest of this discussion addresses the more significant
provisions of the proposed mortgage. The discussion focuses on changes
from the current mortgage and other significant provisions. For the
sake of brevity, provisions are characterized in terms of their primary
content and thrust, without attempting to cover every legal detail.
Excepted Property
As with the current mortgage, the proposed mortgage would place a
first mortgage lien on most of the borrower's assets, whether currently
existing or acquired after the effective date of the mortgage. However,
certain types of property covered by the broad conveyancing language
used in the current mortgage would be expressly excepted from the lien
of the proposed mortgage. Important examples include all cash on hand
or in banks; most contracts and contract rights, with some exceptions;
shares of stock; bonds; notes; repurchase agreements; and other
securities. However, a borrower may choose to subject excepted property
to the lien of the mortgage, and in certain circumstances such as upon
a default, the mortgagees can compel the excepted property to be placed
under the lien of the mortgage. The proposed approach is suggested by
the Model Indenture. It is intended to address impracticalities
associated with perfecting and administering liens on certain classes
of collateral otherwise included in a ``blanket'' lien on all assets.
The proposed form more closely reflects the longstanding view that
electric plant serves as the primary security for secured loans to
electric distribution borrowers.
Permitted Encumbrances
The list of permitted encumbrances in the proposed mortgage is
somewhat longer compared to the current mortgage but is typical of more
contemporary practices. This has been done to alleviate practical
problems in obtaining opinions of counsel to the effect that the
mortgage is a valid first lien on all of the mortgaged property. These
problems have been exacerbated in recent years as developments in the
legal profession generally caused the borrowers' attorneys to be less
willing to provide approving legal opinions in mortgage transactions
without going into great detail in qualifying the application of their
opinions to certain types of property (most of which has now been
excepted) and routine encumbrances. Experience in the program has shown
that the vast majority of such encumbrances are primarily technical in
nature and do not materially affect the security value of the
collateral. It is expected that those loan settlement delays associated
with negotiating legal opinions will be reduced or eliminated by this
proposal and that the protection REA has traditionally derived from
such opinions will be preserved.
Section 2.01. Additional Notes
Under the current mortgage, REA prior approval is required for a
borrower to issue additional notes secured under the mortgage. Under
section 2.01 of the proposed mortgage, a borrower not in default under
the mortgage may issue additional notes to finance mortgageable
property for its utility system, without the approval of REA or other
mortgagees, if the following criteria are met:
The borrower has achieved for each of the 2 calendar years
immediately preceding the issuance of the notes a Times Interest
Earning Ratio (TIER) of at least 1.35 and a Debt Service Coverage Ratio
(DSC) of at least 1.35, on a pro forma basis, after taking into account
the effect of the new notes.
The borrower will have equity greater than or equal to 27%
of total assets after taking into account the effect of the additional
notes.
The ratio of the borrower's net utility plant to its long-
term debt will be greater than or equal to 1.1 after taking into
account the effect of the additional notes.
Transaction costs included in the additional notes do not
exceed 3.5% of the face amount of the notes.
The maturity of the loan evidenced by the notes must not
be less than 5 years and must not exceed the weighted average of the
expected remaining useful lives of the assets being financed.
The principal of the loan evidenced by the notes must be
amortized at a rate that will yield a weighted average life not greater
than the weighted average life that would result from level payments of
principal and interest.
The principal amount of outstanding notes issued to
finance community infrastructure (namely water and waste systems, solid
waste disposal facilities, telecommunications and other electronic
communications systems, and natural gas distribution systems located in
the borrower's service territory) will not be greater than 20% of the
principal amount of all outstanding notes, after taking into account
the effect of the additional notes.
TIER and DSC are defined in terms of ``Modified'' TIER and
``Modified'' DSC, that is, generation and transmission and other
capital credits are excluded from margins in calculating the ratios.
These measures reflect current revenues and cash flows better than
straight TIER and DSC, and thus they better reflect a borrower's
ability to meet on-going expenses. In this modified form, the level for
TIER has been reduced to 1.35 from the 1.5 currently required in 7 CFR
1710.114. The 1.35 level proposed for this modified form of DSC is the
same as that required for the pledging of borrowers' notes under the
indenture for issuing collateral trust bonds of CFC.
In calculating TIER, the annual interest expense of the additional
notes issued, based on the full face amount of the notes, would be
added to the interest expense for each of the two test years.
Similarly, in calculating DSC, interest expense, depreciation and
amortization expense, and debt service billed for the two test years
would be increased respectively by the annual interest expense, annual
depreciation and amortization expense, and the annual debt service
expense associated with the additional notes and facilities.
In calculating equity as a percentage of total assets, regulatory
created assets would be deducted from both equity and total assets as
they appear on a borrower's balance sheet. Regulatory created assets
are current period expenses that have been deferred by the borrower,
and they should be deducted to provide a more accurate picture of a
borrower's current equity to assets ratio. Under REA's Uniform System
of Accounts, regulatory created assets equal the sum of amounts
properly recordable in Accounts 182.2 Unrecovered Plant and Regulatory
Study Costs, and 182.3 Other Regulatory Assets. This same adjustment is
used in REA's lien accommodation rule and other regulations.
The proposed requirement of a net utility plant to long-term debt
ratio of 1.1 is used in lieu of the more complicated bondable additions
tests usually used in utility indentures securing publicly offered
debt. This ratio is used in REA's lien accommodation rule (1717.854) as
one of the criteria for determining eligibility for advance approval
for lien accommodations under the current mortgage, and it is also used
by CoBank, set at a higher level, in its 100 percent mortgage. Comments
are invited on whether a more traditional bondable additions test would
be preferable to the proposed net utility plant to long-term debt
ratio.
The proposed criteria that would control the amount of transaction
costs financed by a note, the maximum maturity of the note, and the
rate of note amortization are intended to help ensure that each note
will be supported by adequate collateral throughout the life of the
note. The proposed minimum maturity of 5 years is intended to reserve
the security of the mortgage to financing that meets the long-term
credit needs of borrowers. Shorter term loans generally do not face the
same kind of uncertainty and risks involved in long-term loans, and
offering them security under the mortgage should be subject to approval
by the mortgagees under proposed section 2.03. All four of these
criteria are currently used by REA, along with others, to determine
eligibility for a lien accommodation (see 7 CFR 1717.852 and 1717.853).
REA estimates that about 64 percent of distribution borrowers would
be able to meet the criteria for issuing additional notes under
proposed section 2.01. This estimate is based on 1991-92 data for TIER
and DSC and 1992 data for equity, total assets, net utility plant, and
long-term debt, and assumes that the average note issued will equal
13.5% of a borrower's total assets (the average size of a combined REA-
supplemental loan in 1992-93). Borrowers failing to meet the proposed
criteria under section 2.01 would need to get the approval of each
mortgagee, under proposed section 2.03, to issue additional notes.
As indicated above, issuance of additional notes under section 2.01
would be limited to the financing of mortgageable property for the
electric system and the four named community infrastructure purposes.
The aggregate outstanding principal balance of notes issued for
community infrastructure would be limited for notes issued under
section 2.01 to 20% of the outstanding principal balance of all notes.
Borrowers wishing to issue notes in excess of this amount for community
infrastructure would need to obtain approval from each mortgagee.
Section 2.02. Refunding or Refinancing Notes
As in issuing additional notes, the current mortgage also requires
the approval of the mortgagees for borrowers to refund or refinance
existing notes. Under proposed section 2.02 of the new mortgage,
borrowers that are not in default under the mortgage could refund or
refinance existing notes if the following conditions are met:
The total amount of outstanding indebtedness evidenced by
the new notes is not greater than 103.5% of the then outstanding
principal balance of the notes being refunded or refinanced.
The weighted average life of the new notes in not greater
than the weighted average remaining life of the notes being refunded or
refinanced.
The present value of the cost of the refunding or
refinancing notes, including all transaction costs and any required
investments in the lender, is less than the present value of the cost
of the notes being refunded or refinanced.
A lien accommodation would be automatic for notes issued under
sections 2.01 and 2.02. The borrower's loan contract with the lender
would not be subject to the approval of the other mortgagees. REA
expects to propose corresponding amendments to its lien accommodation
rule and loan contracts to take the requirements of the new mortgage
into account, once the final form of the distribution mortgage has been
determined.
Section 2.05. Form of Supplemental Mortgage
It is contemplated that a provision will be developed for inclusion
either at this point or as an appendix in the final form of the
Mortgage. The provision would set out a succinct form of amendment to
be used to facilitate borrowings that do not require consent of the
Mortgagees. The parties would be free to agree to other forms of
amendment on a case-by-case basis but obviously such a process would be
more time consuming and the outcome less certain. REA is specifically
soliciting comments on this approach and would welcome suggestions on
what would be an appropriate form for a supplemental mortgage.
Section 3.04. Environmental Obligations
Under this proposed section, the borrower would expressly agree to
comply with all applicable water and air pollution control standards
and other environmental requirements imposed by Federal or state
statutes, regulations, licenses or permits as related to the mortgaged
property. The borrower would also agree to defend, indemnify, and hold
harmless the mortgagees from and against all liabilities, losses,
costs, etc. related to existing or future hazardous waste or hazardous
chemical substances on the mortgaged property, any lien or claim
related thereto, and any failure of the borrower to comply with the
terms of any government agency having any regulatory authority over
environmental matters regarding the mortgaged property. The inclusion
of this section reflects the trend in modern loan documentation to
allocate environmental risks to the borrower since that is the party
that manages and controls the day to day operations.
Section 3.08. Restrictions on Additional Permitted Debt
Compared to the current mortgage, proposed section 3.08 would raise
the threshold on restricted rentals allowed without the approval of the
mortgagees, and also allow certain ``permitted debt'', in addition to
notes issued under proposed Article 2, without the mortgagees'
approval. Restricted rentals without mortgagees' approval would be
allowed in an amount not to exceed 5% of equity during any 12
consecutive calendar month period, versus 2% currently. The following
permitted debt would also be allowed without mortgagees' approval if
the borrower is not in default under its mortgage:
Purchase money indebtedness in non-utility system property
in an amount not exceeding 10% of net utility plant.
Unsecured lease obligations incurred in the ordinary
course of business except restricted rentals.
Unsecured indebtedness for borrowed money in an aggregate
amount not exceeding 15% of net utility plant.
Debt represented by dividends declared but not paid.
Indebtedness of other operating electric companies
acquired by the borrower not exceeding 90% of the net utility plant of
the acquired company.
Section 3.10. Limitations on Consolidations and Mergers
Proposed section 3.10 would make certain changes in the conditions
under which the borrower may consolidate or merge with another
corporation. Significant among these changes is that the successor
corporation would have to meet on a pro forma basis the same TIER,
equity to assets ratio, and net utility plant to long-term debt ratio
as required under section 2.01 for issuing additional notes.
Section 3.11. Limitations on Transfers of Property
This proposed section would raise the limits under which a borrower
could sell, lease or transfer assets for fair market value without the
approval of the mortgagees. The current mortgage sets the limits at
$25,000 for each individual asset, and $100,000 for any 12 month
period. Proposed section 3.11 would drop the limit for each individual
asset and raise the limit for any 12 month period to 10 % of net
utility plant.
Section 3.12. Maintenance of Mortgaged Property
Several changes to existing mortgage requirements on property
maintenance would be made under this section.
The proposed mortgage would eliminate the current requirement that
borrowers expend for maintenance, renewals and replacements during each
three-year period 10 % of the difference between gross operating
revenues and the cost of power during the period. REA has come to
believe that requiring a fixed percentage expenditure on maintenance is
not an effective approach for ensuring that its collateral is
adequately maintained. Comments are invited on this question.
Borrowers would still be required to adequately maintain their
systems. Mortgagees would continue to have access to inspect the
mortgaged property. As a corollary to the more generalized maintenance
standard, it is proposed that any mortgagee could direct the borrower
to provide to all mortgagees an initial certification by an independent
professional engineer acceptable to the mortgagees, as to the condition
of the mortgaged property. Such a certification could be requested only
once every 3 years.
If the independent engineer certifies that the borrower needs to
make repairs or replacements to comply with the maintenance
requirements of the mortgage, any mortgagee could request that such
recommendations be followed and the borrower would be obligated to
comply with them promptly. A year after such request, a second
independent certification would be required as to the condition of the
property. If deficiencies remain, any mortgagee could so notify the
borrower, who would then be required to cure the deficiencies within 60
days. REA believes that such certifications by independent professional
engineers would provide each mortgagee with an effective mechanism to
ensure that the mortgaged property is being adequately maintained.
Section 3.13. Insurance; Restoration of Damaged Mortgaged Property
Under this section several changes are proposed to the insurance
provisions of the existing mortgage. The borrower, for example, would
be required to have insurance coverage in conformance with generally
accepted utility industry standards for utilities of the size and
character of the borrower. Specific dollar-amount coverage limits would
be eliminated from the mortgage. Insurance policies would be required
to remain in force for 30 days after written notice to each mortgagee,
instead of the current 10 days. REA plans to review its existing
regulation on fidelity and insurance requirements (7 CFR part 1788) to
determine whether changes are needed.
Section 3.16. Limitation on Dividends, Patronage Refunds and Other Cash
Distributions
It is proposed that the controls on distributions in the current
mortgage be retained with only minor changes.
Section 3.18. Compliance With Loan Agreements; Notice of Amendments to
and Defaults Under Loan Agreements
This section proposes two changes to provisions in the current
mortgage. First, borrowers would be required to supply a copy of a loan
agreement with another lender, and amendments thereto, only when
requested by a mortgagee. Second, the provision in the current mortgage
that the terms of the mortgage govern if they are inconsistent with the
terms of a loan contract, would be deleted. This is proposed to ensure
that a mortgagee could enforce terms in its loan contract agreed to by
the borrower, even though they may be more demanding on the borrower
than the terms in the mortgage.
Section 3.20. Rates to Provide Revenue Sufficient to Meet TIER and DSC
Requirements.
This section proposes requirements that are similar to those in 7
CFR 1710.114, except that the threshold levels set for (modified) TIER
and (modified) DSC are set at 1.35, the same as in proposed section
2.01, rather than 1.5 for TIER and 1.25 for DSC as in Sec. 1710.114.
