Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997
or
/_/ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 1-3548
Minnesota Power & Light Company
A Minnesota Corporation
IRS Employer Identification No. 41-0418150
30 West Superior Street
Duluth, Minnesota 55802
Telephone - (218) 722-2641
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Common Stock, no par value,
33,126,189 shares outstanding
as of July 31, 1997
Minnesota Power & Light Company
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996 1
Consolidated Statement of Income -
Quarter and Six Months Ended June 30, 1997
and 1996 2
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Definitions
The following abbreviations or acronyms are used in the text.
Abbreviation
or Acronym Term
- ----------------------- ----------------------------------------------------
1996 Form 10-K Minnesota Power's Annual Report on Form 10-K for
the Year Ended December 31, 1996
ADESA ADESA Corporation
AFC Automotive Finance Corporation
Americas' Water Americas' Water Services Corporation
BNI Coal BNI Coal, Ltd.
Common Stock Minnesota Power & Light Company's common stock
Company Minnesota Power & Light Company and its Subsidiaries
DOJ United States Department of Justice
DRIP Dividend Reinvestment and Stock Purchase Plan
EPA United States Environmental Protection Agency
ESOP Employee Stock Ownership Plan
FERC Federal Energy Regulatory Commission
Heater Heater Utilities, Inc.
IRS Internal Revenue Service
ISI Instrumentation Services, Inc.
Florida Water Florida Water Services Corporation
FPSC Florida Public Service Commission
Lehigh Lehigh Acquisition Corporation
Minnesota Power Minnesota Power & Light Company and its Subsidiaries
MPUC Minnesota Public Utilities Commission
MW Megawatt(s)
MP Water Resources MP Water Resources Group, Inc.
NCUC North Carolina Utilities Commission
Palm Coast Palm Coast Holdings, Inc.
PSCW Public Service Commission of Wisconsin
SCPSC South Carolina Public Service Commission
Square Butte Square Butte Electric Cooperative
SWL&P Superior Water, Light and Power Company
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Minnesota Power
Consolidated Balance Sheet
In Thousands
June 30, December 31,
1997 1996
Unaudited Audited
- -------------------------------------------------------------------------------------------------------------------
Assets
Plant and Other Assets
Electric operations $ 788,754 $ 796,055
Water services 322,325 323,869
Automotive services 166,384 167,274
Investments 246,741 236,509
------------ ------------
Total plant and other assets 1,524,204 1,523,707
------------ ------------
Current Assets
Cash and cash equivalents 68,140 40,095
Trading securities 108,173 86,819
Trade accounts receivable (less reserve
of $9,109 and $6,568) 180,635 144,060
Notes and other accounts receivable 18,532 20,719
Fuel, material and supplies 25,489 23,221
Prepayments and other 16,590 17,195
------------ ------------
Total current assets 417,559 332,109
------------ ------------
Deferred Charges
Regulatory 75,037 83,496
Other 33,098 27,086
------------ ------------
Total deferred charges 108,135 110,582
------------ ------------
Intangible Assets
Goodwill 162,593 166,986
Other 11,491 12,665
------------ ------------
Total intangible assets 174,084 179,651
------------ ------------
Total Assets $ 2,223,982 $ 2,146,049
- -------------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
Capitalization
Common stock without par value, 65,000 shares
authorized 33,101 and 32,758 shares outstanding $ 404,089 $ 394,187
Unearned ESOP shares (67,301) (69,124)
Net unrealized gain on securities investments 3,358 2,752
Cumulative translation adjustment (107) 73
Retained earnings 285,743 282,960
------------ ------------
Total common stock equity 625,782 610,848
Cumulative preferred stock 11,492 11,492
Redeemable serial preferred stock 20,000 20,000
Company obligated mandatorily redeemable preferred
securities of subsidiary MP&L Capital I
which holds solely Company Junior Subordinated
Debentures 75,000 75,000
Long-term debt 671,263 694,423
------------ ------------
Total capitalization 1,403,537 1,411,763
------------ ------------
Current Liabilities
Accounts payable 96,600 72,787
Accrued taxes 49,891 48,813
Accrued interest and dividends 13,899 14,851
Notes payable 205,998 155,726
Long-term debt due within one year 24,660 7,208
Other 31,699 37,598
------------ ------------
Total current liabilities 422,747 336,983
------------ ------------
Deferred Credits
Accumulated deferred income taxes 147,261 148,931
Contributions in aid of construction 102,703 98,378
Regulatory 63,368 64,394
Other 84,366 85,600
------------ ------------
Total deferred credits 397,698 397,303
------------ ------------
Total Capitalization and Liabilities $ 2,223,982 $ 2,146,049
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
-1-
Minnesota Power
Consolidated Statement of Income
In Thousands Except Per Share Amounts - Unaudited
Quarter Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating Revenue and Income
Electric operations $ 129,658 $ 129,219 $ 261,115 $ 260,718
Water services 22,431 23,050 43,079 42,277
Automotive services 64,388 45,215 124,898 84,908
Investments 13,949 11,019 23,407 23,275
---------- ---------- ---------- ---------
Total operating revenue and income 230,426 208,503 452,499 411,178
---------- ---------- ---------- ---------
Operating Expenses
Fuel and purchased power 45,987 48,291 90,016 91,934
Operations 138,860 127,593 277,239 247,413
Interest expense 16,061 14,357 33,369 28,517
---------- ---------- ---------- ---------
Total operating expenses 200,908 190,241 400,624 367,864
---------- ---------- ---------- ---------
Income from Equity Investment 3,279 2,832 7,321 6,609
---------- ---------- ---------- ---------
Operating Income 32,797 21,094 59,196 49,923
Distributions on Redeemable
Preferred Securities of Subsidiary 1,510 1,509 3,019 1,711
Income Tax Expense 12,564 4,753 21,360 15,077
---------- ---------- ---------- ---------
Net Income 18,723 14,832 34,817 33,135
Dividends on Preferred Stock 487 634 974 1,434
---------- ---------- ---------- ---------
Earnings Available for Common Stock $ 18,236 $ 14,198 $ 33,843 $ 31,701
========== ========== ========== =========
Average Shares of Common Stock 30,430 29,053 30,323 28,919
Earnings Per Share of Common Stock $ .60 $ .49 $ 1.12 $ 1.10
Dividends Per Share of Common Stock $ .51 $ .51 $ 1.02 $ 1.02
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-2-
Minnesota Power
Consolidated Statement of Cash Flows
In Thousands - Unaudited
Six Months Ended
June 30,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 34,817 $ 33,135
Income from equity investment - net of dividends received (7,093) (6,413)
Depreciation and amortization 35,830 32,511
Deferred income taxes 1,360 (1,515)
Deferred investment tax credits (862) (839)
Pre-tax gain on sale of plant (4,388) (1,073)
Changes in operating assets and liabilities
Trading securities (21,354) (36,312)
Notes and accounts receivable (31,914) (53,488)
Fuel, material and supplies (2,268) 531
Accounts payable 23,813 24,201
Other current assets and liabilities (5,168) (3,460)
Other - net 4,008 12,429
--------- --------
Cash from (for) operating activities 26,781 (293)
--------- --------
Investing Activities
Proceeds from sale of investments in securities 31,345 14,640
Proceeds from sale of plant 6,385 5,311
Additions to investments (33,355) (45,508)
Additions to plant (26,591) (45,427)
Changes to other assets - net 1,203 6,443
--------- --------
Cash from (for) investing activities (21,013) (64,541)
--------- --------
Financing Activities
Issuance of long-term debt 131,067 190,134
Issuance of Company obligated mandatorily redeemable
preferred securities of subsidiary MP&L Capital I - net - 72,270
Issuance of common stock 9,745 9,015
Changes in notes payable - net 50,272 (9,588)
Reductions of long-term debt (136,776) (116,455)
Redemption of preferred stock - (17,568)
Dividends on preferred and common stock (32,031) (31,119)
--------- --------
Cash from financing activities 22,277 96,689
--------- --------
Change in Cash and Cash Equivalents 28,045 31,855
Cash and Cash Equivalents at Beginning of Period 40,095 31,577
--------- --------
Cash and Cash Equivalents at End of Period $ 68,140 $ 63,432
========= ========
Supplemental Cash Flow Information
Cash paid during the period for
Interest (net of capitalized) $ 33,825 $ 25,352
Income taxes $ 15,490 $ 17,182
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
-3-
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements and notes should be
read in conjunction with the Company's 1996 Form 10-K. In the opinion of the
Company, all adjustments necessary for a fair statement of the results for the
interim periods have been included. The results of operations for an interim
period may not give a true indication of results for the year.