If a borrower fails to achieve a (modified) TIER and (modified) DSC
of 1.35 based on the average of the two best years out of the three
most recent years, then it would be required to provide each mortgagee
with a written plan of remedial action setting forth the actions the
borrower shall take to achieve the required TIER and DSC levels on a
timely basis. If requested by a mortgagee, the plan would have to be
prepared by an independent consultant acceptable to the mortgagees. The
mortgagor would be required to take all actions included in its written
plan approved by the mortgagees.
If a state regulatory authority having jurisdiction will not
approve rates sufficient to achieve the required TIER and DSC levels,
the borrower would be required to provide documentation to that effect,
along with a modified plan taking the state authority's determination
into account. Such modified plan would be subject to the approval of
each mortgagee.
Section 4.01. Events of Default
The proposed events of default are patterned after those commonly
contained in modern mortgage indentures. There are two notable
differences with the current mortgage. First, a default in payment on
the notes would not be an event of default unless it lasted for more
than 5 business days after the payment is due. Second, defaults with
respect to other covenants and conditions contained in the mortgage,
loan contracts, or notes would not be an event of default unless they
continued for a period of 30 days after a mortgagee has given written
notice of default directing the mortgagor to remedy the default.
Section 4.02. Acceleration of Maturity; Rescission and Annulment
This proposed section differs in several respects from the
provisions of the current mortgage. A basic difference is that each
mortgagee would have equal rights in accelerating its notes, in
contrast to the current mortgage where other mortgagees must wait 30
days for REA to act before they can accelerate.
It is proposed that in the event of a default in payment on a
mortgagee's notes, that mortgagee may accelerate its notes and so
notify the other mortgagees. Upon receipt of actual knowledge of or any
notice of acceleration by such mortgagee, any other mortgagee would be
able to accelerate its notes.
If any other event of default occurs under the mortgage and is
continuing, any mortgagee would be able to accelerate its notes and
notify the others to that effect. Any mortgage could also accelerate if
an event of default occurs and is continuing under its loan contract or
note. Upon receipt of actual knowledge of or any notice of acceleration
by a mortgagee, any other mortgagee would be able to accelerate its
notes. After acceleration, if all payment defaults have been cured and
all other defaults have been cured to the satisfaction of mortgagees
representing at least 80% of the aggregate outstanding principal
balance of the notes, then said mortgagees would be able to annul the
acceleration.
Section 4.03. Remedies of Mortgagees
Under this section it is proposed that any mortgagee may, upon an
event of default, take possession of the property, manage and operate
the property, protect and enforce the rights of all of the mortgagees,
appoint a receiver, and sell the mortgaged property. Any other
mortgagee would be able to join in these proceedings. If the mortgagees
do not agree on the method or manner of enforcement of remedies,
mortgagees representing a majority of the outstanding principal balance
of the notes would be able to direct the method and manner of the
remedial actions.
Section 5.03. Special Defeasance
Under this section, in certain circumstances a borrower could
deposit funds with a trustee for the benefit of a mortgagee in an
amount sufficient to discharge the note. Such a note would no longer be
considered to be ``outstanding'' under the mortgage. The borrower would
obtain a release from the lien of the mortgage and the mortgagee would
have the trust as security for the payments on the note as they come
due. This section has been adapted from the Model Indenture.
Accounting Requirements
So long as REA is on the mortgage, it is proposed that borrowers
would be required to follow REA's Uniform System of Accounts. If REA is
paid off and is no longer on the mortgage, Generally Accepted
Accounting Principals would prevail. This is set forth in proposed
section 1.01 in the definition of ``Accounting Requirements.''
Current Mortgage Provisions Not Included
A number of ``operational controls'' and other provisions contained
in the current mortgage are not included in this proposed mortgage. As
indicated above, some of these controls may be retained in REA's new
loan contract. The more significant provisions not included in the
proposed mortgage are as follows:
Mortgagee approval of extensions or additions to the
borrower's system.
Mortgagee approval of sales of electric power and energy
in excess of 1,000 Kw.
Mortgagee approval of contracts for the operation or
maintenance or use by others of all or a substantial part of the
borrower's property.
Mortgagee approval of contracts to purchase electric power
or energy.
Mortgagee approval of expenditures for legal, engineering,
supervisory, accounting or similar services, other than reasonable,
routine expenses.
Requirement that funds of the borrower be deposited in a
Federal Reserve Bank or in depositaries that are members of the Federal
Deposit Insurance Corporation.
Mortgagee approval of compensation for members of the
borrower's board of directors.
Mortgagee approval of the borrower's manager and the
manager's employment contract.
Mortgagee approval of investments, loans, and guarantees
made by the borrower. For several reasons, including the restrictions
imposed on REA (but not other lenders) by section 312 of the Rural
Electrification Act of 1936, REA believes it is preferable that such
approval rights be included in the loan contract of each mortgagee as
each sees fit.
The requirement in article II, section 4 of the current
mortgage that any prepayment of a concurrent (contemporaneous) loan
made by REA or the supplemental lender be accompanied by a pro rata
prepayment of the other concurrent loan. Since this provision relates
only to loans made concurrently with REA, while the mortgage covers
both concurrent loans and loans made independently of other loans, REA
believes it is appropriate to shift this provision to its loan
contract.
Inter-Creditor Agreement
As noted above, shares of stock and other securities, including
those held in lenders secured under the proposed mortgage, would be
excepted from the lien of the mortgage. It is REA's view that, in the
event any notes are accelerated, all such assets, revenues, and other
proceeds obtained from the mortgagor by any mortgagee should be shared
equally and ratably among all mortgagees along with the mortgaged
property. Also, whether or not any notes are accelerated, if a borrower
pays only a portion of the aggregate principal and interest due on the
notes as a whole, REA believes such payments should also be shared
equally and ratably among the mortgagees. It is REA's intention to try
to reach agreement with the other existing mortgagees on a mutually
acceptable inter-creditor agreement before the proposed new mortgage is
published in final form.
As stated above, the foregoing discussion focuses on the more
significant provisions of the proposed mortgage, especially where they
differ with provisions in the current mortgage. In addition to
receiving written comments, REA stands ready to meet with interested
individuals and organizations to discuss their comments and
recommendations. Such meetings would be open to any interested person,
and they would be ``informal'', as opposed to a formal hearing.
Although any such meetings will not be transcribed, REA will include a
summary of any such meeting in the file for this rulemaking. To
facilitate scheduling, it would be better for individuals, especially
the large number of borrowers affected by this proposed rule, to form
one or more groups to represent their interests at such meetings.
List of Subjects in 7 CFR Part 1718
Administrative practice and procedure, Electric power, Electric
utilities, Loan programs--energy, Loan security documents, Reporting
and recordkeeping requirements, Rural areas.
For the reasons set out in the preamble, REA proposes to amend
chapter XVII of title 7 of the Code of Federal Regulations by adding a
new part 1718 to read as follows:
PART 1718--LOAN SECURITY DOCUMENTS FOR ELECTRIC BORROWERS
Subpart A--General
Sec.
1718.1-1718.49 [Reserved]
Subpart B--Mortgage for Distribution Borrowers
1718.50 Definitions.
1718.51 Policy.
1718.52 Existing mortgages.
1718.53 Rights of other mortgagees.
1718.54 Availability of forms.
Appendix A to Subpart B of Part 1718--Standard Form of Mortgage for
Electric Distribution Borrowers
Authority: 7 U.S.C. 901-950b; Delegation of Authority by the
Secretary of Agriculture, 7 CFR 2.23; Delegation of Authority by the
Under Secretary for Small Community and Rural Development, 7 CFR
2.72, unless otherwise noted.
Subpart A--General
Secs. 1718.1-1718.49 [Reserved]
Subpart B--Mortgage for Distribution Borrowers
Sec. 1718.50 Definitions.
Unless otherwise indicated, terms used in this subpart are defined
as set forth in 7 CFR 1710.2.
Sec. 1718.51 Policy.
(a) Adequate loan security must be provided for loans made or
guaranteed by REA. The loans are required to be secured by a first
mortgage lien on most of the borrower's assets substantially in the
form set forth in Appendix A of this subpart. At the discretion of REA,
this standard form of mortgage may be adapted to satisfy different
legal requirements among the states and individual differences in
lending circumstances, provided that such adaptations are consistent
with the policies set forth in this subpart.
(b) Some borrowers, such as certain public power districts, may not
be able to provide security in the form of a first mortgage lien on
their assets. In these cases REA will consider accepting other forms of
security, such as resolutions and pledges of revenues.
(c) REA may require supplemental and amending mortgages to protect
its security, or in connection with additional loans.
(d) REA may also require such other security instruments (such as
loan contracts, security agreements, financing statements, guarantees,
and pledges) as it deems appropriate.
(e) All distribution borrowers that receive a loan or loan
guarantee from REA on or after [Date 30 days after the final rule is
published in the Federal Register] will be required to enter into a
mortgage with REA that meets the requirements of this subpart.
Distribution borrowers that refinance debt secured under their existing
mortgage have the option of staying with their existing mortgage or
entering into a new mortgage that meets the requirements of this
subpart. In the case of either a new loan or refinancing loan, the
concurrence of any other lenders secured under the borrower's existing
mortgage may be required before the borrower can enter into a new
mortgage.
Sec. 1718.52 Existing mortgages.
Nothing contained in this subpart invalidates, terminates or
rescinds any existing mortgage entered into between the borrower and
REA and any other mortgagees.
Sec. 1718.53 Rights of other mortgagees.
Nothing contained in this subpart is intended to alter or affect
any rights of any other mortgagee that is a party to an existing
mortgage between a borrower and REA.
Sec. 1718.54 Availability of forms.
Single copies of the mortgage are available from the Administrative
Services Division, Rural Electrification Administration, United States
Department of Agriculture, Washington, DC 20250-1500. This form may be
reproduced.
Appendix A to Subpart B--Standard Form of Mortgage for Electric
Distribution Borrowers
RESTATED MORTGAGE AND SECURITY AGREEMENT
Made By And Between ____________, Mortgagor and United States of
America and ____________, Mortgagee. Dated as of
This instrument grants a security interest by a transmitting
utility.
This instrument contains future advance provisions.
This instrument contains after-acquired property provisions.
Table of Contents
Granting Clauses
First
Second
Third
Fourth
Excepted Property
Habendum
Article I
Definitions & Other Provisions of General Application
Section 1.01 Definitions
Section 1.02 General Rules of Construction
Section 1.03 Special Rules of Construction if REA is a Mortgagee
Section 1.04 Governing Law
Section 1.05 Notices
Article II
Additional Notes
Section 2.01 Additional Notes
Section 2.02 Refunding or Refinancing Notes
Section 2.03 Other Additional Notes
Section 2.04 Additional Lenders Entitled to the Benefits of This
Mortgage
Section 2.05 Form of Supplemental Mortgage
Article III
Particular Covenants of the Mortgagor
Section 3.01 Payment of Debt Service on Notes
Section 3.02 Warranty of Title
Section 3.03 After-Acquired Property; Further Assurances; Recording
Section 3.04 Environmental Obligations
Section 3.05 Payment of Taxes
Section 3.06 Authority to Execute and Deliver Notes, Loan
Agreements and Mortgages; All Action Taken; Enforceable Obligations
Section 3.07 Restrictions on Further Encumbrances on Property
Section 3.08 Restrictions on Additional Permitted Debt
Section 3.09 Preservation of Corporate Existence and Franchises
Section 3.10 Limitations on Consolidations and Mergers
Section 3.11 Limitations on Transfers of Property
Section 3.12 Maintenance of Mortgaged Property
Section 3.13 Insurance; Restoration of Damaged Mortgaged Property
Section 3.14 Mortgagee Right to Expend Money to Protect Mortgaged
Property
Section 3.15 Time Extensions for Payment of Notes
Section 3.16 Limitation on Dividends, Patronage Refunds and Other
Cash Distributions
Section 3.17 Application of Proceeds from Condemnation
Section 3.18 Compliance with Loan Agreements; Notice of Amendments
to and Defaults under Loan Agreements
Section 3.19 Rights of Way, etc., Necessary in Business
Section 3.20 Rates to Provide Revenue Sufficient to Meet TIER and
DSC Requirements
Section 3.21 Keeping Books; Inspection by Mortgagee
Article IV
Events of Default and Remedies
Section 4.01 Events of Default
Section 4.02 Acceleration of Maturity; Rescission and Annulment
Section 4.03 Remedies of Mortgagees
Section 4.04 Application of Proceeds from Remedial Actions
Section 4.05 Remedies Cumulative; No Election
Section 4.06 Waiver of Appraisement Rights, Marshaling of Assets
Not Required
Section 4.07 Notice of Default
Article V
Possession Until Default--Defeasance Clause
Section 5.01 Possession Until Default
Section 5.02 Defeasance Generally
Section 5.03 Special Defeasance
Article VI
Miscellaneous
Section 6.01 Property Deemed Real Property
Section 6.02 Mortgage to Bind and Benefit Successors and Assigns
Section 6.03 Headings
Section 6.04 Separability Clause
Section 6.05 Mortgage Deemed Security Agreement
Section 6.06 Indemnification by Mortgagor of Mortgagees
Schedule A--Maximum Debt Limit and Other Information
Schedule B--Property Schedule
Schedule C--Excepted Property
Schedule D--Notary Public Certification
Restated Mortgage and Security Agreement, dated as of
____________, 19______, (hereinafter sometimes called this
``Mortgage'') is made by and between ____________________
(hereinafter called the ``Mortgagor''), a corporation existing under
the laws of the State of__________ , and the UNITED STATES OF
AMERICA acting by and through the Administrator of the Rural
Electrification Administration (hereinafter called the
``Government''), ____________ (Supplemental Lender) __________,
(hereinafter called ``____________'') a ____________ existing under
the laws of ____________, and is intended to confer rights and
benefits on both the Government and ____________ as well as any and
all other lenders pursuant to Article II of this Mortgage that enter
into a supplemental mortgage in accordance with section 2.04 of
Article II hereof (the Government and any such other lenders being
herein sometimes collectively referred to as the ``Mortgagees'').