Note 1. Business Segments
In Thousands
Investments
------------------- Corporate
Electric Water Automotive Portfolio & Real Charges
Consolidated Operations Services Services Reinsurance Estate & Other
------------ ---------- -------- ---------- ----------- ------ ---------
Quarter Ended June 30, 1997
- ---------------------------
Operating revenue and income $230,426 $129,658 $ 22,431 $ 64,388 $ 4,483 $9,526 $ (60)
Operation and other expense 166,978 96,571 13,156 49,360 487 5,952 1,452
Depreciation and amortization
expense 17,869 11,210 3,217 3,333 - 37 72
Interest expense 16,061 5,329 2,760 2,705 - 279 4,988
Income from equity investment 3,279 - - - 3,279 - -
-------- -------- -------- -------- ------- ------- -------
Operating income (loss) 32,797 16,548 3,298 8,990 7,275 3,258 (6,572)
Distributions on redeemable
preferred securities of
subsidiary 1,510 414 - - - - 1,096
Income tax expense (benefit) 12,564 6,096 1,028 4,756 2,555 1,414 (3,285)
-------- -------- -------- -------- ------- ------- -------
Net income (loss) $ 18,723 $ 10,038 $ 2,270 $ 4,234 $ 4,720 $ 1,844 $(4,383)
======== ======== ======== ======== ======= ======= =======
Quarter Ended June 30, 1996
- ---------------------------
Operating revenue and income $208,503 $129,219 $ 23,050 $ 45,215 $ 4,736 $6,605 $ (322)
Operation and other expense 159,589 102,218 13,926 37,026 731 3,845 1,843
Depreciation and amortization
expense 16,295 10,512 3,070 2,705 - 8 -
Interest expense 14,357 5,537 3,057 2,017 - 486 3,260
Income from equity investment 2,832 - - - 2,832 - -
-------- -------- -------- -------- ------- ------- --------
Operating income (loss) 21,094 10,952 2,997 3,467 6,837 2,266 (5,425)
Distributions on redeemable
preferred securities of
subsidiary 1,509 403 - - - - 1,106
Income tax expense (benefit) 4,753 3,593 1,010 2,002 928 (782) (1,998)
-------- -------- -------- -------- ------- ------- ------
Net income (loss) $ 14,832 $ 6,956 $ 1,987 $ 1,465 $ 5,909 $ 3,048 $(4,533)
======== ======== ======== ======== ======= ======= =======
- ---------------------
Includes $460 of minority interest.
Includes $762 of minority interest.
Includes $2 million of tax benefits (see Note 4).
-4-
Note 1. Business Segments Continued
In Thousands
Investments
------------------- Corporate
Electric Water Automotive Portfolio & Real Charges
Consolidated Operations Services Services Reinsurance Estate & Other
------------ ---------- -------- ---------- ----------- ------ ---------
Six Months Ended June 30, 1997
Operating revenue and income $ 452,499 $ 261,115 $ 43,079 $ 124,898 $ 9,177 $14,357 $ (127)
Operation and other expense 331,425 191,443 27,202 97,216 1,024 9,796 4,744
Depreciation and amortization
expense 35,830 22,373 6,394 6,843 - 75 145
Interest expense 33,369 10,710 5,460 5,060 - 576 11,563
Income from equity investment 7,321 - - - 7,321 - -
---------- --------- --------- --------- --------- -------- -------
Operating income (loss) 59,196 36,589 4,023 15,779 15,474 3,910 (16,579)
Distributions on redeemable
preferred securities of
subsidiary 3,019 834 - - - - 2,185
Income tax expense (benefit) 21,360 13,495 1,342 8,345 5,446 1,731 (8,999)
---------- --------- --------- --------- --------- -------- -------
Net income (loss) $ 34,817 $ 22,260 $ 2,681 $ 7,434 $ 10,028 $ 2,179 $(9,765)
========== ========= ========= ========= ========= ======== =======
Total assets $2,223,982 $ 977,056 $ 371,201 $ 522,625 $ 289,088 $ 63,252 $ 760
Accumulated depreciation $ 685,609 $ 550,809 $ 125,466 $ 9,334 - - -
Accumulated amortization $ 12,177 - - $ 11,017 - $ 1,160 -
Construction work in progress $ 44,606 $ 19,551 $ 13,591 $ 11,464 - - -
Six Months Ended June 30, 1996
Operating revenue and income $ 411,178 $ 260,718 $ 42,277 $ 84,908 $ 8,605 $15,281 $ (611)
Operation and other expense 306,836 197,523 25,444 71,228 1,254 7,058 4,329
Depreciation and amortization
expense 32,511 21,011 6,207 5,255 - 38 -
Interest expense 28,517 11,212 6,344 3,308 1 488 7,164
Income from equity investment 6,609 - - - 6,609 - -
---------- --------- --------- --------- --------- -------- --------
Operating income (loss) 49,923 30,972 4,282 5,117 13,959 7,697 (12,104)
Distributions on redeemable
preferred securities of
subsidiary 1,711 480 - - - - 1,231
Income tax expense (benefit) 15,077 11,367 1,459 2,664 2,897 1,581 (4,891)
---------- --------- --------- --------- --------- -------- ------
Net income (loss) $ 33,135 $ 19,125 $ 2,823 $ 2,453 $ 11,062 $ 6,116 $(8,444)
========== ========= ========= ========= ========= ======== =======
Total assets $2,108,031 $ 983,971 $ 359,172 $ 453,561 $ 243,952 $ 65,710 $ 1,665
Accumulated depreciation $ 646,609 $ 527,425 $ 115,162 $ 4,022 - - -
Accumulated amortization $ 5,819 - - $ 4,949 - $ 870 -
Construction work in progress $ 55,559 $ 13,769 $ 17,816 $ 23,974 - - -
- ---------------------
Includes $544 of minority interest.
Includes $1.5 million of minority interest.
Includes $2 million of tax benefits (see Note 4).
-5-
Note 2. Regulatory Matters
FPSC Refund Order in Connection with 1991 Rate Case. Responding to a Florida
Supreme Court decision addressing the issue of retroactive ratemaking with
respect to another company, in March 1996 the FPSC voted to reconsider an
October 1995 order (Refund Order) which would have required Florida Water to
refund about $15 million, which includes interest, to customers who paid more
since October 1993 under uniform rates than they would have paid under
stand-alone rates. Under the Refund Order, the collection through a surcharge of
the $15 million from customers who paid less under uniform rates was not
permitted. The Refund Order was in response to the Florida First District Court
of Appeals (Court of Appeals) reversal in April 1995 of the 1993 FPSC order
which imposed uniform rates for most of Florida Water's service areas in
Florida. With "uniform rates," all customers in the uniform rate areas pay the
same rates for water and wastewater services. Uniform rates are an alternative
to "stand-alone" rates which are calculated based on the cost of serving each
service area. The FPSC reconsidered the Refund Order, but in August 1996 the
FPSC issued an order upholding by a 3 to 2 vote its decision to order refunds
without offsetting surcharges. Florida Water filed an appeal of this decision
with the Court of Appeals.
On June 17, 1997 the Court of Appeals reversed the FPSC's August 1996 order. The
Court of Appeals determined that the FPSC's order directing the refund without
permitting an offsetting surcharge was not permissible because it did not
comport with principles of equity or with existing Florida Supreme Court
precedent. The Court of Appeals remanded the matter back to the FPSC for
reconsideration, and directed the FPSC to consider requests for intervention
from the various customer groups impacted by any potential surcharges. The
issues to be considered on remand relate to rate design and do not involve any
adjustment to Florida Water's revenue requirement. The Company has not recorded
a provision for refund in connection with this case. The Company is unable to
predict the outcome of this matter.
Florida Water's 1995 Rate Case. Florida Water requested an $18.1 million rate
increase in June 1995 for all water and wastewater customers of Florida Water
regulated by the FPSC. On October 30, 1996 the FPSC issued its final order in
the Florida Water rate case. The new rates, which became effective as of
September 20, 1996, resulted in an annualized increase in revenue of
approximately $11.1 million. This increase included, and was not in addition to,
the $7.9 million increase in annualized revenue granted as interim rates
effective on January 23, 1996. The FPSC approved a new rate structure called
"capband," which replaces uniform rates. With capband rates, areas with similar
cost of service are grouped into one of a number of rate bands, and all
customers within a given band are charged the same rate. This rate structure is
designed so that a customer's bill will not exceed a certain "cap" unless the
customer's usage exceeds an assumed level. On November 1, 1996 Florida Water
filed with the Court of Appeals an appeal of the FPSC's final order seeking
judicial review of issues relating to the amount of investment in utility
facilities recoverable in rates from current customers. Other parties to the
rate case also filed appeals with the Court of Appeals regarding the FPSC's
final order. The Company is unable to predict the outcome of this matter.
Effective June 13, 1997 Florida Water resumed collecting pre-existing Allowance
for Funds Prudently Invested (AFPI) charges. AFPI represents the accrued
carrying cost of certain non-used and useful property excluded from rate base
and is collected as a one-time charge to certain new water and wastewater
customers. The recovery of AFPI charges at certain Florida Water service areas
was reduced or eliminated in the FPSC's October 1996 final order issued in
connection with Florida Water's 1995 rate case. In April 1997 the FPSC, acting
on Florida Water's motion, allowed recovery of pre-existing AFPI charges for
these service areas, subject to refund with interest in the event of an adverse
court ruling in the appeal of the 1995 rate case. Florida Water estimates
approximately $1 million, on an annual basis, will be collected and accounted
for as deferred revenue pending results of the appeal.
Hernando County Rates. As required by Hernando County, on April 14, 1997
Florida Water filed for a rate change with the Hernando County Board of
Commissioners. Florida Water filed for an annual interim rate reduction of
$258,780 (-3.3 percent) and a final rate increase of $123,897 (1.6 percent).
On June 14, 1997 the final rate increase Florida Water requested became
effective automatically by operation of law because Hernando County failed to
take action on the rates within the prescribed statutory period.
-6-
Note 2. Regulatory Matters (Continued)
In July 1997 Florida Water reached a settlement agreement with Hernando County
regarding the rate case Florida Water filed in April 1997. Under the
settlement agreement, new rates will be effective September 1, 1997 and are
expected to result in $6.3 million of revenue on an annual basis, a $1.6 million
decrease from current revenue levels implemented on June 14, 1997. Rates will
then be increased January 1, 1999 to result in $7.2 million in revenue on an
annual basis. Florida Water has also agreed not to file for new rates with
Hernando County prior to September 2000. All litigation was dismissed by both
parties.
Florida Water's settlement agreement with Hernando County supersedes the FPSC's
February 14, 1997 order which required Florida Water to charge rates to
customers in Hernando County based on a modified stand-alone rate structure.
Hillsborough County Rates. On July 2, 1997 Florida Water filed for a rate change
with the Hillsborough County Utilities Department. Florida Water filed for an
annual interim rate increase of $848,845 (43.1 percent) and a final rate
increase of $877,607 (44.6 percent). Interim rates are anticipated to become
effective 45 days from the date of the filing. The Company is unable to predict
the outcome of this case.
Index Filings. In July 1997 Florida Water filed two index filings which if
approved will increase revenue by $436,000. Approval is expected on or about
October 1, 1997. Under Florida law water and wastewater utilities may make an
annual index filing designed to recover inflationary costs associated with
operation and maintenance expense.
Note 3. Square Butte Purchased Power Contract
The Company has a contract to purchase power and energy from Square Butte. Under
the terms of the contract which extends through 2007, the Company is purchasing
71 percent of the output from a generating plant which is capable of generating
up to 470 MW. Reductions to about 49 percent of the output are provided for in
the contract and, at the option of Square Butte, could begin after a five-year
advance notice to the Company.
The cost of the power and energy is a proportionate share of Square Butte's
fixed obligations and variable operating costs, based on the percentage of the
total output purchased by the Company. The annual fixed obligations of the
Company to Square Butte are $20.1 million from 1997 through 2001. The variable
operating costs are not incurred unless production takes place. The Company is
responsible for paying all costs and expenses of Square Butte if not paid by
Square Butte when due. These obligations and responsibilities of the Company are
absolute and unconditional whether or not any power is actually delivered to the
Company.
Note 4. Income Tax Expense
Quarter Ended Six Months Ended
June 30, June 30,
Schedule of Income Tax Expense (Benefit) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
In Thousands
Current tax
Federal $ 8,881 $ 4,030 $ 16,461 $ 12,888
Foreign 743 551 1,096 450
State 1,511 1,162 3,305 4,093
------- -------- -------- --------
11,135 5,743 20,862 17,431
------- -------- -------- --------
Deferred tax
Federal 2,115 1,143 1,966 1,131
State (317) 84 (606) (646)
------- -------- -------- --------
1,798 1,227 1,360 485
------- -------- -------- --------
Change in valuation allowance - (2,000) - (2,000)
------- -------- -------- --------
Deferred tax credits (369) (217) (862) (839)
------- -------- -------- --------
Total income tax expense $12,564 $ 4,753 $ 21,360 $ 15,077
- -------------------------------------------------------------------------------------------------------------------
-7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Minnesota Power has operations in four business segments: (1) electric
operations, which include electric and gas services, and coal mining; (2) water
services, which include water and wastewater services; (3) automotive services,
which include auctions, a finance company and an auto transport company; and (4)
investments, which include a securities portfolio, a 21 percent equity
investment in a financial guaranty reinsurance company, and real estate
operations.
Earnings per share of common stock for the quarter ended June 30, 1997 were 60
cents compared to 49 cents for the quarter ended June 30, 1996. Significant
increases from electric operations and automotive services were the primary
contributors to higher earnings in 1997. Higher earnings from electric
operations include compensation from the Company's sale of its rights to
microwave frequencies and property tax relief from the State of Minnesota.
Automotive services earnings are higher due to a 28 percent increase in the
number of cars sold at ADESA's auctions and the expansion of AFC's floor plan
financing business. In 1996 portfolio and reinsurance included a one-time tax
benefit for an IRS audit adjustment.
Earnings per share of common stock for the six months ended June 30, 1997 were
$1.12 compared to $1.10 for the six months ended June 30, 1996. Earnings in 1997
reflect a significant increase in automotive services due to a 28 percent
increase in the number of cars sold at ADESA's auctions and the expansion of
AFC's floor plan financing business. 1997 earnings also reflect a solid
performance from electric operations and consistent performance by the portfolio
and reinsurance portion of the investments segment. In 1996 portfolio and
reinsurance included a one-time tax benefit for an IRS audit adjustment.
Corporate charges and other reflect increased debt service costs as a result of
the higher balance of commercial paper in 1997 and six months of distributions
with respect to the Cumulative Quarterly Income Preferred Securities issued in
March 1996. Earnings in 1996 include a gain in water services from the sale of
water assets and the sale of a joint venture interest by real estate.
Quarter Ended Six Months Ended
June 30, June 30,
Earnings Per Share 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
Electric Operations $ .32 $ .23 $ .72 $ .64
Water Services .08 .07 .09 .10
Automotive Services .14 .05 .25 .08
Investments
Portfolio and reinsurance .15 .20 .33 .38
Real estate .06 .10 .07 .21
------ ------ ------ -------
.21 .30 .40 .59
Corporate Charges and Other (.15) (.16) (.34) (.31)
------ ------ ------ -------
Total Earnings Per Share $ .60 $ .49 $ 1.12 $ 1.10
- -------------------------------------------------------------------------------------------------------------
Consolidated Financial Comparison
Quarters Ended June 30, 1997 and 1996.