Recitals
Whereas, the Mortgagor, the Government and ____________ are
parties to that certain ____________ Mortgage and Security Agreement
dated as of ____________, 19______, as supplemented, amended or
restated (the ``Original Mortgage'' identified in Schedule ``A'' of
this Mortgage) originally entered into between the Mortgagor, the
Government acting by and through the Administrator of the Rural
Electrification Administration (the ``REA'') and ____________; and
Whereas, the Mortgagor deems it necessary to borrow money for
its corporate purposes and to issue its promissory notes and other
debt obligations therefor from time to time in one or more series,
and to mortgage and pledge its property hereinafter described or
mentioned to secure the payment of the same;
Whereas, the Mortgagor desires to enter into this Mortgage
pursuant to which all secured debt of the Mortgagor hereunder shall
be secured on parity;
Whereas, this Mortgage restates and consolidates the Original
Mortgage while preserving the priority of the Lien under the
Original Mortgage securing the payment of Mortgagor's outstanding
obligations secured under the Original Mortgage, which indebtedness
is described more particularly by listing the Original Notes in
Schedule ``A'' hereto; and
Whereas, all acts necessary to make this Mortgage a valid and
binding legal instrument for the security of such notes and
obligations, subject to the terms of this Mortgage, have been in all
respects duly authorized;
Now, Therefore, This Mortgage Witnesseth: That to secure the
payment of the principal of (and premium, if any) and interest on
the Original Notes and all Notes issued hereunder according to their
tenor and effect, and the performance of all provisions therein and
herein contained, and in consideration of the covenants herein
contained and the purchase or guarantee of Notes by the guarantors
or holders thereof, the Mortgagor has mortgaged, pledged and granted
a continuing security interest in, and by these presents does hereby
grant, bargain, sell, alienate, remise, release, convey, assign,
transfer, hypothecate, pledge, set over and confirm, pledge, and
grant a continuing security interest in for the purposes hereinafter
expressed [other language may be required under various state laws],
unto the Mortgagees all property, rights, privileges and franchises
of the Mortgagor of every kind and description, real, personal or
mixed, tangible and intangible, of the kind or nature specifically
mentioned herein or any other kind or nature, except any Excepted
Property, now owned or hereafter acquired by the Mortgagor (by
purchase, consolidation, merger, donation, construction, erection or
in any other way) wherever located, including (without limitation)
all and singular the following:
Granting Clause First
A. all of those fee and leasehold interests in real property set
forth in Schedule ``B'' hereto, subject in each case to those
matters set forth in such Schedule;
B. all of the Mortgagor's interest in fixtures, easements,
permits, licenses and rights-of-way comprising real property, and
all other interests in real property, comprising any portion of the
System (as herein defined) located in the Counties listed in
Schedule ``B'' hereto;
C. all right, title and interest of the Mortgagor in and to
those contracts of the Mortgagor (i) relating to the ownership,
operation or maintenance of any generation, transmission or
distribution facility owned, whether solely or jointly, by the
Mortgagor, (ii) for the purchase of electric power and energy by the
Mortgagor and having an original term in excess of 3 years, (iii)
for the sale of electric power and energy by the Mortgagor and
having an original term in excess of 3 years, and (iv) for the
transmission of electric power and energy by or on behalf of the
Mortgagor and having an original term in excess of 3 years,
including in respect of any of the foregoing, any amendments,
supplements and replacements thereto;
D. all the property, rights, privileges, allowances and
franchises particularly described in the annexed Schedule ``B'' are
hereby made a part of, and deemed to be described in, this Granting
Clause as fully as if set forth in this Granting Clause at length;
and
Also All Other Property, real estate, lands, easements,
servitudes, licenses, permits, allowances, consents, franchises,
privileges, rights of way and other rights in or relating to real
estate or the occupancy of the same; all power sites, storage
rights, water rights, water locations, water appropriations,
ditches, flumes, reservoirs, reservoir sites, canals, raceways,
waterways, dams, dam sites, aqueducts, and all other rights or means
for appropriating, conveying, storing and supplying water; all
rights of way and roads; all plants for the generation of electric
and other forms of energy (whether now known or hereafter developed)
by steam, water, sunlight, chemical processes and/or (without
limitation) all other sources of power (whether now known or
hereafter developed); all power houses, gas plants, street lighting
systems, standards and other equipment incidental thereto; all
telephone, radio, television and other communications, image and
data transmission systems, air conditioning systems and equipment
incidental thereto, water wheels, waterworks, water systems, steam
and hot water plants, substations, lines, service and supply
systems, bridges, culverts, tracks, ice or refrigeration plants and
equipment, offices, buildings and other structures and the equipment
thereto all machinery, engines, boilers, dynamos, turbines,
electric, gas and other machines, prime movers, regulators, meters,
transformers, generators (including, but not limited to, engine-
driven generators and turbogenerator units), motors, electrical, gas
and mechanical appliances, conduits, cables, water, steam, gas or
other pipes, gas mains and pipes, service pipes, fittings, valves
and connections, pole and transmission lines, towers, overhead
conductors and devices, underground conduits, underground conductors
and devices, wires, cables, tools, implements, apparatus, storage
battery equipment, and all other fixtures and personalty; all
municipal and other franchises, consents, certificates or permits;
all emissions allowances; all lines for the transmission and
distribution of electric current and other forms of energy, gas,
steam, water or communications, images and data for any purpose
including towers, poles, wires, cables, pipes, conduits, ducts and
all apparatus for use in connection therewith, and (except as
hereinbefore or hereinafter expressly excepted) all the right, title
and interest of the Mortgagor in and to all other property of any
kind or nature appertaining to and/or used and/or occupied and/or
employed in connection with any property hereinbefore described;
Granting Clause Second
All other property, real, personal or mixed, of whatever kind
and description and wheresoever situated, including without
limitation goods, accounts, money held in a trust account pursuant
hereto or to a Loan Agreement, and general intangibles now owned or
which may be hereafter acquired by the Mortgagor, but excluding
Excepted Property, now owned or which may be hereafter acquired by
the Mortgagor, it being the intention hereof that all property,
rights, privileges, allowances and franchisees now owned by the
Mortgagor or acquired by the Mortgagor after the date hereof (other
than Excepted Property) shall be as fully embraced within and
subjected to the lien hereof as if such property were specifically
described herein.
Granting Clause Third
Also any Excepted Property that may, from time to time
hereafter, by delivery or by writing of any kind, be subjected to
the lien hereof by the Mortgagor or by anyone in its behalf; and any
Mortgagee is hereby authorized to receive the same at any time as
additional security hereunder for the benefit of all the Mortgagees.
Such subjection to the lien hereof of any Excepted Property as
additional security may be made subject to any reservations,
limitations or conditions which shall be set forth in a written
instrument executed by the Mortgagor or the person so acting in its
behalf or by such Mortgagee respecting the use and disposition of
such property or the proceeds thereof.
Granting Clause Fourth
Together with (subject to the rights of the Mortgagor set forth
on Section 5.01) all and singular the tenements, hereditaments and
appurtenances belonging or in anywise appertaining to the aforesaid
property or any part thereof, with the reversion and reversions,
remainder and remainders and all the tolls, earnings, rents, issues,
profits, revenues and other income, products and proceeds of the
property subjected or required to be subjected to the lien of this
Mortgage, and all other property of any nature appertaining to any
of the plants, systems, business or operations of the Mortgagor,
whether or not affixed to the realty, used in the operation of any
of the premises or plants or the System, or otherwise, which are now
owned or acquired by the Mortgagor, and all the estate, right, title
and interest of every nature whatsoever, at law as well as in
equity, of the Mortgagor in and to the same and every part thereof
(other than Excepted Property with respect to any of the foregoing).
Excepted Property
There is, however, expressly excepted and excluded from the lien
and operation of this Mortgage the following described property of
the Mortgagor, now owned or hereafter acquired (herein sometimes
referred to as ``Excepted Property''):
A. all cash on hand or in banks (excluding amounts deposited or
required to be deposited in a trust account pursuant to this
Mortgage), choses in action and judgments, contracts and contract
rights (except to the extent set forth in Granting Clause First),
shares of stock (including without limitation any interest of the
Mortgagor in the National Rural Utilities Cooperative Finance
Corporation and in the National Bank for Cooperatives), bonds,
notes, repurchase agreements, evidences of indebtedness and other
securities, bills, patents, patent licenses and other patent rights,
patent applications, trade names and trademarks, other than any
securities pledged under this Mortgage, and any other property
referred to in this Subdivision which is specifically described in
Granting Clause First or is by the express provisions of the
Mortgage subjected or required to be subjected to the lien hereof;
B. all rolling stock (except mobile substations), automobiles,
buses, trucks, truck cranes, tractors, trailers and similar vehicles
and movable equipment, and all tools, accessories and supplies used
in connection with any of the foregoing;
C. all vessels, boats, ships, barges and other marine equipment,
all airplanes, airplane engines and other flight equipment, and all
tools, accessories and supplies used in connection with any of the
foregoing;
D. all office furniture, equipment and supplies, including
(without limitation) all data processing, accounting and other
computer equipment, software and supplies;
E. all leasehold interests for office purposes;
F. all leasehold interests of the Mortgagor under leases for an
original term (including any period for which the Mortgagor shall
have a right of renewal) of less than five (5) years;
G. all timber and crops (both growing and harvested) and all
coal, ore, gas, oil and other minerals (both in place or severed);
H. all electric energy, gas, steam, water, ice, and other
materials, forms of energy or products generated, manufactured,
produced, or purchased by the Mortgagor for sale, distribution or
use in the ordinary course of its business;
I. the last day of the term of each leasehold estate (oral or
written) and any agreement therefor, now or hereafter enjoyed by the
Mortgagor and whether falling within a general or specific
description of property herein: Provided, However, that the
Mortgagor covenants and agrees that it will hold each such last day
in trust for the use and benefit of all of the Mortgagees and
Noteholders and that it will dispose of each such last day from time
to time in accordance with such written order as the Mortgagee in
its discretion may give;
J. all permits, licenses, franchises, contracts, agreements,
contract rights and other rights not specifically subjected or
required to be subjected to the lien hereof by the express
provisions of this Mortgage, whether now owned or hereafter acquired
by the Mortgagor, which by their terms or by reason of applicable
law would become void or voidable if mortgaged or pledged hereunder
by the Mortgagor or which cannot be granted, conveyed, mortgaged,
transferred or assigned by this Mortgage without the consent of
other parties whose consent is not secured, or without subjecting
any Mortgagee to a liability not otherwise contemplated by the
provisions of this Mortgage, or which otherwise may not be, hereby
lawfully and effectively granted, conveyed, mortgaged, transferred
and assigned by the Mortgagor; and
K. the property identified in Schedule ``C'' hereto.
Provided, However, that (i) if, upon the occurrence of an Event
of Default, any Mortgagee, or any receiver appointed pursuant to
statutory provision or order of court, shall have entered into
possession of all or substantially all of the Mortgaged Property,
all the Excepted Property described or referred to in the foregoing
Subdivisions A through H, inclusive, then owned or thereafter
acquired by the Mortgagor shall immediately, and, in the case of any
Excepted Property described or referred to in Subdivisions I through
J, inclusive, upon demand of any Mortgagee or such receiver, become
subject to the lien hereof to the extent permitted by law, and any
Mortgagee or such receiver may, to the extent permitted by law, at
the same time likewise take possession thereof, and (ii) whenever
all Events of Default shall have been cured and the possession of
all or substantially all of the Mortgaged Property shall have been
restored to the Mortgagor, such Excepted Property shall again be
excepted and excluded from the lien hereof to the extent and
otherwise as hereinabove set forth.
However, pursuant to Granting Clause Third, the Mortgagor may
subject to the lien of this Mortgage any Excepted Property,
whereupon the same shall cease to be Excepted Property.
Habendum
To Have and To Hold all said property, rights, privileges and
franchises of every kind and description, real, personal or mixed,
hereby and hereafter (by supplemental mortgage or otherwise)
granted, bargained, sold, aliened, remised, released, conveyed,
assigned, transferred, mortgaged, encumbered, hypothecated, pledged,
setover, confirmed, or subjected to a continuing security interest
as aforesaid, together with all the appurtenances thereto
appertaining (said properties, rights, privileges and franchises,
including any cash and securities hereafter deposited with any
Mortgagee ((other than any such cash which is specifically stated
herein not to be deemed part of the Mortgaged Property)), being
herein collectively called the ``Mortgaged Property'') unto the
Mortgagees and the respective assigns of the Mortgagees forever, to
secure equally and ratably the payment of the principal of (and
premium, if any) and interest on the Notes, according to their
terms, without preference, priority or distinction as to interest or
principal (except as otherwise specifically provided herein) or as
to lien or otherwise of any Note over any other Note by reason of
the priority in time of the execution, delivery or maturity thereof
or of the assignment or negotiation thereof, or otherwise, and to
secure the due performance of all of the covenants, agreements and
provisions herein and in the Loan Agreements contained, and for the
uses and purposes and upon the terms, conditions, provisos and
agreements hereinafter expressed and declared.
Subject, However, to Permitted Encumbrances (as defined in
Section 1.01).
Article I
Definitions & Other Provisions of General Application
Section 1.01. Definitions. In addition to the terms defined
elsewhere in this Mortgage, the terms defined in this Article I
shall have the meanings specified herein and under the UCC, unless
the context clearly requires otherwise. The terms defined herein
include the plural as well as the singular and the singular as well
as the plural.
Accounting Requirements shall mean the requirements of any
system of accounts prescribed by REA so long as the Government is
the holder, insurer or guarantor of any Notes, or, in the absence
thereof, the requirements of generally accepted accounting
principles applicable to businesses similar to that of the
Mortgagor.
Additional Notes shall mean any Notes issued by the Mortgagor to
the Government or any other lender pursuant to Article II of this
Mortgage including any refunding, renewal, or substitute Notes which
may from time to time be executed and delivered by the Mortgagor
pursuant to the terms of Article II.
Board shall mean either the Board of Directors or the Board of
Trustees, as the case may be, of the Mortgagor.
Business Day shall mean any day that the Government is open for
business.
Debt Service Coverage Ratio (``DSC'') shall mean the ratio
determined as follows: for each calendar year add (i) Patronage
Capital or Margins of the Mortgagor, after deducting generation and
transmission capital credits and other capital credits, (ii)
Interest Expense (as computed in accordance with the principles set
forth in the definition of Times Interest Earned Ratio herein) of
the Mortgagor and (iii) Depreciation and Amortization Expense of the
Mortgagor, and divide the total so obtained by an amount equal to
the sum of all payments of principal and interest required to be
made on account of Total Long-Term Debt during such calendar year
increasing said sum by any addition to interest expense on account
of Restricted Rentals as computed with respect to the Times Interest
Earned Ratio herein; provided, however, that in the event that any
Long-Term Debt (being any amount included in Total Long-Term Debt
computed as provided above) has been refinanced during such year the
payments of principal and interest required to be made during such
year on account of such Long-Term Debt shall be based (in lieu of
actual payments required to be made on such refinanced Debt) upon
the larger of (i) an annualization of the payments required to be
made with respect to the refinancing debt during the portion of such
year such refinancing debt is outstanding or (ii) the payment of
principal and interest required to be made during the following year
on account of such refinancing debt.
Depreciation and Amortization Expense shall mean an amount
constituting the depreciation and amortization of the Mortgagor as
computed pursuant to Accounting Requirements.
Distributions shall have the meaning specified in Section 3.16
hereof.
Electric System shall mean, and shall be broadly construed to
encompass and include, all of the Mortgagor's interests in all
electric production, transmission, distribution, conservation, load
management, general plant and other related facilities, equipment or
property and in any mine, well, pipeline, plant, structure or other
facility for the development, production, manufacture, storage,
fabrication or processing of fossil, nuclear or other fuel of any
kind or in any facility or rights with respect to the supply of
water, in each case for use, in whole or in major part, in any of
the Mortgagor's generating plants, now existing or hereafter
acquired by lease, contract, purchase or otherwise or constructed by
the Mortgagor, including any interest or participation of the
Mortgagor in any such facilities or any rights to the output or
capacity thereof, together with all additions, betterments,
extensions and improvements to such Electric System or any part
thereof hereafter made and together with all lands, easements and
rights-of-way of the Mortgagor and all other works, property or
structures of the Mortgagor and contract rights and other tangible
and intangible assets of the Mortgagor used or useful in connection
with or related to such Electric System, including without
limitation a contract right or other contractual arrangement
referred to in Granting Clause First, Subclause (C).
Environmental Law and Environmental Laws shall mean all federal,
state, and local laws, regulations, and requirements related to
protection of human health or the environment, including but not
limited to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. 9601 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the Clean
Water Act (33 U.S.C. 1251 et seq.) and the Clean Air Act (42 U.S.C.
7401 et seq.), and any amendments and implementing regulations of
such acts.
Equity shall mean the aggregate of all of the Mortgagor's
equities and margins computed pursuant to Accounting Requirements,
but excluding any regulatory created assets.
Event of Default shall have the meaning specified in Section
4.01 hereof.
Excepted Property shall have the meaning stated in the Granting
Clauses.
Government shall mean the United States of America acting by and
through the Administrator of REA and shall include its successors
and assigns.
Government Notes shall mean the Original Notes, and any
Additional Notes, issued by the Mortgagor to the Government, or
guaranteed or insured as to payment by the Government.
Independent shall mean when used with respect to any specified
person or entity means such a person or entity who (1) is in fact
independent, (2) does not have any direct financial interest or any
material indirect financial interest in the Mortgagor or in any
affiliate of the Mortgagor and (3) is not connected with the
Mortgagor as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
Interest Expense shall mean an amount constituting the interest
expense of the Mortgagor as computed pursuant to Accounting
Requirements.
Lien shall mean any statutory or common law consensual or non-
consensual mortgage, pledge, security interest, encumbrance, lien,
right of set off, claim or charge of any kind, including, without
limitation, any conditional sale or other title retention
transaction, any lease transaction in the nature thereof and any
secured transaction under the UCC.
Loan Agreement shall mean any agreement executed by and between
the Mortgagor and the Government or any other lender in connection
with the execution and delivery of any Notes secured hereby.
Long-Term Debt shall mean any amount included in Total Long-Term
Debt pursuant to Accounting Requirements.
Long-Term Lease shall mean a lease having an unexpired term
(taking into account terms of renewal at the option of the lessor,
whether or not such lease has previously been renewed) of more than
12 months.
Margins shall mean the sum of amounts recorded as operating
margins and non-operating margins as computed in accordance with
Accounting Requirements.
Maximum Debt Limit, if any, shall mean the amount more
particularly described in Schedule ``A'' hereof.
Mortgage shall mean this Restated Mortgage and Security
Agreement, including any amendments or supplements thereto from time
to time.
Mortgageable Property shall mean all Property Additions, and all
property owned by the Mortgagor on the date of this instrument which
would constitute Property Additions if acquired after that date, but
Mortgageable Property shall not include any Excepted Property.
Mortgaged Property shall have the meaning specified as stated in
the Habendum to the Granting Clauses.
Mortgagee or Mortgagees shall mean the Government, ____________
(the supplemental lender), their successors and assigns as well as
any and all other lenders pursuant to Article II of this Mortgage
that enter into a supplemental mortgage in accordance with Section
2.04 of Article II hereof, their successors and assigns. The term
``Mortgagee'' is used herein collectively except where the context
clearly indicates otherwise.
Net Utility Plant shall mean the amount constituting the total
utility plant of the Mortgagor less depreciation computed in
accordance with Accounting Requirements.
Note or Notes shall mean one or more of the Government Notes,
and any other Notes which may, from time to time, be secured under
this Mortgage.
Noteholder or Noteholders shall mean one or more of the holders
of Notes secured by this Mortgage; PROVIDED, however, that in the
case of any Notes that have been guaranteed or insured as to payment
by REA, as to such Notes Noteholder or Noteholders shall mean REA,
exclusively, regardless of whether such notes are in the possession
of REA.
Original Mortgage means the instrument(s) identified as such in
Schedule ``A'' hereof.
Original Notes shall mean the Notes listed on Schedule ``A''
hereto as such , such Notes being instruments evidencing outstanding
indebtedness of the Mortgagor (i) to the Government (including
indebtedness which has been issued by the Mortgagor to a third party
and guaranteed or insured as to payment by the Government) and (ii)
to each other Mortgagee on the date of this Mortgage.
Outstanding Notes shall mean as of the date of determination,
(i) all Notes theretofore issued, executed and delivered to any
Mortgagee and (ii) any Notes guaranteed or insured as to payment by
the Government, except (a) Notes referred to in clause (i) or (ii)
for which the principal and interest have been fully paid and which
have been canceled by the Noteholder, and (b) Notes the payment for
which has been provided for pursuant to Section 5.03.
Permitted Debt shall have the meaning specified in Section 3.08.
Permitted Encumbrances shall mean:
(1) as to the property specifically described in Granting Clause
First, the restrictions, exceptions, reservations, conditions,
limitations, interests and other matters which are set forth or
referred to in such descriptions and each of which fits one or more
of the clauses of this definition, PROVIDED, such matters do not in
the aggregate materially detract from the value of the Mortgaged
Property taken as a whole and do not materially impair the use of
such property for the purposes for which it is held by the
Mortgagor;
(2) liens for taxes, assessments and other governmental charges
which are not delinquent;
(3) liens for taxes, assessments and other governmental charges
already delinquent which are currently being contested in good faith
by appropriate proceedings; PROVIDED the Mortgagor shall have set
aside on its books adequate reserves with respect thereto;
(4) mechanics', workmen's, repairmen's, materialmen's,
warehousemen's and carriers' liens and other similar liens arising
in the ordinary course of business for charges which are not
delinquent, or which are being contested in good faith and have not
proceeded to judgment; PROVIDED the Mortgagor shall have set aside
on its books adequate reserves with respect thereto;
(5) liens in respect of judgments or awards with respect to
which the Mortgagor shall in good faith currently be prosecuting an
appeal or proceedings for review and with respect to which the
Mortgagor shall have secured a stay of execution pending such appeal
or proceedings for review; PROVIDED the Mortgagor shall have set
aside on its books adequate reserves with respect thereto;
(6) easements and similar rights granted by the Mortgagor over
or in respect of any Mortgaged Property, PROVIDED that in the
opinion of the Board or a duly authorized officer of the Mortgagor
such grant will not impair the usefulness of such property in the
conduct of the Mortgagor's business and will not be prejudicial to
the interests of the Mortgagees, and similar rights granted by any
predecessor in title of the Mortgagor;
(7) easements, leases, reservations or other rights of others in
any property of the Mortgagor for streets, roads, bridges, pipes,
pipe lines, railroads, electric transmission and distribution lines,
telegraph and telephone lines, the removal of oil, gas, coal or
other minerals and other similar purposes, flood rights, river
control and development rights, sewage and drainage rights,
restrictions against pollution and zoning laws and minor defects and
irregularities in the record evidence of title, PROVIDED that such
easements, leases, reservations, rights, restrictions, laws, defects
and irregularities do not materially affect the marketability of
title to such property and do not in the aggregate materially impair
the use of the Mortgaged Property taken as a whole for the purposes
for which it is held by the Mortgagor;
(8) liens upon lands over which easements or rights of way are
acquired by the Mortgagor for any of the purposes specified in
Clause (7) of this definition, securing indebtedness neither
created, assumed nor guaranteed by the Mortgagor nor on account of
which it customarily pays interest, which liens do not materially
impair the use of such easements or rights of way for the purposes
for which they are held by the Mortgagor;
(9) leases existing at the date of this instrument affecting
property owned by the Mortgagor at said date which have been
previously disclosed to the Mortgagees in writing and leases for a
term of not more than two years (including any extensions or
renewals) affecting property acquired by the Mortgagor after said
date;
(10) terminable or short term leases or permits for occupancy,
which leases or permits expressly grant to the Mortgagor the right
to terminate them at any time on not more than six months' notice
and which occupancy does not interfere with the operation of the
business of the Mortgagor;
(11) any lien or privilege vested in any lessor, licensor or
permittor for rent to become due or for other obligations or acts to
be performed, the payment of which rent or performance of which
other obligations or acts is required under leases, subleases,
licenses or permits, so long as the payment of such rent or the
performance of such other obligations or acts is not delinquent;
(12) liens or privileges of any employees of the Mortgagor for
salary or wages earned but not yet payable;
(13) the burdens of any law or governmental regulation or permit
requiring the Mortgagor to maintain certain facilities or perform
certain acts as a condition of its occupancy of or interference with
any public lands or any river or stream or navigable waters;
(14) any irregularities in or deficiencies of title to any
rights-of-way for pipe lines, telephone lines, telegraph lines,
power lines or appurtenances thereto, or other improvements thereon,
and to any real estate used or to be used primarily for right-of-way
purposes, PROVIDED that in the opinion of counsel for the Mortgagor,
the Mortgagor shall have obtained from the apparent owner of the
lands or estates therein covered by any such right-of-way a
sufficient right, by the terms of the instrument granting such
right-of-way, to the use thereof for the construction, operation or
maintenance of the lines, appurtenances or improvements for which
the same are used or are to be used, or PROVIDED that in the opinion
of counsel for the Mortgagor, the Mortgagor has power under eminent
domain, or similar statues, to remove such irregularities or
deficiencies;
(15) rights reserved to, or vested in, any municipality or
governmental or other public authority to control or regulate any
property of the Mortgagor, or to use such property in any manner,
which rights do not materially impair the use of such property, for
the purposes for which it is held by the Mortgagor;
(16) any obligations or duties, affecting the property of the
Mortgagor, to any municipality or governmental or other public
authority with respect to any franchise, grant, license or permit;
(17) any right which any municipal or governmental authority may
have by virtue of any franchise, license, contract or statute to
purchase, or designate a purchaser of or order the sale of, any
property of the Mortgagor upon payment of cash or reasonable
compensation therefor or to terminate any franchise, license or
other rights or to regulate the property and business of the
Mortgagor;
(18) as to properties of other operating electric companies
acquired after the date of this Mortgage by the Mortgagor as
permitted by Section 3.10 hereof, reservations and other matters as
to which such properties may be subject as more fully set forth in
such Section;
(19) any lien required by law or governmental regulations as a
condition to the transaction of any business or the exercise of any
privilege or license, or to enable the Mortgagor to maintain self-
insurance or to participate in any fund established to cover any
insurance risks or in connection with workmen's compensation,
unemployment insurance, old age pensions or other social security,
or to share in the privileges or benefits required for companies
participating in such arrangements;
(20) liens arising out of any defeased mortgage or indenture of
the Mortgagor; or
(21) the undivided interest of other owners, and liens on such
undivided interests, in property owned jointly with the Mortgagor as
well as the rights of such owners to such property pursuant to the
ownership contracts.
(22) any lien or privilege vested in any lessor, licensor or
permittor for rent to become due or for other obligations or acts to
be performed, the payment of which rent or the performance of which
other obligations or acts is required under leases, subleases,
licenses or permits, so long as the payment of such rent or the
performance of such other obligations or acts is not delinquent;
(23) purchase money mortgages permitted by Section 3.08; and
(24) the Original Mortgage.
Property Additions shall mean property as to which the Mortgagor
shall provide Title Evidence and which shall be (or, if retired,
shall have been) subject to the lien of this Mortgage, which shall
be properly chargeable to the Mortgagor's fixed plant accounts under
Accounting Requirements (including property acquired to replace
property retired and credited to such accounts) and which shall be:
(1) acquired (including acquisition by merger, consolidation,
conveyance or transfer) by the Mortgagor after the date hereof,
including property in the process of construction, insofar as not
reflected on the books of the Mortgagor with respect to periods on
or prior to the date hereof, and
(2) used or useful in the business of the Mortgagor conducted
with the properties described in the Granting Clauses of this
Mortgage, even though separate from and not physically connected
with such properties.
``Property Additions'' shall also include:
(3) easements and rights-of-way that are useful for the conduct
of the business of the Mortgagor, and
(4) property located or constructed on, over or under public
highways, rivers or other public property if the Mortgagor has the
lawful right under permits, licenses or franchises granted by a
governmental body having jurisdiction in the premises or by the law
of the State in which such property is located to maintain and
operate such property for an unlimited, indeterminate or indefinite
period or for the period, if any, specified in such permit, license
or franchise or law and to remove such property at the expiration of
the period covered by such permit, license or franchise or law, or
if the terms of such permit, license, franchise or law require any
public authority having the right to take over such property to pay
fair consideration therefor.