Operating revenue and income was up $21.9 million (10.5 percent) due primarily
to an increase in the number of cars sold at ADESA's auctions. An increase in
real estate sales also contributed to the increase in operating revenue and
income.
Fuel and purchased power were down $2.3 million (4.8 percent) because of a 16
percent decrease in generation at the Company's coal fired generating stations
due to unscheduled outages and a 9 percent reduction in power purchased from
other suppliers. The price of purchased power was substantially higher per
megawatthour because of a limited supply available for purchase and additional
transmission fees assessed for the delivery of power within the Midwest.
-8-
Operations expenses were up $11.3 million (8.8 percent), reflecting the
expansion of ADESA's automobile auction operations, AFC, ISI and Palm Coast.
Interest expense was higher in 1997 due primarily to a higher balance of
commercial paper.
Income tax expense was significantly higher in 1997 due to the $11.7 million
increase in operating income and the recognition of a $2 million tax benefit by
Lehigh in 1996.
Consolidated Financial Comparison
Six Months Ended June 30, 1997 and 1996.
Operating revenue and income was up $41.3 million (10 percent), primarily due to
the addition of ADESA's nine new auction sites and increased car sales at
existing ADESA auctions. Also, revenue from water services was higher in 1997
because of increased rates approved by the FPSC effective in September 1996. The
increase was partially offset by lower revenue following the sale of two water
systems by Heater in 1996. A $1.1 million pre-tax gain on the sale of one water
system in South Carolina was recognized in March 1996.
Operations expenses were up $29.8 million (12.1 percent). The increase reflected
$14.1 million of expenses from the eight automobile auction sites added by ADESA
in 1996 and one auction site added in 1997. The expansion of AFC, and
acquisitions of ISI and Palm Coast, also increased operations expense in 1997.
Interest expense was higher in 1997 due primarily to more commercial paper
issued.
Distributions on redeemable preferred securities of subsidiary were higher in
1997 because the securities were outstanding for the six months in 1997 compared
to less than four months in 1996.
Income tax expense was significantly higher in 1997 due to the $9.3 million
increase in operating income and the recognition of a $2 million tax benefit by
Lehigh in 1996.
Business Segment Comparison
Quarters Ended June 30, 1997 and 1996.
Electric Operations. Operating revenue and income was up slightly in 1997.
Proceeds from the sale of rights to microwave frequencies and the sale of river
land to the State of Minnesota offset a decline in revenue from an 11 percent
decrease in total kilowatthour sales. Kilowatthour sales for resale by MPEX, the
Company's power marketing division, were down 40 percent in 1997 due to less
power available for resale. Less power was available because of higher prices
for purchased power, various generating unit outages, reduction in transmission
capability damaged by severe spring storms in the Midwest and less hydro
generation in Canada. While revenue from MPEX sales was lower in 1997, higher
profit margins were realized on these sales.
Revenue from electric sales to taconite customers accounted for 31 percent of
electric operating revenue in 1997 compared to 33 percent in 1996. Electric
sales to paper and other wood-products companies accounted for 12 percent of
electric operating revenue in 1997 and 11 percent in 1996. Sales to other power
suppliers accounted for 12 percent of electric operating revenue in 1997
compared to 15 percent in 1996.
Total electric operating expenses decreased by $5.2 million in 1997 including a
$2.3 million decrease in fuel and purchased power because of reduced
kilowatthour sales. Recent reform of the Minnesota property tax system also
reduced operating expenses in 1997.
Water Services. Operating revenue and income from water services was lower in
1997 primarily due to lower revenue following the sale of two water systems by
Heater in 1996 and lower consumption by customers in Florida and North Carolina.
Operating expenses were also lower because of ongoing cost controls and improved
operating efficiency.
-9-
Automotive Services. Operating revenue and income was $19.2 million higher in
1997 due primarily to the addition of nine new automobile auction sites and
increased sales at existing sites. ADESA sold 204,000 cars in 1997 compared to
160,000 in 1996. Growth of AFC's floor plan financing business and increased
transport business also increased revenue and income. Operating expenses were
higher in 1997 because of the addition of nine auction sites and increased
activity at existing sites. The expansion of AFC's floor plan financing
business also contributed to higher operating expenses.
Investments.
- Securities Portfolio and Reinsurance. The Company's securities portfolio
and reinsurance continued to perform well in 1997 as in 1996. Capital Re's
contribution to earnings increased in 1997. A one-time tax benefit for an
IRS audit adjustment was included in 1996.
- Real Estate Operations. Revenue was up in 1997 as a result of additional
sales of properties at Palm Coast. Expenses also were higher due to
expanded operations. The recognition of $2 million of tax benefits at
Lehigh in 1996 made real estate's contribution to net income higher in 1996
than 1997.
Business Segment Comparison
Six Months Ended June 30, 1997 and 1996.
Electric Operations. Operating revenue and income from electric operations was
up slightly in 1997. Proceeds from the sale of rights to microwave frequencies
and the sale of river land to the State of Minnesota offset a decline in revenue
resulting from a 7 percent decrease in total kilowatthour sales. The decrease
is attributed to a decline in sales to other power suppliers due to less
power available for resale. Less power was available because of higher prices
for purchased power, various generating unit outages, reduction in transmission
capability damaged by severe spring storms in the Midwest and less hydro
generation in Canada. The decrease in kilowatt sales was partially offset by
an increase in sales to paper customers because of a higher demand for paper.
Revenue from electric sales to taconite customers accounted for 32 percent of
electric operating revenue in 1997 and 1996. Electric sales to paper and other
wood-products companies accounted for 12 percent of electric operating revenue
in 1997 and 11 percent in 1996. Sales to other power suppliers accounted for 10
percent of electric operating revenue in 1997 compared to 12 percent in 1996.
Total electric operating expenses decreased by $5.2 million in 1997 including a
$1.9 million decrease in fuel and purchased power because of reduced
kilowatthour sales. Lower property taxes due to the 1997 reform of the Minnesota
property tax system and lower interest charges also contributed to the cost
reductions in 1997 operating expenses.
Water Services. Operating revenue and income from water services was higher in
1997 primarily because of increased rates approved by the FPSC in 1996 for
Florida Water customers. The increase was partially offset by lower revenue
following the sale of two water systems by Heater in 1996. A $1.1 million
pre-tax gain on the sale of one water system in South Carolina was recognized in
March 1996.
Automotive Services. Operating revenue and income was $40 million higher in 1997
due primarily to the addition of nine new automobile auction sites and increased
sales at existing sites. ADESA sold 391,000 cars in 1997 compared to 305,000 in
1996. Growth of AFC's floor plan financing business, increased transport
business and a gain on the sale of an auction also increased revenue and income.
Operating expenses were higher in 1997 because of the addition of nine auction
sites and increased activity at existing sites. The expansion of AFC's floor
plan financing business also contributed to higher operating expenses.
-10-
Investments.
- Securities Portfolio and Reinsurance. The Company's securities portfolio
and reinsurance earned an annualized after tax return of 8.6 percent in
1997 compared to 9.8 percent in 1996. A one-time tax benefit for an IRS
audit adjustment was included in 1996.
- Real Estate Operations. Revenue was down in 1997 compared to 1996 which
included $3.7 million from the sale of Lehigh's joint venture investment in
a resort and golf course. The April 1996 acquisition of Palm Coast
increased 1997 operating revenue and expenses. The recognition of $2
million of tax benefits at Lehigh in 1996 made real estate's contribution
to net income higher in 1996 than 1997.
Liquidity and Financial Position
Reference is made to the Consolidated Statement of Cash Flows for the six months
ended June 30, 1997 and 1996, for purposes of the following discussion.
Cash Flow Activities. Cash from operating activities was affected by a number of
factors representative of normal operations.