``Property Additions'' shall not include:
(a) good will, going concern value, contracts, agreements,
franchises, licenses or permits, whether acquired as such, separate
and distinct from the property operated in connection therewith, or
acquired as an incident thereto, or
(b) any shares of stock or indebtedness or certificates or
evidences of interest therein or other securities, or
(c) any plant or system or other property in which the Mortgagor
shall acquire only a leasehold interest, or any betterments,
extensions, improvements or additions (other than movable physical
personal property which the Mortgagor has the right to remove), of,
upon or to any plant or system or other property in which the
Mortgagor shall own only a leasehold interest unless (i) the term of
the leasehold interest in the property to which such betterment,
extension, improvement or addition relates shall extend for at least
75% of the useful life of such betterment, extension, improvement or
addition and (ii) the lessor shall have agreed to give the Mortgagee
reasonable notice and opportunity to cure any default by the
Mortgagor under such lease and not to disturb any Mortgagee's
possession of such leasehold estate in the event any Mortgagee
succeeds to the Mortgagor's interest in such lease upon the any
Mortgagee's exercise of any remedies under this Mortgage so long as
there is no default in the performance of the tenant's covenants
contained therein, or
(d) any property of the Mortgagor subject to the Permitted
Encumbrance described in clause (23) of the definition thereof.
REA shall mean the Rural Electrification Administration of the
United States Department of Agriculture or if at any time after the
execution of this Mortgage REA is not existing and performing the
duties of administering a program of rural electrification as
currently assigned to it, then the entity performing such duties at
such time.
Restricted Rentals shall mean all rentals required to be paid
under finance leases and charged to income, exclusive of any amounts
paid under any such lease (whether or not designated therein as
rental or additional rental) for maintenance or repairs, insurance,
taxes, assessments, water rates or similar charges. For the purpose
of this definition the term ``finance lease'' shall mean any lease
having a rental term (including the term for which such lease may be
renewed or extended at the option of the lessee) in excess of 3
years and covering property having an initial cost in excess of
$250,000 other than aircraft, ships, barges, automobiles, trucks,
trailers, rolling stock and vehicles; office, garage and warehouse
space; office equipment and computers.
Security Interest shall mean any assignment, transfer, mortgage,
hypothecation or pledge.
Subordinated Indebtedness shall mean secured indebtedness of the
Mortgagor, payment of which shall be subordinated to the prior
payment of the Notes in accordance with the provisions of Section
3.08 hereof by subordination agreement in form and substance
satisfactory to each Mortgagee which approval will not be
unreasonably withheld.
Supplemental Mortgage shall mean an instrument of the type
described in Section 2.04.
Times Interest Earned Ratio (``TIER'') shall mean the ratio
determined as follows: for each calendar year: add (i) Patronage
Capital or Margins of the Mortgagor after deducting generation and
transmission capital credits and other capital credits, (ii)
Interest Expense on Total Long-Term Debt of the Mortgagor and (iii)
taxes paid, if any, based upon income during the year and divide the
total so obtained by Interest Expense on Total Long-Term Debt of the
Mortgagor, provided, however, that in computing Interest Expense on
Total Long-Term Debt, there shall be added, to the extent not
otherwise included, an amount equal to 33\1/3\% of the excess of
Restricted Rentals paid by the Mortgagor over 2% of the Mortgagor's
Equities and Margins.
Title Evidence, with respect to any property, shall mean
(1) an opinion of counsel to the effect that the Mortgagor has
title, whether fairly deducible of record or based upon prescriptive
rights (or, as to personal property, based on such evidence as
counsel shall determine to be sufficient), as in the opinion of
counsel is satisfactory for the use thereof in connection with the
operations of the Mortgagor, and counsel in giving such opinion may
disregard any irregularity or deficiency in the record evidence of
title which, in the opinion of such counsel, can be cured by
proceedings within the power of the Mortgagor or does not
substantially impair the usefulness of such property for the purpose
of the Mortgagor and may base such opinion upon his own
investigation or upon affidavits, certificates, abstracts of title,
statements or investigations made by persons in whom such counsel
has confidence or upon examination of a certificate or guaranty of
title or policy of title insurance in which he has confidence; or
(2) a mortgagee's policy of title insurance in the amount of the
cost to the Mortgagor of the land included in Property Additions, as
such cost is determined by the Mortgagor, issued in favor of the
Mortgagees by an entity authorized to insure title in the states
where the Mortgaged Property is located, showing the Mortgagor as
the owner of the subject property and insuring the lien of this
Mortgage.
Total Assets shall mean an amount constituting total assets of
the Mortgagor as computed pursuant to Accounting Requirements, but
excluding any regulatory created assets.
Total Long-Term Debt shall mean an amount constituting the long-
term debt of the Mortgagor as computed pursuant to Accounting
Requirements.
Total Utility Plant shall mean the amount constituting the total
utility plant of the Mortgagor computed in accordance with
Accounting Requirements.
Uniform Commercial Code or UCC shall mean the UCC of the state
referred to in Section 1.04, and if Mortgaged Property is located in
a state other than that state, then as to such Mortgaged Property
UCC refers to the UCC in effect in the state where such property is
located.
Utility System shall mean the Electric System and all of the
Mortgagor's interest in community infrastructure located within its
service territory, namely water and waste systems, solid waste
disposal facilities, telecommunications and other electronic
communications systems, and natural gas distribution systems.
Section 1.02. General Rules of Construction:
a. Accounting terms not referred to above are used in this
Mortgage in their ordinary sense and any computations relating to
such terms shall be computed in accordance with the Accounting
Requirements.
b. Any reference to ``directors'' or ``board of directors''
shall be deemed to mean ``trustees'' or ``board of trustees,'' as
the case may be.
Section 1.03. Special Rules of Construction if REA is a
Mortgagee: During any period that REA is a Mortgagee, the following
additional provisions shall apply:
a. In the case of any Notes that have been guaranteed or insured
as to payment by REA, as to such Notes REA shall be considered to be
the Noteholder, exclusively, regardless of whether such Notes are in
the possession of REA.
b. In the case of any prior approval rights conferred upon REA
by Federal statutes, including (without limitation) Section 7 of the
Rural Electrification Act of 1936, as amended, with respect to the
sale or disposition of property, rights, or franchises of the
Mortgagor, all such statutory rights are reserved except to the
extent that they are expressly modified or waived in this Mortgage.
Section 1.04. Governing Law: This Mortgage shall be construed in
and governed by Federal law to the extent applicable, and otherwise
by the laws of the State of ____________.
Section 1.05 Notices: All demands, notices, reports, approvals,
designations, or directions required or permitted to be given
hereunder shall be in writing and shall be deemed to be properly
given if sent by registered or certified mail, postage prepaid, or
delivered by hand, or sent by facsimile transmission, receipt
confirmed, addressed to the proper party or parties at the following
address:
As to the Mortgagor:
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As to the Mortgagee:
United States of America, Department of Agriculture, Rural
Electrification Administration, Washington, DC 20250-1500
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and as to any other person, firm, corporation or governmental body
or agency having an interest herein by reason of being a Mortgagee,
at the last address designated by such person, firm, corporation,
governmental body or agency to the Mortgagor and the other
Mortgagees. Any such party may from time to time designate to each
other a new address to which demands, notices, reports, approvals,
designations or directions may be addressed, and from and after any
such designation the address designated shall be deemed to be the
address of such party in lieu of the address given above.
Article II
Additional Notes
Section 2.01. Additional Notes: Without the prior consent of any
Mortgagee or any Noteholder, the Mortgagor may issue Additional
Notes to the Government or to another lender or lenders for the
purpose of acquiring or constructing new or replacement Mortgageable
Property which Notes will thereupon be secured equally and ratably
with the Notes if the following requirements are satisfied:
(1) As evidenced by a certificate of an Independent accountant
delivered to each Mortgagee:
(a) The Mortgagor shall have achieved for each of the two
calendar years immediately preceding the issuance of such additional
Notes, a TIER of not less than 1.35 and a DSC of not less than 1.35
on a pro forma basis after taking into account the maximum effect of
such additional Notes on annual Interest Expense, annual
Depreciation and Amortization Expense, and annual payments of
principal and interest (for purpose of this calculation, the
interest rate assumed in the case of Notes having a variable
interest rate shall be the greater of (i) interest rate in effect
with respect to such Notes on the date of such calculation or (ii)
the average interest rate with respect to any such Notes Outstanding
during the preceding 12 months); and
(b) After taking into account the effect of such additional
Notes, the Mortgagor shall have Equity greater than or equal to 27%
of Total Assets on a pro forma basis; and
(c) After taking into account the effect of such additional
Notes, the ratio of the Mortgagor's Net Utility Plant to its Long
Term Debt shall be greater than or equal to 1.1 on a pro forma
basis;
(d) The aggregate principal amount of such Additional Notes (if
any) not related to the Electric System when added to the aggregate
principal amount of all Outstanding Notes (if any) not related to
the Electric System will be not more than 20% of the Outstanding
Notes on a pro forma basis;
(e) The maturity of the loan evidenced by the notes must not
exceed the weighted average of the expected remaining useful lives
of the assets being financed;
(f) The principal of the loan evidenced by the Notes must be
amortized at a rate that will yield a weighted average life not
greater than the weighted average life that would result from level
payments of principal and interest; and
(g) The principal of the loan evidenced by the Notes must have a
maturity of not less than 5 years.
(2) No Event of Default has occurred and is continuing
hereunder, or any event which with the giving of notice or lapse of
time or both would become an Event of Default has occurred and is
continuing.
(3) The Mortgageable Property being constructed or replaced is
part of the Mortgagor's Utility System.
Section 2.02. Refunding or Refinancing Notes: The Mortgagor
shall also have the right without the consent of any Mortgagee or
any Noteholder to issue Additional Notes for the purpose of
refunding or refinancing any Notes so long as: (a) the total amount
of Outstanding indebtedness evidenced by such Additional Note or
Notes is not greater than 103.5 percent of the then outstanding
principal balance of the Note or Notes being refunded or refinanced;
(b) the weighted average life of any such additional Note or Notes
is not greater than the weighted remaining life of the Note or Notes
being refinanced; (c) the present value of the cost of the
refinancing, including all transaction costs and any required
investments in the lender, is less than the present value of the
cost of the Note or Notes being refinanced. PROVIDED, HOWEVER, that
the Mortgagor may not exercise its rights under this Section if an
Event of Default has occurred and is continuing, or any event which
with the giving of notice or lapse of time or both would become an
Event of Default has occurred and is continuing. Additional Notes
issued pursuant to this Section 2.02 will thereupon be secured
equally and ratably with the Notes.
Section 2.03. Other Additional Notes. With the prior written
consent of each Mortgagee, the Mortgagor may issue Additional Notes
to the Government or any lender or lenders which, Notes will
thereupon be secured equally and ratably with Notes without regard
to whether any of the requirements of Sections 2.01 or 2.02 are
satisfied.
Section 2.04. Additional Lenders Entitled to the Benefits of
This Mortgage: Without the prior consent of any Mortgagee or any
Noteholder, each lender designated as a payee in any Additional
Notes issued by the Mortgagor pursuant to Section 2.01 or 2.02 of
this Mortgage shall become a Mortgagee hereunder upon the execution
and delivery by the Mortgagor and such lender of a supplemental
mortgage hereto designating such lender as a Mortgagee hereunder.
Such lender shall be entitled to the benefits of this Mortgage
without further act or deed. Each Mortgagee and each person or
entity that becomes a lender pursuant to Section 2.01 or 2.02 of
this Mortgage shall, upon the request of the Mortgagor to do so,
execute and deliver a supplement to this Mortgage in substantially
the form set forth in Section 2.05. Such request shall be
accompanied by an opinion of counsel and a certificate of the
general manager or other duly authorized officer of the Mortgagor
showing in reasonable detail that the issuance of the Additional
Note or Notes which qualify the specified additional lender to
become a Mortgagee under this Mortgage were or will be issued in
compliance with the provisions of sections 2.01 or 2.02 hereof. The
failure of any Mortgagee to enter into such supplemental mortgage
shall not deprive the lender of its rights under this Mortgage;
provided that such additional indebtedness otherwise conforms in all
respects with the requirements for issuing Additional Notes under
this Mortgage.
Section 2.05. Form of Supplemental Mortgage: [Here insert the
shell of a simple mortgage supplement. The new lender should be able
to set amortization terms and loan contract details in separate
instruments, but not modify the substance of the shell or the master
mortgage if it expects to take advantage of Sec. 2.04.]
Article III
Particular Covenants of the Mortgagor
Section 3.01. Payment of Debt Service on Notes: The Mortgagor
will duly and punctually pay the principal, premium, if any, and
interest on the Notes in accordance with the terms of the Notes, the
Loan Contracts, this Mortgage and any Supplemental Mortgage
authorizing such Notes.
Section 3.02. Warranty of Title: At the time of the execution
and delivery of this instrument, the Mortgagor has good and
marketable title in fee simple to the real property specifically
described in Granting Clause First as owned in fee and good and
marketable title to the interests in real property specifically
described in Granting Clause First, subject to no mortgage, lien,
charge or encumbrance except as stated therein, and has full power
and lawful authority to grant, bargain, sell, alien, remise,
release, convey, assign, transfer, mortgage, pledge, set over and
confirm said real property and interests in real property in the
manner and form aforesaid.
The Mortgagor lawfully owns and is possessed of the other
property specifically described in Granting Clause First, subject to
no mortgage, lien, charge or encumbrance except as stated therein,
and has full power and lawful authority to mortgage, assign,
transfer, deliver, pledge and grant a continuing security interest
in said property in the manner and form aforesaid.
The Mortgagor hereby does and will forever warrant and defend
the title to the property specifically described in Granting Clause
First against the claims and demands of all persons whomsoever.
Section 3.03. After-Acquired Property; Further Assurances;
Recording: All property of every kind, other than Excepted Property,
acquired by the Mortgagor after the date hereof, shall, immediately
upon the acquisition thereof by the Mortgagor, and without any
further mortgage, conveyance or assignment, become subject to the
lien of this Mortgage; Subject, However, to Permitted Encumbrances
and the exceptions, if any, to which all of the Mortgagees consent.
Nevertheless, the Mortgagor will do, execute, acknowledge and
deliver all and every such further acts, conveyances, mortgages,
financing statements and assurances as any Mortgagee shall require
for accomplishing the purposes of this Mortgage.