Working capital, if and when needed, generally is provided by the sale of
commercial paper. In addition, securities investments can be liquidated to
provide funds for reinvestment in existing businesses or acquisition of new
businesses, and approximately 4 million original issue shares of Common Stock
are available for issuance through the DRIP.
AFC has sold a total of $75 million of receivables to a third party purchaser
since December 1996, including $25 million in May 1997. Under the terms of a
five year agreement, the purchaser agrees to make investments aggregating $100
million, at any one time outstanding, to the extent that such investments are
supported by eligible receivables. Proceeds from the sale of the receivables
were used to repay borrowings from the Company.
In June 1997 Minnesota Power refinanced $10 million of industrial development
revenue bonds and $29 million of pollution control bonds with $39 million of
Variable Rate Demand Revenue Refunding Bonds Series 1997A due June 1, 2020,
Series 1997B and Series 1997C due June 1, 2013 and Series 1997D due December 1,
2007. A total of $36.5 million of the transaction was completed in June and
July. The remaining $2.5 million of the refinancing is expected to be completed
by October 1997. In May 1997 MP Water Resources' $30 million 10.44% long-term
note payable was refinanced with $24 million of Florida Water's First Mortgage
Bonds, 8.01% Series due May 30, 2017 and $6 million of internally generated
funds.
Capital Requirements. Consolidated capital expenditures for the six months ended
June 30, 1997 totaled $34 million. These expenditures include $17 million for
electric operations, $10 million for water services and $7 million for
automotive services. Internally generated funds were the primary source for
funding capital expenditures.
New Accounting Standards
In June 1997 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Net
Income", effective for fiscal years beginning after December 15, 1997. While
earlier application is permitted, the Company does not intend to do so. SFAS 130
establishes standards for reporting and display of comprehensive income in a
full set of general-purpose financial statements. Comprehensive income is
defined as the change in equity during a period from all transactions and other
events from nonowner sources. The adoption of SFAS 130 is not expected to impact
the Company's financial position or results of operations.
-11-
Also in June 1997 the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information", effective for fiscal years beginning after
December 15, 1997. SFAS 131 requires the reporting of certain information about
operating segments of an enterprise. The Company believes that it is already in
compliance with SFAS 131 in all material respects.
In February 1997 the FASB issued SFAS 128, "Earnings per Share," effective for
financial statements for both interim and annual periods ending after December
15, 1997. Earlier application is not permitted. SFAS 128 specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS). The objective of the new standard is to simplify the computation of EPS
and make the U.S. standard for this computation more compatible with the EPS
standards of other countries and with that of the International Accounting
Standards Committee. The adoption of SFAS 128 is expected to be immaterial to
the Company's results of operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on May 13, 1997.
(b) Not applicable.
(c) The election of directors and the appointment of independent accountants
were voted on at the Annual Meeting of Shareholders.
The results were as follows:
Votes
Withheld or Broker
Directors Votes For Against Abstentions Nonvotes
--------- --------- ------- ----------- --------
Kathleen A. Brekken 28,796,594 615,305 - -
Merrill K. Cragun 28,883,406 528,493 - -
Dennis E. Evans 28,747,266 664,633 - -
Peter J. Johnson 28,926,407 485,492 - -
George L. Mayer 28,883,321 528,578 - -
Paula F. McQueen 28,887,327 524,572 - -
Robert S. Nickoloff 28,795,894 616,005 - -
Jack I. Rajala 28,897,584 514,315 - -
Edwin L. Russell 28,820,997 590,902 - -
Arend J. Sandbulte 28,814,709 597,190 - -
Nick Smith 28,850,785 561,114 - -
Bruce W. Stender 28,900,628 511,271 - -
Donald C. Wegmiller 28,842,900 568,999 - -
Independent Accountants
-----------------------
Price Waterhouse LLP 28,773,751 273,435 364,713 -
(d) Not applicable.
-12-
Item 5. Other Information
Reference is made to the Company's 1996 Form 10-K for background information on
the following updates. Unless otherwise indicated, cited references are to the
Company's 1996 Form 10-K.
Ref. Page 13. - Fifth Paragraph
On June 30, 1997 the NCUC approved the transfer of LaGrange Waterworks
Corporation (LaGrange) to Heater. The Company has agreed to exchange 96,000
shares of Common Stock for the outstanding shares of LaGrange. The public staff
of the NCUC and the City of Fayetteville filed requests for reconsideration
of the NCUC's approval of the transfer. LaGrange provides water services to
approximately 5,300 customers near Fayetteville, NC.
Ref. Page 13. - Following the Sixth Paragraph
On June 2, 1997 operations officially began at MP Water Resources' newly formed
subsidiary, Americas' Water Services Corporation (Americas' Water). Americas'
Water, which is headquartered in Chicago, Illinois, offers management,
operations and maintenance contract services and expertise to governments and
industries throughout the Americas. MP Water Resources is a wholly owned
subsidiary of the Company.
Ref. Page 14. - Second Paragraph
Ref. 10-Q for the quarter ended March 31, 1997, Page 5 - Fourth and Fifth
Paragraphs
Ref. 10-Q for the quarter ended March 31, 1997, Page 10 - Third Paragraph
As required by Hernando County, on April 14, 1997 Florida Water filed for a rate
change with the Hernando County Board of Commissioners. Florida Water filed for
an annual interim rate reduction of $258,780 (-3.3 percent) and a final rate
increase of $123,897 (1.6 percent). On June 14, 1997 the final rate increase
Florida Water requested became effective automatically by operation of law
because Hernando County failed to take action on the rates within the
prescribed statutory period.
In July 1997 Florida Water reached a settlement agreement with Hernando County
regarding the rate case Florida Water filed in April 1997. Under the
settlement agreement, new rates will be effective September 1, 1997 and
are expected to result in $6.3 million of revenue on an annual basis, a
$1.6 million decrease from current revenue levels implemented on June 14,
1997. Rates will then be increased January 1, 1999 to result in $7.2
million in revenue on an annual basis. Florida Water has also agreed not to file
for new rates with Hernando County prior to September 2000. All litigation was
dismissed by both parties.
Florida Water's settlement agreement with Hernando County supersedes the FPSC's
February 14, 1997 order which required Florida Water to charge rates to
customers in Hernando County based on a modified stand-alone rate structure.
Ref. Page 14. - Following the Second Paragraph
On July 2, 1997 Florida Water filed for a rate change with the Hillsborough
County Utilities Department. The Company filed for an annual interim rate
increase of $848,845 (43.1 percent) and a final rate increase of $877,607 (44.6
percent). Interim rates are anticipated to become effective 45 days from the
date of the filing. The Company is unable to predict the outcome of this case.
In July 1997 Florida Water filed two index filings which if approved will
increase revenue by $436,000. Approval is expected on or about October 1, 1997.
Under Florida law water and wastewater utilities may make an annual index
filing designed to recover inflationary costs associated with operation and
maintenance expense.
Ref. Page 16. - Fourth Paragraph
Ref. 10-Q for the quarter ended March 31, 1997, Page 10 - Last Paragraph
On May 15, 1997 ADESA acquired 100 percent of a new automobile auction in
Sacramento, California. The Sacramento site is on 37 acres with five auction
lanes.
-13-
-------------------------------------
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company in this quarterly report on Form 10-Q, in
presentations, in response to questions or otherwise. Any statements that
express, or involve discussions as to expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always, through the
use of words or phrases such as "anticipates", "estimates", "expects",
"intends", "plans", "predicts", "projects", "will likely result", "will
continue", or similar expressions) are not statements of historical facts and
may be forward-looking.
Forward-looking statements involve estimates, assumptions, and uncertainties and
are qualified in their entirety by reference to, and are accompanied by, the
following important factors, which are difficult to predict, contain
uncertainties, are beyond the control of the Company and may cause actual
results to differ materially from those contained in forward-looking statements:
(i) prevailing governmental policies and regulatory actions, including those of
the FERC, the MPUC, the FPSC, the NCUC, the SCPSC and the PSCW, with respect to
allowed rates of return, industry and rate structure, acquisition and disposal
of assets and facilities, operation, and construction of plant facilities,
recovery of purchased power, and present or prospective wholesale and retail
competition (including but not limited to retail wheeling and transmission
costs); (ii) economic and geographic factors including political and economic
risks; (iii) changes in and compliance with environmental and safety laws and
policies; (iv) weather conditions; (v) population growth rates and demographic
patterns; (vi) competition for retail and wholesale customers; (vii) pricing and
transportation of commodities; (viii) market demand, including structural market
changes; (ix) changes in tax rates or policies or in rates of inflation; (x)
changes in project costs; (xi) unanticipated changes in operating expenses and
capital expenditures; (xii) capital market conditions; (xiii) competition for
new energy development opportunities; and (xiv) legal and administrative
proceedings (whether civil or criminal) and settlements that influence the
business and profitability of the Company.
Any forward-looking statements speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of any
such factor on the business or the extent to which any factor, or combination of
factors, may cause results to differ materially from those contained in any
forward-looking statement.
-------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4 Third Supplemental Indenture, dated as of May 28, 1997, between
Southern States Utilities, Inc. (now Florida Water Services
Corporation) and Nationsbank of Georgia, National Association
(now SunTrust Bank, Central Florida, N.A.), as Trustee.
27 Financial Data Schedule
(b) Reports on Form 8-K.
Report on Form 8-K dated and filed June 23, 1997 with respect to Item 5.
Other Events.
-14-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Minnesota Power & Light Company
-------------------------------
(Registrant)
August 7, 1997 D. G. Gartzke
-------------------------------
D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
August 7, 1997 Mark A. Schober
-------------------------------
Mark A. Schober
Controller
-15-
CONFORMED COPY
Prepared by: Returned to:
Robert C. Nash, Esq. Greg W. Glass, Esq.
Chapman and Cutler Sobering, White & Luczak, P.A.
111 West Monroe 201 Orange Avenue, Suite 1000
Chicago, IL 60603 Orlando, FL 32801
================================================================================
FLORIDA WATER SERVICES CORPORATION,
formerly known as Southern States Utilities, Inc.
to
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION,
Successor to NationsBank of Georgia, National
Association, as Trustee under Indenture dated as
of March 1, 1993.
---------------------
THIRD SUPPLEMENTAL INDENTURE
Relating to up to $28,000,000 Principal Amount
of First Mortgage Bonds, 8.01% Series
due May 30, 2017
---------------------
Dated as of May 28, 1997
================================================================================
THIS DOCUMENT IS BEING RECORDED IN MULTIPLE COUNTIES
WITHIN THE STATE OF FLORIDA. DOCUMENTARY STAMP AND
INTANGIBLE TAXES HAVE BEEN PAID AND ARE AFFIXED TO
THE COUNTERPART OF THIS DOCUMENT RECORDED IN THE
PUBLIC RECORDS OF SEMINOLE COUNTY, FLORIDA,
IN OFFICIAL RECORDS BOOK 3244, PAGE 490.
TABLE OF CONTENTS
SECTION HEADING PAGE
Parties........................................................................1
Recitals.......................................................................1
ARTICLE FIRST DEFINITIONS......................................................3
ARTICLE SECOND SECURITIES OF THE FOURTH SERIES.................................9
Section 2.01. Description of Series.......................................9
Section 2.02. Required Redemptions in the Event of Prior First
Mortgage Bond Redemptions...................................9
Section 2.03. Optional Prepayments with Make-Whole Amount................11
Section 2.04. Required Prepayment in the Event of Certain Defaults.......11
Section 2.05. Required Prepayment in the Event of Certain Judgments......12
Section 2.06. Required Prepayment in the Event of Certain ERISA
Defaults...................................................12
Section 2.07. Allocation of Partial Prepayments..........................13
Section 2.08. Maturity; Surrender, Etc...................................13
Section 2.09. Purchase of Securities of the Fourth Series................13
Section 2.10. Make-Whole Amount..........................................13
ARTICLE THIRD ADDITIONAL COVENANTS FOR FOURTH SERIES..........................15
Section 3.01. Debt Covenant Required Redemption..........................15
Section 3.02. Restricted Payments........................................16
Section 3.03. Compliance with Law........................................16
Section 3.04. Payment of Taxes and Claims................................16
Section 3.05. Securities of the Fourth Series to Rank Pari Passu.........17
Section 3.06. Limitations on Indebtedness................................17
Section 3.07. Transactions with Affiliates...............................18
Section 3.08. Termination of Pension Plans...............................18
Section 3.09. Limitations on Restrictive Agreements......................18
Section 3.10. Amendment or Waiver of Covenants...........................18
ARTICLE FOURTH AMENDED COVENANTS FOR SECOND AND THIRD SERIES..................19
ARTICLE FIFTH MISCELLANEOUS...................................................19
Section 5.01. Acceptance of Trust........................................19
Section 5.02. Successors and Assigns.....................................19
Section 5.03. Benefit of the Parties.....................................19
Section 5.04. Counterparts...............................................20
-i-
Signature.....................................................................21
Exhibit A - Form of Bond
Exhibit B - Recording Information -- Original Indenture
-ii-
THIRD SUPPLEMENTAL INDENTURE
THIS THIRD SUPPLEMENTAL INDENTURE (the or this "Third Supplemental
Indenture") is made and entered into as of the twenty-eighth day of May, 1997 by
and between (i) FLORIDA WATER SERVICES CORPORATION, a Florida corporation,
formerly known as Southern States Utilities, Inc. (hereinafter called the
"Company") and (ii) SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION,
successor to NationsBank of Georgia, National Association, as Trustee (the
"Trustee").
WHEREAS, the Company has executed and delivered that certain Indenture
dated as of March 1, 1993 (the "Original Indenture") to NationsBank of Georgia,
National Association, a national banking association (the "Original Trustee") to
secure the payment of Securities issued or to be issued under and in accordance
with the provisions thereof, which Indenture was recorded in multiple Florida
Counties, all as set forth on Composite Exhibit B attached hereto and made a
part hereof;
WHEREAS, pursuant to the terms of Section 1701 of the Original
Indenture, the Company and the Original Trustee entered into that certain First
Supplemental Indenture (the "First Supplemental Indenture") dated as of March 1,
1993, recorded as set forth on Composite Exhibit B, relating to those certain
First Mortgage Bonds Variable Rate Series Due December 31, 1993 (the "Securities
of the First Series") and those certain First Mortgage Bonds 8.53% Series due
January 31, 2013 (the "Securities of the Second Series").
WHEREAS, the Securities of the First Series have been fully retired and
the Securities of the Second Series in the aggregate principal amount of
Forty-Five Million Dollars ($45,000,000.00) are owned and held by CoBank, ACB,
formerly known as National Bank for Cooperatives ("CoBank");
WHEREAS, pursuant to that certain Agreement of Resignation, Appointment
and Acceptance dated December 4, 1995, among the Company, the Original Trustee
and The Bank of New York (the "Intermediate Trustee"), the Intermediate Trustee
succeeded to all of the rights, duties and obligations of the Original Trustee
under the Indenture;
WHEREAS, pursuant to that certain Agreement of Resignation, Appointment
and Acceptance dated March 31, 1996, among the Company, the Intermediate Trustee
and the Trustee, the Trustee succeeded to all of the rights, duties and
obligations of the Intermediate Trustee under the Original Indenture;
WHEREAS, pursuant to the terms of Section 1701 of the Original
Indenture, the Company and the Trustee entered into that certain Second
Supplemental Indenture (the "Second Supplemental Indenture") dated as of March
31, 1997, recorded as set forth on Composite Exhibit B, relating to those
certain First Mortgage Bonds 8.137% Series due July 31, 2022 (the "Securities of
the Third Series"). The Original Indenture, as supplemented by the First
Supplemental Indenture and the Second Supplemental Indenture, is hereinafter
referred to as the "Supplemented Indenture"; the Supplemented Indenture, as
further
supplemented by this Third Supplemental Indenture, is hereinafter
referred to as the "Indenture";
WHEREAS, the Securities of the Third Series in the aggregate principal
amount of Ten Million ($10,000,000) are owned and held by CoBank.