The Mortgagor will cause this Mortgage and all Supplemental
Mortgages and other instruments of further assurance, including all
financing statements covering security interests in personal
property, to be promptly recorded, registered and filed, and will
execute and file such financing statements and cause to be issued
and filed such continuation statements, all in such manner and in
such places as may be required by law fully to preserve and protect
the rights of all of the Mortgagees and Noteholders hereunder to all
property comprising the Mortgaged Property. The Mortgagor will
furnish to each Mortgagee:
A. Promptly after the execution and delivery of this instrument
and of each Supplemental Mortgage or other instrument of further
assurance, an Opinion of Counsel stating that, in the opinion of
such Counsel, this instrument and all such Supplemental Mortgages
and other instruments of further assurance have been properly
recorded, registered and filed to the extent necessary to make
effective the lien intended to be created by this Mortgage, and
reciting the details of such action or referring to prior Opinions
of Counsel in which such details are given, and stating that all
financing statements and continuation statements have been executed
and filed that are necessary fully to preserve and protect the
rights of all of the Mortgagees and Noteholders hereunder, or
stating that, in the opinion of such Counsel, no such action is
necessary to make the lien effective; and
B. Within 30 days after ____________ in each year beginning with
the year ______, an Opinion of Counsel, dated as of such date,
either stating that, in the opinion of such Counsel, such action has
been taken with respect to the recording, registering, filing, re-
recording, re-registering and re-filing of this instrument and of
all Supplemental Mortgages, financing statements, continuation
statements or other instruments of further assurances as is
necessary to maintain the lien of this Mortgage (including the lien
on any property acquired by the Mortgagor after the execution and
delivery of this instrument and owned by the Mortgagor at the end of
preceding calendar year) and reciting the details of such action or
referring to prior Opinions of Counsel in which such details are
given, and stating that all financing statements and continuation
statements have been executed and filed that are necessary to fully
preserve and protect the rights of all of the Mortgagees and
Noteholders hereunder, or stating that, in the opinion of such
Counsel, no such action is necessary to maintain such lien.
Section 3.04. Environmental Obligations: (a) The Mortgagor
shall, with respect to all facilities which may be part of the
Mortgaged Property, comply with all Environmental Laws.
(b) The Mortgagor shall defend, indemnify, and hold harmless
each Mortgagee, its successors and assigns, from and against any and
all liabilities, losses, damages, costs, expenses (including but not
limited to reasonable attorneys' fees and expenses), causes of
actions, administrative proceedings, suits, claims, demands, or
judgments of any nature arising out of or in connection with any
matter related to the Mortgage Property and any Environmental Law,
including but not limited to:
(1) The past, present, or future presence of any hazardous
substance, contaminant, pollutant, or hazardous waste on or related
to the Mortgaged Property;
(2) Any failure at any time by the undersigned to comply with
the terms of any order related to the Mortgaged Property and issued
by any federal, state, or municipal department or agency (other than
REA) exercising its authority to enforce any Environmental Law; and
(3) Any lien or claim imposed under any Environmental Law
related to clause (1).
(c) Within 3 (three) days after receiving knowledge of any
liability, losses, damages, costs, expenses (including but not
limited to reasonable attorneys' fees and expenses), cause of
action, administrative proceeding, suit, claim, demand, judgment,
lien, reportable event including but not limited to the release of a
hazardous substance, or potential or actual violation or non-
compliance arising out of or in connection with the Mortgaged
Property and any Environmental Law, the Mortgagor shall provide each
Mortgagee with written notice of such matter. With respect to any
matter upon which it has provided such notice, the Mortgagor shall
immediately take any and all appropriate actions to remedy, cure,
defend, or otherwise affirmatively respond to the matter.
Section 3.05. Payment of Taxes: The Mortgagor will pay or cause
to be paid as they become due and payable all taxes, assessments and
other governmental charges lawfully levied or assessed or imposed
upon the Mortgaged Property or any part thereof or upon any income
therefrom, and also (to the extent that such payment will not be
contrary to any applicable laws) all taxes, assessments and other
governmental charges lawfully levied, assessed or imposed upon the
lien or interest of the Noteholders or of the Mortgagees in the
Mortgaged Property, so that (to the extent aforesaid) the lien of
this Mortgage shall at all times be wholly preserved at the cost of
the Mortgagor and without expense to the Mortgagees or the
Noteholders; PROVIDED, HOWEVER, that the Mortgagor shall not be
required to pay and discharge or cause to be paid and discharged any
such tax, assessment or governmental charge to the extent that the
amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and the Mortgagor
shall have established and shall maintain adequate reserves on its
books for the payment of the same.
Section 3.06. Authority to Execute and Deliver Notes, Loan
Agreements and Mortgage; All Action Taken; Enforceable Obligations:
The Mortgagor is authorized under its articles of incorporation and
bylaws [or code of regulations] and all applicable laws and by
corporate action to execute and deliver the Notes, any Additional
Notes, the Loan Agreements and this Mortgage. The Notes, the Loan
Agreements and this Mortgage are, and any Additional Notes and Loan
Agreements when executed and delivered will be, the valid and
enforceable obligations of the Mortgagor in accordance with their
respective terms.
Section 3.07. Restrictions On Further Encumbrances on Property:
Except to secure Additional Notes, the Mortgagor will not, without
the prior written consent of each Mortgagee, create or incur or
suffer or permit to be created or incurred or to exist any Lien,
charge, assignment, pledge, mortgage on any of the Mortgaged
Property inferior to, prior to, or on a parity with the Lien of this
Mortgage except for the Permitted Encumbrances. Subject to the
provisions of Section 3.08, or unless approved by each of the
Mortgagees, the Mortgagor will purchase all materials, equipment and
replacements to be incorporated in or used in connection with the
Mortgaged Property outright and not subject to any conditional sales
agreement, chattel mortgage, bailment, lease or other agreement
reserving to the seller any right, title or Lien.
Section 3.08. Restrictions On Additional Permitted Debt: The
Mortgagor shall not incur, assume, guarantee or otherwise become
liable in respect of any debt for borrowed money and Restricted
Rentals (including Subordinated Debt) other than the following:
(``Permitted Debt'')
(1) Additional Notes issued in compliance with Article II
hereof;
(2) Purchase money indebtedness in non-Utility System property,
in an amount not exceeding 10% of Net Utility Plant;
(3) Restricted Rentals in an amount not to exceed 5% of Equity
during any 12 consecutive calendar month period;
(4) Unsecured lease obligations incurred in the ordinary course
of business except Restricted Rentals;
(5) Unsecured indebtedness for borrowed money in an aggregate
amount not exceeding 15% of Net Utility Plant;
(6) Debt represented by dividends declared but not paid;
(7) Subordinated Indebtedness approved by each Mortgagee; and
(8) Indebtedness of other operating electric companies hereafter
acquired by the Mortgagor not exceeding 90% of the Net Utility Plant
of the acquired company.
Provided, However, that the Mortgagor may incur Permitted Debt
without the consent of the Mortgagee only so long as there exists no
Event of Default hereunder and there has been no continuing
occurrence which with the passage of time and giving of notice could
become an Event of Default hereunder.
Provided, Further, by executing this Mortgage any consent of REA
that the Mortgagor would otherwise be required to obtain under this
Section is hereby deemed to be given or waived by REA by operation
of law to the extent, but only to the extent, that to impose such a
requirement of REA consent would clearly violate existing federal
laws or government regulations.
Section 3.09. Preservation of Corporate Existence and
Franchises: The Mortgagor will, so long as any Outstanding Notes
exist, take or cause to be taken all such action as from time to
time may be necessary to preserve its corporate existence and to
preserve and renew all franchises, rights of way, easements,
permits, and licenses now or hereafter to be granted or upon it
conferred the loss of which would have a material adverse affect on
the Mortgagor's financial condition or business. The Mortgagor will
comply with all laws, ordinances, regulations, orders, decrees and
other legal requirements applicable to it or its property the
violation of which could have a material adverse affect on the
Mortgagor's financial condition or business.
Section 3.10 Limitations on Consolidations and Mergers: The
Mortgagor shall not consolidate or merge with any other corporation
or convey or transfer the Mortgaged Property substantially as an
entirety unless: (1) Such consolidation, merger, conveyance or
transfer shall be on such terms as shall fully preserve the lien and
security hereof and the rights and powers of the Mortgagees
hereunder; (2) the entity formed by such consolidation or with which
the Mortgagor is merged or the corporation which acquires by
conveyance or transfer the Mortgaged Property substantially as an
entirety shall execute and deliver to the Mortgagees a mortgage
supplemental hereto in recordable form and containing an assumption
by such successor entity of the due and punctual payment of the
principal of and interest on all of the Outstanding Notes and the
performance and observance of every covenant and condition of this
Mortgage; (3) immediately after giving effect to such transaction,
no default hereunder shall have occurred and be continuing; (4) the
Mortgagor shall have delivered to the Mortgagees a certificate of
its general manager or other officer and an opinion of counsel for
the Mortgagor, each of which shall state that such consolidation,
merger, conveyance or transfer and such supplemental mortgage comply
with this subsection and that all conditions precedent herein
provided for relating to such transaction have been complied with;
and (5) the entity formed by such consolidation or with which the
Mortgagor is merged or the corporation which acquires by conveyance
or transfer the Mortgaged Property substantially as an entirety
shall be an entity--(A) having Equity equal to at least 27% of its
Total Assets on a pro forma basis after giving effect to such
transaction, (B) having a pro forma TIER of not less than 1.35 for
the preceding calendar year, and (C) having Net Utility Plant equal
to or greater than 1.1 times its long-term debt. Upon any
consolidation or merger or any conveyance or transfer of the
Mortgaged Property substantially as an entirety in accordance with
this subsection, the successor entity formed by such consolidation
or with which the Mortgagor is merged or to which such conveyance or
transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Mortgagor under this Mortgage
with the same effect as if such successor entity had been named as
the Mortgagor herein.
Section 3.11 Limitations on Transfers of Property: The Mortgagor
may not, except as provided in Section 3.10 above, without the prior
written approval of each Mortgagee, sell, lease or transfer any
Mortgaged Property to any other person or entity (including any
subsidiary or affiliate of the Mortgagor), unless (1) there exists
no Event of Default or occurrence which with the passing of time and
the giving of notice would be an Event of Default, (2) fair market
value is obtained for such property, (3) the aggregate value of
assets so sold, leased or transferred in any 12-month period is less
than 10% of Net Utility Plant, and (4) the proceeds of such sale,
lease or transfer, less ordinary and reasonable expenses incident to
such transaction, are immediately (i) applied as a prepayment of all
Notes equally and ratably, (ii) in the case of dispositions of
equipment, materials or scrap, applied to the purchase of other
property useful in the Mortgagor's business, not necessarily of the
same kind as the property disposed of, which shall forthwith become
subject to the Lien of the Mortgage, or (iii) applied to the
acquisition or construction of other Mortgageable Property.
Section 3.12. Maintenance of Mortgaged Property: (a) So long as
the Mortgagor holds title to the Mortgaged Property, the Mortgagor
will at all times maintain and preserve the Mortgaged Property which
is used or useful in the Mortgagor's business and each and every
part and parcel thereof in good repair, working order and condition,
ordinary wear and tear and acts of God excepted, and in compliance
with good utility practice and in compliance with all applicable
laws, regulations and orders, and will from time to time make all
needed and proper repairs, renewals and replacements, and useful and
proper alterations, additions, betterments and improvements, and
will, subject to contingencies beyond its reasonable control, at all
times use all reasonable diligence to furnish the consumers served
by it through the Mortgaged Property, or any part thereof, with an
adequate supply of electric power and energy. If any substantial
part of the Mortgaged Property is leased by the Mortgagor to any
other party, the lease agreement between the Mortgagor and the
lessee shall obligate the lessee to comply with the provisions of
subsections (a) and (b) of this Section in respect of the leased
facilities and to permit the Mortgagor to operate the leased
facilities in the event of any failure by the lessee to so comply.
(b) The Mortgagor further agrees upon reasonable written request
of any Mortgagee, which request together with the requests of any
other Mortgagees shall be made no more frequently than once every
three years, to supply promptly to each Mortgagee an initial
certification (hereinafter called the ``Initial Certification''), in
form satisfactory to the requestor, prepared by an Independent
professional engineer, who shall be satisfactory to the Mortgagees,
as to the condition of the Mortgaged Property. If in the sole
judgment of any Mortgagee such Initial Certification discloses the
need for improvements to the condition of the Mortgaged Property or
any other operations of the Mortgagor, such Mortgagee may send to
the Mortgagor a written report of such improvements and the
Mortgagor will upon receipt of such written report promptly
undertake to accomplish such of these improvements as are required
by such Mortgagees. One year after receipt of such written report,
the Mortgagor shall submit to each Mortgagee a second certification
(herein called the ``Second Certification''), in form satisfactory
to the Mortgagees, prepared by an Independent professional engineer,
who shall be satisfactory to the Mortgagees, as to the condition of
the Mortgaged Property and the other operations of the Mortgagor. If
in the sole judgment of any Mortgagee such Second Certification
discloses inadequacies in the condition of the Mortgaged Property or
the other operations of the Mortgagor, any Mortgagee may send to the
Mortgagor written notice of these inadequacies, and the Mortgagor
shall cure such inadequacies, within sixty (60) days of receipt of
such notice.
Section 3.13. Insurance; Restoration of Damaged Mortgaged
Property: (a) The Mortgagor will take out, as the respective risks
are incurred, and maintain the classes and amounts of insurance in
conformance with generally accepted utility industry standards for
such classes and amounts of coverages of utilities of the size and
character of the Mortgagor.
(b) The foregoing insurance coverage shall be obtained by means
of bond and policy forms approved by regulatory authorities having
jurisdiction, and, with respect to insurance upon any part of the
Mortgaged Property, shall provide that the insurance shall be
payable to the Mortgagees as their interests may appear by means of
the standard mortgagee clause without contribution. Each policy or
other contract for such insurance shall contain an agreement by the
insurer that, notwithstanding any right of cancellation reserved to
such insurer, such policy or contract shall continue in force for at
least 30 days after written notice to each Mortgagee of
cancellation.