WHEREAS, Section 1701 of the Original Indenture provides that the
Company and the Trustee, at any time and from time to time, may enter into one
or more indentures supplemental to the Original Indenture, for various purposes
including to subject any additional property to the Lien of the Indenture, to
add one or more covenants of the Company and to establish the terms of
Securities of any series as contemplated by Section 201 of the Original
Indenture;
WHEREAS, the Company now desires to create Securities of the Fourth
Series and to add to the covenants contained in the Supplemented Indenture to be
observed by the Company.
WHEREAS, the execution and delivery by the Company of this Third
Supplemental Indenture, and the terms of the Securities of the Fourth Series,
have been duly authorized by the Company as provided in the Supplemented
Indenture;
NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH, that, in
consideration of the premises and of Ten Dollars ($10) to it duly paid by the
Trustee at or before the ensealing and delivery of this Third Supplemental
Indenture, the receipt whereof is hereby acknowledged, and to secure the payment
of the principal of and interest on the Securities and the performance of the
covenants in the Indenture and herein contained and to declare the terms and
conditions on which the Securities are secured, and in consideration of the
premises and of the purchase of the Securities by the Holder thereof, the
Company has granted, bargained, sold, alienated, remised, released, conveyed,
assigned, transferred, mortgaged, hypothecated, pledged, set over and confirmed
to the Trustee and granted a security interest in, and by these presents does
grant, bargain, sell, alien, remise, release, convey, assign, transfer,
mortgage, hypothecate, pledge, set over and confirm to the Trustee, and grant a
security interest in, all of the Trust Estate.
TO HAVE AND TO HOLD all said Trust Estate unto the Trustee and its
successors and assigns forever.
SUBJECT, HOWEVER, to Permitted Liens and, to the extent permitted by
Section 704 of the Original Indenture, as to property hereafter acquired, Prior
Liens existing on the date of acquisition or purchase money mortgages.
BUT IN TRUST, NEVERTHELESS, for the same purposes and upon the same
terms, trusts and conditions and subject to and with the same provisos and
covenants as are set forth in the Supplemented Indenture, this Third
Supplemental Indenture being supplemental thereto.
-2-
AND IT IS HEREBY COVENANTED by the Company that all terms, conditions,
provisos, covenants and provisions contained in the Supplemented Indenture shall
affect and apply to the Trust Estate and to the estate, rights, obligations and
duties of the Company and the Trustee and the beneficiaries of the trust with
respect to said property, and to the Trustee and its successors as Trustee of
said property in the same manner and with the same effect as if said property
had been owned by the Company at the time of the execution of the Indenture, and
had been specifically and at length described in and conveyed to said Trustee,
by the Indenture as a part of the property therein stated to be conveyed.
The Company further covenants and agrees to and with the Trustee, and
its successors in said trust under the Indenture, as follows:
ARTICLE FIRST
DEFINITIONS
For all purposes of this Third Supplemental Indenture, except as
otherwise expressly provided or unless the context otherwise requires: (a) the
terms defined in this Article First have the meanings assigned to them in this
Article First and include the plural, as well as, the singular; and (b) all
other terms used in this Third Supplemental Indenture shall have the meanings
assigned to them in the Original Indenture.
"Bondholder Notice" is defined in Section 2.02 hereof.
"Bond Purchase Agreement" means that certain Bond Purchase Agreement
dated as of May 28, 1997 between the Company and the institutional investor
named in Schedule A thereto.
"Business Day" means (a) for the purposes of Section 2.10 hereof only,
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York, New York are required or authorized to be closed, and (b) shall have
the meaning specified in the Original Indenture for the purposes of any other
provision of this Third Supplemental Indenture.
"Capitalized Lease" means any lease the obligation for Rentals with
respect to which is required to be capitalized on a consolidated balance sheet
of the lessee and its subsidiaries in accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Company Notice" is defined in Section 2.02 hereof.
"Company Special Redemption Notice" is defined in Section 2.02 hereof.
-3-
"Consolidated Fixed Charges" for any period means on a consolidated
basis the sum of (a) all Rentals (other than Rentals on Capitalized Leases)
payable during such period by the Company and its Subsidiaries, and (b) all
Interest Expense on all Indebtedness of the Company and its Subsidiaries payable
during such period.
"Consolidated Indebtedness" means all Indebtedness of the Company and
its Subsidiaries, determined on a consolidated basis eliminating intercompany
items.
"Consolidated Net Income" for any period means the gross revenues of
the Company and its Subsidiaries for such period less all expenses and other
proper charges (including taxes on income), determined on a consolidated basis
after eliminating earnings or losses attributable to outstanding Minority
Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
Investments or fixed or capital assets, and any taxes on such excluded
gains and any tax deductions or credits on account of any such excluded
losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Subsidiary accrued
prior to the date it became a Subsidiary;
(d) net earnings and losses of any corporation (other than a
Subsidiary), substantially all the assets of which have been acquired
in any manner by the Company or any Subsidiary, realized by such
corporation prior to the date of such acquisition;
(e) net earnings and losses of any corporation (other than a
Subsidiary) with which the Company or a Subsidiary shall have
consolidated or which shall have merged into or with the Company or a
Subsidiary prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a
Subsidiary) in which the Company or any Subsidiary has an ownership
interest unless such net earnings shall have actually been received by
the Company or such Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Subsidiary which
for any reason is unavailable for payment of dividends to the Company
or any other Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess
of the equity in any Subsidiary at the date of acquisition thereof
over the amount invested in such Subsidiary;
-4-
(j) any gain arising from the acquisition of any Securities
of the Company or any Subsidiary;
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been made
from income arising during such period; and
(l) any other extraordinary gain.
"Consolidated Net Income Available for Consolidated Fixed Charges" for
any period means the sum of (a) Consolidated Net Income during such period plus
(to the extent deducted in determining Consolidated Net Income), (b) all
provisions for any Federal, state or other income taxes made by the Company and
its Subsidiaries during such period and (c) Consolidated Fixed Charges during
such period.
"Consolidated Net Worth" means as of the date of any determination
thereof the amount of the capital stock accounts (net of treasury stock, at
cost) plus (or minus in the case of deficit) the surplus and retained earnings
of the Company and its Subsidiaries, all determined in accordance with GAAP.
"Consolidated Total Capitalization" means as of the date of any
determination thereof, the sum of (a) Consolidated Indebtedness plus (b)
Consolidated Net Worth.
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Environmental Laws" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under Section 4.14 of the Code.
"First Mortgage Bonds" means all first mortgage bonds issued and
outstanding from time to time under and pursuant to the Indenture.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
-5-
"Guaranty" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such Indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income
statement condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such Indebtedness or
obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness
or obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor under
any Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Holder" means a Person in whose name a First Mortgage Bond is
registered in the Security Register.
"Indebtedness" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatory redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities created
or arising under any conditional sale or other title retention
agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capitalized Leases;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
-6-
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money); and
(f) any Guaranty of such Person with respect to liabilities
of a type described in any of clauses (a) through (e) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (f) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.
"Interest Expense" of the Company and its Subsidiaries for any period
means all interest (including the interest component on Rentals on Capitalized
Leases) and all amortization of debt discount and expense on any particular
Indebtedness (including, without limitation, payment-in-kind, zero coupon and
other like Securities) for which such calculations are being made.
"Make-Whole Amount" is defined in Section 2.10 hereof.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets, properties, or
prospects of the Company and its Subsidiaries taken as a whole or (b) the
ability of the Company to perform its obligations under the Indenture, the
Securities of the Fourth Series and the Bond Purchase Agreement or (c) the
validity or the enforceability of the Indenture, the Securities of the Fourth
Series or the Bond Purchase Agreement.
"Minority Interests" means any shares of stock of any class of a
Subsidiary (other than directors' qualifying shares as required by law) that are
not owned by the Company and/or one or more of its Subsidiaries. Minority
Interests shall be valued by valuing Minority Interests constituting preferred
stock at the voluntary or involuntary liquidating value of such Preferred Stock,
whichever is greater, and by valuing Minority Interests constituting common
stock at the book value of capital and surplus applicable thereto adjusted, if
necessary, to reflect any changes from the book value of such common stock
required by the foregoing method of valuing Minority Interests in preferred
stock.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means an "employee benefit plan" (as defined in Section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
-7-
"Preferred Stock" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of the amount upon liquidation or
dissolution of such corporation.
"Prior First Mortgage Bonds" is defined in Section 2.02.
"Prior First Mortgage Bond Redemption Date" is defined in Section 2.02
hereof.
"property" or "properties" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"Rentals" means and includes as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Subsidiary, as lessee or sublessee under a
lease of real or personal property, but shall be exclusive of any amounts
required to be paid by the Company or a Subsidiary (whether or not designated as
rents or additional rents) on account of maintenance, repairs, insurance, taxes
and similar charges. Fixed rents under any so-called "percentage leases" shall
be computed solely on the basis of the minimum rents, if any, required to be
paid by the lessee regardless of sales volume or gross revenues.
"Required Holders" means, at any time, the Holders of at least 66-2/3%
in principal amount of the Securities of the Fourth Series at the time
outstanding (exclusive of Securities of the Fourth Series then owned by the
Company or any of its Affiliates).
"Special Redemption" is defined in Section 2.02 hereof.
"Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.
"Wholly-owned Subsidiary" means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company's other Wholly-owned Subsidiaries at such time.
-8-
ARTICLE SECOND
SECURITIES OF THE FOURTH SERIES
Section 2.01. Description of Series. There shall be a series of
Securities designated "8.01% Series due May 30, 2017" (herein sometimes referred
to as the "Securities of the Fourth Series"), each of which shall also bear the
descriptive title "First Mortgage Bond," shall contain suitable provisions with
respect to the matters hereinafter in this Article specified and shall otherwise
be in the form attached to this Third Supplemental Indenture as Exhibit A. The
aggregate principal amount of Securities of the Fourth Series which may be
authenticated and delivered under the Indenture is limited to Twenty-Eight
Million Dollars ($28,000,000.00), except as provided in Sections 205 and 206 of
the Original Indenture. Securities of the Fourth Series shall mature on May 30,
2017 and shall be issued as fully registered Securities in denominations of One
Hundred Thousand Dollars and, at the option of the Company, in any integral
multiple or multiples thereof (the exercise of such option to be evidenced by
the execution and delivery thereof); they shall bear interest at the rate of
8.01% per annum, payable on November 30, 1997 for the period from and including
the original date of issuance thereof to November 30, 1997, and semi-annually on
May 30 and November 30 of each year thereafter until Maturity; the principal of,
premium, if any, and interest on each said Security to be payable at the office
or agency of the Company in Apopka, Florida, in such coin or currency of the
United States of America as at the time of payment is legal tender for public
and private debts. Securities of the Fourth Series shall be dated as in the
Indenture provided. Interest on the Securities of the Fourth Series shall be
computed on the basis of a 360-day year of twelve thirty-day months. If the
Company shall default in the payment of the principal of, or premium or interest
on, any Security of the Fourth Series, the Company shall pay to the Holder of
such Security such overdue principal, premium or interest, together with
interest on such overdue principal and (to the extent permitted by law) on such
overdue premium or interest at that rate of interest that is the greater of (a)
two percent (2%) per annum above the rate borne by such Security immediately
prior to such default or (b) two percent (2%) over the rate of interest publicly
announced by Morgan Guaranty Trust Company in New York, New York, as its "base"
or "prime" rate.
The Regular Record Date referred to in Section 207 of the Indenture for
the payment of the interest on the Securities of the Fourth Series payable on
any Interest Payment Date shall be the first Business Day next preceding such
Interest Payment Date.
Section 2.02. Required Redemptions in the Event of Prior First
Mortgage Bond Redemptions. If at any time and from time to time, the Company
shall notify the Trustee and any Holder of First Mortgage Bonds issued and
outstanding under the First Supplemental Indenture or the Second Supplemental
Indenture (the "Prior First Mortgage Bonds") of the occurrence of any one or
more of the events and conditions described in Sections 3.01(B), 3.01(C), 3.02,
3.03(A), 3.03(B), 3.03(C), 3.03(D), 3.05, 3.06, 3.09, 4.01(B), 4.01(C), 4.02,
4.03(A), 4.03(B), 4.03(C), 4.03(D), 4.05, 4.06 and 4.09 of the Second
Supplemental Indenture, then and in such event it shall on the same such date
notify in writing (each a "Company Special Redemption Notice") the Holders of
the Securities of the Fourth Series,
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which Company Special Redemption Notice shall describe in reasonable detail the
event or condition which is the basis for such Company Special Redemption
Notice. Without limiting the foregoing, if the Company is required for any
reason whatsoever to prepay, redeem, purchase or otherwise retire (collectively
a "Special Redemption") the Prior First Mortgage Bonds, in whole or in part,
then, and in such event, the Company shall, not more than 40 days nor less than
30 days prior to the date on which any such Special Redemption is to occur (any
such date of Special Redemption being herein referred to as a "Prior First
Mortgage Bond Redemption Date") give written notice (a "Company Notice"): (a)
specifying such fact, (b) identifying such Prior First Mortgage Bond Redemption
Date, (c) stating that a premium may be payable in connection with such Special
Redemption, and, if so, the estimated amount thereof, together with a reasonably
detailed computation of such estimated premium, (d) identifying the amount of
Securities required to be so redeemed, (e) offering to redeem an aggregate
principal amount of Outstanding Securities of the Fourth Series equal to (i) in
the case of Special Redemptions pursuant to Sections 3.01(B), 3.01(C), 3.03(A),
3.03(B), 3.03(C), 3.03(D), 3.05, 4.01(B), 4.01(C), 4.03(A), 4.03(B), 4.03(C),
4.03(D) and 4.05 of the Second Supplemental Indenture, a pro rata portion of the
amount of Securities required to be redeemed pursuant to such Sections, such pro
rata portion to be based upon the ratio of (A) the then Outstanding aggregate
principal amount of the Securities of the Fourth Series to (B) the then
Outstanding aggregate principal amount of the Securities of the Fourth Series
and the Prior First Mortgage Bonds, and (ii) in the case of Sections 3.02, 3.06,
3.09, 4.02, 4.06 and 4.09 of the Second Supplemental Indenture, the aggregate
principal amount of the Securities of the Fourth Series, and (f) specifying a
date, which shall be not more than 20 days nor less than 10 days prior to such
Prior First Mortgage Bond Redemption Date, on which each Holder of the
Securities of the Fourth Series must accept or decline such offer of redemption.
Each Holder of the then outstanding Securities of the Fourth Series shall have
the right to accept such offer and require redemption of the Securities of the
Fourth Series held by such Holder by written notice to the Company and the
Trustee (a "Bondholder Notice") given not later than the date specified in such
Company Notice. The Company shall, on said Prior First Mortgage Bond Redemption
Date, redeem on an equal and ratable basis with the Prior First Mortgage Bonds
which are to be redeemed on such Prior First Mortgage Bond Redemption Date, the
Securities of the Fourth Series Outstanding under the Indenture held by Holders
which have so accepted such offer of redemption; provided, however, that to the
extent the Holders of the Securities of any Series to be redeemed pursuant to
this Section 2.02 or pursuant to the above-referenced Sections of the Second
Supplemental Indenture waive any right of redemption or elect not to accept the
Company's offer of redemption, an additional principal amount of Securities of
the other Series, in an amount equal to the amount so waived or as to which an
offer is not accepted, shall be redeemed, distributed pro rata among such other
Series based upon the ratio described above, but excluding from clause (B) the
principal amount of the Securities of the Series with respect to which there has
been a waiver or an offer unaccepted, except to the extent waived by the Holders
of the Securities of such other Series; provided further, however, to the extent
the Holders of the majority of the Securities of the Second Series and a
majority of the Securities of the Third Series, in each case then Outstanding,
waive redemption pursuant to the applicable Sections of the Second