(c) In the event of damage to or the destruction or loss of any
portion of the Mortgaged Property which is used or useful in the
Mortgagor's business and which shall be covered by insurance, unless
each Mortgagee shall otherwise agree, the Mortgagor shall replace or
restore such damaged, destroyed or lost portion so that such
Mortgaged Property shall be in substantially the same condition as
it was in prior to such damage, destruction or loss, and shall apply
the proceeds of the insurance for that purpose. The Mortgagor shall
replace the lost portion of such Mortgaged Property or shall
commence such restoration promptly after such damage, destruction or
loss shall have occurred and shall complete such replacement or
restoration as expeditiously as practicable, and shall pay or cause
to be paid out of the proceeds of such insurance all costs and
expenses in connection therewith.
(d) Sums recovered under any policy or fidelity bond by the
Mortgagor for a loss of funds advanced under the Notes or recovered
by any Mortgagee or any Noteholder for any loss under such policy or
bond shall, unless applied as provided in the preceding paragraph or
otherwise be used to finance construction of facilities secured or
to be secured by this Mortgage, or unless otherwise directed by the
Mortgagees, be applied to the prepayment of the Notes pro rata
according to the unpaid principal amounts thereof (such prepayments
to be applied to such Notes and installments thereof as may be
designated by the respective Mortgagee at the time of any such
prepayment), or be used to construct or acquire facilities which
will become part of the Mortgaged Property. At the request of any
Mortgagee, the Mortgagor shall exercise such rights and remedies
which they may have under such policy or fidelity bond and which may
be designated by such Mortgagee, and the Mortgagor hereby
irrevocably appoints each Mortgagee as its agent to exercise such
rights and remedies under such policy or bond as such Mortgagee may
choose, and the Mortgagor shall pay all costs and reasonable
expenses incurred by the Mortgagee in connection with such exercise.
Section 3.14. Mortgagee Right to Expend Money to Protect
Mortgaged Property: The Mortgagor agrees that any Mortgagee from
time to time hereunder may, in its sole discretion, after having
given 5 Business days prior written notice to Mortgagor, but shall
not be obligated to, advance funds on behalf of Mortgagor, in order
to insure the Mortgagor's compliance with any covenant, warranty,
representation or agreement of the Mortgagor made in or pursuant to
this Mortgage or any of the Loan Agreements, to preserve or protect
any right or interest of the Mortgagees in the Mortgaged Property or
under or pursuant to this Mortgage or any of the Loan Agreements,
including without limitation, the payment of any insurance premiums
or taxes and the satisfaction or discharge of any judgment or any
Lien upon the Mortgaged Property or other property or assets of
Mortgagor; provided, however, that the making of any such advance by
or through any Mortgagee shall not constitute a waiver by any
Mortgagee of any Event of Default with respect to which such advance
is made nor relieve the Mortgagor of any such Event of Default. The
Mortgagor shall pay to a Mortgagee upon demand all such advances
made by such Mortgagee with interest thereon at a rate equal to that
on the Note having the highest interest rate but in no event shall
such rate be in excess of the maximum rate permitted by applicable
law. All such advances shall be included in the obligations and
secured by the security interest granted hereunder.
Section 3.15. Time Extensions for Payment of Notes: Any
Mortgagee may, at any time or times in succession without notice to
or the consent of the Mortgagor, or any other Mortgagee, and upon
such terms as such Mortgagee may prescribe, grant to any person,
firm or corporation who shall have become obligated to pay all or
any part of the principal of (and premium, if any) or interest on
any Note held by or indebtedness owed to such Mortgagee or who may
be affected by the lien hereby created, an extension of the time for
the payment of such principal, (and premium, if any) or interest,
and after any such extension the Mortgagor will remain liable for
the payment of such Note or indebtedness to the same extent as
though it had at the time of such extension consented thereto in
writing.
Section 3.16. Limitation on Dividends, Patronage Refunds and
Other Cash Distributions: The Mortgagor will not, in any calendar
year, without the prior written consent of the Mortgagees, declare
or pay any dividends, or pay or determine to pay any patronage
refunds, or retire any patronage capital or make any other cash
distributions (such dividends, refunds, retirements and other
distributions being hereinafter collectively called
``Distributions''), to its members, stockholders or consumers if
after giving effect to any such Distribution the total Equity of the
Mortgagor will not equal or exceed 40% of its total assets and other
debits; provided, however, that in any event the Mortgagor may make
Distributions to the estates of natural patrons who are deceased to
the extent required or permitted by its articles of incorporation
and bylaws, and, if such Distributions to such estates do not exceed
25% of the patronage capital and margins received by the Mortgagor
in the next preceding year, make such additional Distributions in
any year as will not cause the total Distributions in such year to
exceed 25% of the patronage capital and margins so received, and
provided, further, however, that in no event will the Mortgagor make
any Distributions if there is unpaid when due any installment of
principal of (and premium, if any) or interest on the Notes, if the
Mortgagor is otherwise in default hereunder or if, after giving
effect to any such Distribution, the Mortgagor's total current and
accrued assets would be less than its total current and accrued
liabilities. For the purpose of this section a ``cash distribution''
shall be deemed to include any general cancellation or abatement of
charges for electric energy or services furnished by the Mortgagor,
but not the repayment of a membership fee upon termination of a
membership.
Section 3.17. Application of Proceeds from Condemnation: (a) In
the event that the Mortgaged Property or any part thereof, shall be
taken under the power of eminent domain, all proceeds and avails
therefrom may be used to finance construction of facilities secured
or to be secured by this Mortgage. Any proceeds not so used shall
forthwith be applied by the Mortgagor: first, to the ratable payment
of any indebtedness secured by this Mortgage other than principal of
or interest on the Notes; second, to the ratable payment of interest
which shall have accrued on the Notes and be unpaid; third, to the
ratable payment of or on account of the unpaid principal of the
Notes, to such installments thereof as may be designated by the
respective Mortgagee at the time of any such payment; and fourth,
the balance shall be paid to whomsoever shall be entitled thereto.
(b) If any part of the Mortgaged Property shall be taken by
eminent domain, each Mortgagee shall release the property so taken
from the Mortgaged Property and shall be fully protected in so doing
upon being furnished with:
(1) A certificate of a duly authorized officer of the Mortgagor
requesting such release, describing the property to be released and
stating that such property has been taken by eminent domain and that
all conditions precedent herein provided or relating to such release
have been complied with; and
(2) an opinion of counsel to the effect that such property has
been lawfully taken by exercise of the right of eminent domain, that
the award for such property so taken has become final or an appeal
therefrom is not advisable in the interests of the Mortgagor, the
Mortgagees or the Noteholders and that all conditions precedent
herein provided for relating to such release have been complied
with.
Section 3.18. Compliance with Loan Agreements; Notice of
Amendments to and Defaults under Loan Agreements: The Mortgagor will
observe and perform all of the material covenants, agreements, terms
and conditions contained in any Loan Agreement entered into in
connection with the issuance of any of the Notes, as from time to
time amended. The Mortgagor will send promptly to each Mortgagee
notice of any default by the Mortgagor under any Loan Agreement and
notice of any amendment to any Loan Agreement. Upon request of any
Mortgagee, the Mortgagor will furnish to such Mortgagee single
copies of such Loan Agreements and amendments thereto as such
Mortgagee may request.
Section 3.19. Rights of Way, etc., Necessary in Business: The
Mortgagor will use its best efforts to obtain all such rights of
way, easements from landowners and releases from lienors as shall be
necessary or advisable in the conduct of its business, and, if
requested by any Mortgagee, deliver to such Mortgagee evidence
satisfactory to such Mortgagee of the obtaining of such rights of
way, easements or releases.
Section 3.20. Rates to Provide Revenue Sufficient to Meet TIER
and DSC Requirements: The Mortgagor shall design and implement rates
for electric power and energy and for other utility services
furnished by it that are designed [when combined with other revenue
available to the Mortgagor] (i) to provide sufficient revenue to pay
all fixed and variable expenses when and as due, (ii) to provide and
maintain reasonable working capital, and (iii) to maintain, on an
annual basis, a TIER of not less than 1.35 and a DSC of not less
than 1.35. The Mortgagor shall give thirty (30) days prior written
notice of any proposed change in its general rate structure to any
Mortgagee who has requested in writing that it be notified in
advance of such changes. Within ninety (90) days following the end
of each calendar year, the Mortgagor shall report, in writing, to
each of the Mortgagees the TIER and DSC levels which were achieved
during that calendar year. If the average of the two (2) largest
annual levels achieved by the Mortgagor out of the three (3) then
most recent calendar years results in a TIER of less than 1.35 or a
DSC of less than 1.35, the Mortgagor shall within ninety (90) days
following the end of the calendar year, provide to each of the
Mortgagees a written plan of remedial action, proposed by an
Independent consultant acceptable to each of the Mortgagees, for the
approval of each Mortgagee. Such plan shall set forth the actions
that the Mortgagor shall take in order to achieve the required TIER
and DSC levels on a timely basis. The Mortgagor shall take all
actions provided for in its written plan approved by the Mortgagees.
In the event that any state regulatory authority having jurisdiction
decides to disapprove rates sufficient to meet TIER and DSC ratios
prescribed in this Mortgage, the Mortgagor will provide appropriate
documentation to that effect along with a request that the
Mortgagees approve the plan as modified to take the determination of
such state authority into account. If each of the Mortgagees
consents to such modifications, then the plan as so modified shall
constitute the plan required by this section.
The Mortgagor will not furnish or supply or cause to be
furnished or supplied any use, output, capacity, or service of the
Utility System free of charge to any person, firm or corporation,
public or private, and the Mortgagor will enforce the payment of any
and all amounts owing to the Mortgagor by reason of the ownership
and operation of the Utility System by discontinuing such use,
output, capacity, or service, or by filing suit therefor within 90
days after any such accounts are due, or by both such discontinuance
and by filing suit.
Section 3.21. Keeping Books; Inspection by Mortgagee: The
Mortgagor will keep proper books of records and account, in which
full and correct entries shall be made of all dealings or
transactions of or in relation to the Notes and the Utility Systems,
properties, business and affairs of the Mortgagor in accordance with
the Accounting Requirements. The Mortgagor will at any and all
times, upon the written request of any Mortgagee and at the expense
of the Mortgagor, permit such Mortgagee by its representatives to
inspect the Utility Systems and properties, books of account,
records, reports and other papers of the Mortgagor and to take
copies and extracts therefrom, and will afford and procure a
reasonable opportunity to make any such inspection, and the
Mortgagor will furnish to each Mortgagee any and all such
information as such Mortgagee may request, with respect to the
performance by the Mortgagor of its covenants under this Mortgage,
the Notes and the Loan Agreements.
Article IV
Events of Default and Remedies
Section 4.01. Events of Default: Each of the following shall be
an ``Event of Default'' under this Mortgage:
(a) default shall be made in the payment of any installment of
or on account of interest on or principal of (or premium, if any
associated with) any Note or Notes for more than five (5) Business
Days after the same shall be required to be made;
(b) default shall be made in the due observance or performance
of any other of the covenants, conditions or agreements on the part
of the Mortgagor, in any of the Notes, Loan Agreements or in this
Mortgage, and such default shall continue for a period of thirty
(30) days after written notice specifying such default and requiring
the same to be remedied and stating that such notice is a ``Notice
of Default'' hereunder shall have been given to the Mortgagor by any
Mortgagee; PROVIDED, HOWEVER that in the case of a default on the
terms of a Note or Loan Agreement of a particular Mortgagee, the
``Notice of Default'' required under this paragraph may only be
given by that Mortgagee;
(c) the Mortgagor shall file a petition in bankruptcy or be
adjudicated a bankrupt or insolvent, or shall make an assignment for
the benefit of its creditors, or shall consent to the appointment of
a receiver of itself or of its property, or shall institute
proceedings for its reorganization or proceedings instituted by
others for its reorganization shall not be dismissed within sixty
(60) days after the institution thereof;
(d) a receiver or liquidator of the Mortgagor or of any
substantial portion of its property shall be appointed and the order
appointing such receiver or liquidator shall not be vacated within
sixty (60) days after the entry thereof;
(e) the Mortgagor shall forfeit or otherwise be deprived of its
corporate charter or franchises, permits, easements, or licenses
required to carry on any material portion of its business;
(f) a final judgment for an amount of more than $____________
shall be entered against the Mortgagor and shall remain unsatisfied
or without a stay in respect thereof for a period of sixty (60)
days; or,
(g) any material representation or warranty made by the
Mortgagor herein, in the Loan Agreements or in any certificate or
financial statement delivered hereunder or thereunder shall prove to
be false or misleading in any material respect at the time made.
Section 4.02. Acceleration of Maturity; Rescission and
Annulment:
(a) If an Event of Default described in Section 4.01(a) has
occurred and is continuing, any Mortgagee upon which such default
has occurred may declare the principal of all its Notes secured
hereunder to be due and payable immediately by a notice in writing
to the Mortgagor and to the other Mortgagees (failure to provide
said notice to any other Mortgagee shall not effect the validity of
any acceleration of the Note or Notes by such Mortgagee), and upon
such declaration, all unpaid principal (and premium, if any) and
accrued interest so declared shall become due and payable
immediately, anything contained herein or in any Note or Notes to
the contrary notwithstanding. Upon receipt of actual knowledge of or
any notice of acceleration by any Mortgagee, any other Mortgagee may
declare the principal of all of its Notes to be due and payable
immediately by a notice in writing to the Mortgagor and upon such
declaration, all unpaid principal (and premium, if any) and accrued
interest so declared shall become due and payable immediately,
anything contained herein or in any Note or Notes or Loan Agreements
to the contrary notwithstanding.
(b) If any other Event of Default shall have occurred and be
continuing, any Mortgagee may declare the principal (and premium, if
any) and accrued interest on all its Notes secured by this Mortgage
due and payable and upon such declaration, all unpaid principal (and
premium, if any) and interest so declared shall become due and
payable immediately, anything contained herein, in any Loan
Agreement or in any Note to the contrary notwithstanding.
(c) If at any time after the unpaid principal of (and premium,
if any) and accrued interest on any of the Notes shall have been so
declared to be due and payable, all payments in respect of principal
and interest which shall have become due and payable by the terms of
such Note or Notes (other than amounts due as a result of the
acceleration of the Notes) shall be paid to the respective
Mortgagees, and all other defaults under the Loan Agreements, the
Notes and this Mortgage shall have been made good and secured to the
satisfaction of the Mortgagees representing at least 80% of the
aggregate unpaid principal balance of all of the Notes then
Outstanding, then in every such case such Mortgagees, may by written
notice to the Mortgagor, annul such declaration and waive such
default and the consequences thereof, but no such waiver shall
extend to or affect any subsequent default or impair any right
consequent thereon.
Section 4.03. Remedies of Mortgagees: If one or more of the
Events of Default shall occur and be continuing, any Mortgagee
personally or by attorney, in its or their discretion, may, in so
far as not prohibited by law:
(a) take immediate possession of the Mortgaged Property, collect
and receive all credits, outstanding accounts and bills receivable
of the Mortgagor and all rents, income, revenues, proceeds and
profits pertaining to or arising from the Mortgaged Property, or any
part thereof, whether then past due or accruing thereafter, and
issue binding receipts therefor; and manage, control and operate the
Mortgaged Property as fully as the Mortgagor might do if in
possession thereof, including, without limitation, the making of all
repairs or replacements deemed necessary or advisable by such
Mortgagee in possession;
(b) proceed to protect and enforce the rights of all of the
Mortgagees by suits or actions in equity or at law in any court or
courts of competent jurisdiction, whether for specific performance
of any covenant or any agreement contained herein or in aid of the
execution of any power herein granted or for the foreclosure hereof
or hereunder or for the sale of the Mortgaged Property, or any part
thereof, or to collect the debts hereby secured or for the
enforcement of such other or additional appropriate legal or
equitable remedies as may be deemed necessary or advisable to
protect and enforce the rights and remedies herein granted or
conferred, and in the event of the institution of any such action or
suit the Mortgagee instituting such action or suit shall have the
right to have appointed a receiver of the Mortgaged Property and of
all proceeds, rents, income, revenues and profits pertaining thereto
or arising therefrom, whether then past due or accruing after the
appointment of such receiver, derived, received or had from the time
of the commencement of such suit or action, and such receiver shall
have all the usual powers and duties of receivers in like and
similar cases, to the fullest extent permitted by law, and if
application shall be made for the appointment of a receiver the
Mortgagor hereby expressly consents that the court to which such
application shall be made may make said appointment; and
(c) sell or cause to be sold all and singular the Mortgaged
Property or any part thereof, and all right, title, interest, claim
and demand of the Mortgagor therein or thereto, at public auction at
such place in any county (or its equivalent locality) in which the
property to be sold, or any part thereof, is located, at such time
and upon such terms as may be specified in a notice of sale, which
shall state the time when and the place where the sale is to be
held, shall contain a brief general description of the property to
be sold, and shall be given by mailing a copy thereof to the
Mortgagor at least fifteen (15) days prior to the date fixed for
such sale and by publishing the same once in each week for two
successive calendar weeks prior to the date of such sale in a
newspaper of general circulation published in said locality or, if
no such newspaper is published in such locality, in a newspaper of
general circulation in such locality, the first such publication to
be not less than fifteen (15) days nor more than thirty (30) days
prior to the date fixed for such sale. Any sale to be made under
this subparagraph (c) of this Section 4.03 may be adjourned from
time to time by announcement at the time and place appointed for
such sale or for such adjourned sale or sales, and without further
notice or publication the sale may be had at the time and place to
which the same shall be adjourned; provided, however, that in the
event another or different notice of sale or another or different
manner of conducting the same shall be required by law the notice of
sale shall be given or the sale be conducted, as the case may be, in
accordance with the applicable provisions of law. The expense
incurred by any Mortgagee (including, but not limited to, receiver's
fees, counsel fees, cost of advertisement and agents' compensation)
in the exercise of any of the remedies provided in this Mortgage
shall be secured by this Mortgage.
(d) In the event that a Mortgagee proceeds to enforce remedies
under this Section, any other Mortgagee may join in such
proceedings. In the event that the Mortgagees are not in agreement
with the method or manner of enforcement chosen by any other
Mortgagee, the Mortgagees representing a majority of the aggregate
unpaid principal balance on the then Outstanding Notes may direct
the method and manner in which remedial action will proceed.
Section 4.04. Application of Proceeds from Remedial Actions: Any
proceeds or funds arising from the exercise of any rights or the
enforcement of any remedies herein provided after the payment or
provision for the payment of any and all costs and expenses in
connection with the exercise of such rights or the enforcement of
such remedies shall be applied first, to the ratable payment of
indebtedness hereby secured other than the principal of or interest
on the Notes; second, to the ratable payment of interest which shall
have accrued on the Notes and which shall be unpaid; third, to the
ratable payment of or on account of the unpaid principal of the
Notes; and the balance, if any, shall be paid to whomsoever shall be
entitled thereto.
Section 4.05. Remedies Cumulative; No Election: Every right or
remedy herein conferred upon or reserved to the Mortgagees or to the
Noteholders shall be cumulative and shall be in addition to every
other right and remedy given hereunder or now or hereafter existing
at law, or in equity, or by statute. The pursuit of any right or
remedy shall not be construed as an election.
Section 4.06. Waiver of Appraisement Rights; Marshalling of
Assets Not Required: The Mortgagor, for itself and all who may claim
through or under it, covenants that it will not at any time insist
upon or plead, or in any manner whatever claim, or take the benefit
or advantage of, any appraisement, valuation, stay, extension or
redemption laws now or hereafter in force in any locality where any
of the Mortgaged Property may be situated, in order to prevent,
delay or hinder the enforcement or foreclosure of this Mortgage, or
the absolute sale of the Mortgaged Property, or any part thereof, or
the final and absolute putting into possession thereof, immediately
after such sale, of the purchaser or purchasers thereat, and the
Mortgagor, for itself and all who may claim through or under it,
hereby waives the benefit of all such laws unless such waiver shall
be forbidden by law. Under no circumstances shall there be any
marshalling of assets upon any foreclosure or to other enforcement
of this Mortgage.
Section 4.07. Notice of Default: The Mortgagor covenants that it
will give immediate written notice to each Mortgagee of the
occurrence of any Event of Default or in the event that any right or
remedy described in Sections 4.02 and 4.03 hereof is exercised or
enforced or any action is taken to exercise or enforce any such
right or remedy.
Article V
Possession Until Default-Defeasance Clause
Section 5.01. Possession Until Default: Until some one or more
of the Events of Default shall have happened, the Mortgagor shall be
suffered and permitted to retain actual possession of the Mortgaged
Property, and to manage, operate and use the same and any part
thereof, with the rights and franchises appertaining thereto, and to
collect, receive, take, use and enjoy the rents, revenues, issues,
earnings, income, products and profits thereof or therefrom, subject
to the provisions of this Mortgage.
Section 5.02. Defeasance Generally: If the Mortgagor shall pay
or cause to be paid the whole amount of the principal of (and
premium, if any) and interest on the Notes at the times and in the
manner therein provided, and shall also pay or cause to be paid all
other sums payable by the Mortgagor hereunder or under any Loan
Agreement and shall keep and perform, all covenants herein required
to be kept and performed by it, then and in that case, all property,
rights and interest hereby conveyed or assigned or pledged shall
revert to the Mortgagor and the estate, right, title and interest of
the Mortgagee so paid shall thereupon cease, determine and become
void and such Mortgagee, in such case, on written demand of the
Mortgagor but at the Mortgagor's cost and expense, shall enter
satisfaction of the Mortgage upon the record. In any event, each
Mortgagee, upon payment in full to such Mortgagee by the Mortgagor
of all principal of (and premium, if any) and interest on any Note
held by such Mortgagee and the payment and discharge by the
Mortgagor of all charges due to such Mortgagee hereunder or under
any Loan Agreement, shall execute and deliver to the Mortgagor such
instrument of satisfaction, discharge or release as shall be
required by law in the circumstances.
Section 5.03. Special Defeasance: Other than any Notes excluded
by the foregoing Sections 5.01 and 5.02 and Notes which have become
due and payable, the Mortgagor may cause the Lien of this Mortgage
to be defeased with respect to any Note for which it has deposited
or caused to be deposited in trust solely for the purpose an amount
sufficient to pay and discharge the entire indebtedness on such Note
for principal (and premium, if any) and interest to the date of
maturity thereof; PROVIDED, HOWEVER, that the depositary serving as
trustee for such trust must first be accepted as such by the
Mortgagee whose Notes are being defeased under this section. In such
event, such a Note will no longer be considered to be an Outstanding
Note for purposes of this Mortgage and the Mortgagee shall execute
and deliver to the Mortgagor such instrument of satisfaction,
discharge or release as shall be required by law in the
circumstances.
Article VI
Miscellaneous
Section 6.01. Property Deemed Real Property: It is hereby
declared to be the intention of the Mortgagor that any electric
generating plant or plants and facilities and all electric
transmission and distribution lines, or other Electric System or
Utility System facilities, embraced in the Mortgaged Property,
including (without limitation) all rights of way and easements
granted or given to the Mortgagor or obtained by it to use real
property in connection with the construction, operation or
maintenance of such plant, lines, facilities or systems, and all
other property physically attached to any of the foregoing, shall be
deemed to be real property.
Section 6.02. Mortgage to Bind and Benefit Successors and
Assigns: All of the covenants, stipulations, promises, undertakings
and agreements herein contained by or on behalf of the Mortgagor
shall bind its successors and assigns, whether so specified or not,
and all titles, rights and remedies hereby granted to or conferred
upon the Mortgagees shall pass to and inure to the benefit of the
successors and assigns of the Mortgagees and shall be deemed to be
granted or conferred for the ratable benefit and security of all who
shall from time to time be a Mortgagee. The Mortgagor hereby agrees
to execute such consents, acknowledgements and other instruments as
may be reasonably requested by any Mortgagee in connection with the
assignment, transfer, mortgage, hypothecation or pledge of the
rights or interests of such Mortgagee hereunder or under the Notes
or in and to any of the Mortgaged Property.
Section 6.03. Headings: The descriptive headings of the various
articles and sections of this Mortgage and also the table of
contents were formulated and inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 6.04. Separability Cause: In case any provision of this
Mortgage or in the Notes or in the Loan Agreements shall be invalid
or unenforceable, the validity, legality and enforceability of the
remaining provisions thereof shall not in any way be affected or
impaired, nor, nor shall any invalidity or unenforceability as to
any Mortgagee hereunder affect or impair the rights hereunder of any
other Mortgagee.
Section 6.05. Mortgage Deemed Security Agreement: To the extent
that any of the property described or referred to in this Mortgage
is governed by the provisions of the UCC this Mortgage is hereby
deemed a ``security agreement'' under the UCC, and, if so elected by
any Mortgagee, a ``financing statement'' under the UCC for said
security agreement. The mailing addresses of the Mortgagor as
debtor, and the Mortgagees as secured parties are as set forth in
section 6.04 hereof. If any Mortgagee so directs the Mortgagor to do
so, the Mortgagor shall file as a financing statement under the UCC
for said security agreement and for the benefit of all of the
Mortgagees, an instrument other than this Mortgage. In such case,
the instrument to be filed shall be in a form customarily accepted
by the filing office as a financing statement.
Section 6.06. Indemnification by Mortgagor of Mortgagees: The
Mortgagor agrees to indemnify and save harmless each Mortgagee
against any liability or damages which any of them may incur or
sustain in the exercise and performance of their rightful powers and
duties hereunder. For such reimbursement and indemnity, each
Mortgagee shall be secured under this Mortgage in the same manner as
the Notes and all such reimbursements for expense or damage shall be
paid to the Mortgagee incurring or suffering the same with interest
at the rate specified in Section 3.14 hereof.
In Witness Whereof, ____________ as Mortgagor, has caused this
Restated Mortgage and Security Agreement to be signed in its name
and its corporate seal to be hereunto affixed and attested by its
officers thereunto duly authorized, and UNITED STATES OF AMERICA, as
Mortgagee, and ____________, as Mortgagee, has caused this Restated
Mortgage and Security Agreement to be signed in its name by duly
authorized persons, all as of the day and year first above written.
----------------------------------------------------------------------
(SEAL)
By:--------------------------------------------------------------------
President
Attest:----------------------------------------------------------------
Title:-----------------------------------------------------------------
Executed by the Mortgagor in the presence of:
----------------------------------------------------------------------
----------------------------------------------------------------------
Witnesses
UNITED STATES OF AMERICA
By:--------------------------------------------------------------------
Director, of the Rural Electrification Administration
Executed by the United States of America,
Mortgagee, in the presence of:
----------------------------------------------------------------------
----------------------------------------------------------------------
Witnesses
----------------------------------------------------------------------
By:--------------------------------------------------------------------
(SEAL)
Attest:----------------------------------------------------------------
Title:-----------------------------------------------------------------
Executed by the above-named Mortgagee in the presence of:
----------------------------------------------------------------------
----------------------------------------------------------------------
Witnesses
Schedule A--Maximum Debt Limit and Other Information
1. The Maximum Debt Limit is ____________.
2. The Original Mortgage as described in the first WHEREAS
clause above is ____________.
3. The outstanding secured indebtedness described in the fourth
WHEREAS clause above as evidenced by the Original Notes is as
follows:
Schedule B--Property Schedule
The fee and leasehold interests in real property referred to in
Section Subclause (a) of Granting Clause One are ____________.
The counties referred to in Subclause (b) of Granting Clause One
are ____________.
Schedule C--Excepted Property
[List of all Excepted Property.]
Schedule D--Notary Public Certification
STATE OF ____________)
COUNTY OF ____________)
On this ______ day of____________, 19______, before me appeared
____________ and ____________ personally known, by me and having
been duly sworn by me, did say that they are the President and
Secretary, respectively, of ____________, a ____________
corporation, and that the seal affixed to the foregoing instrument
is the corporate seal of said corporation, and that said instrument
was signed and sealed in behalf of said corporation by authority of
its Board, and said ____________ and ____________ acknowledged that
the execution of said instrument was a free act and deed of said
corporation.
IN WITNESS whereof, I have hereunto set my hand and official
seal the day and year last above written.
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Notary Public
(Notarial Seal)
My commission expires:
DISTRICT OF COLUMBIA ) SS
The foregoing instrument was acknowledged before me this
____________ day of 19______ , by ____________ Director,
____________ Regional Division of the Rural Electric Administration,
acknowledging an agency of the United States of America, on behalf
of the Rural Electrification Administration, United States of
America.
----------------------------------------------------------------------
Notary Public
(Notarial Seal)
My Commission expires:
Dated: September 21, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-23924 Filed 9-28-94; 8:45 am]
BILLING CODE 3410-15-P
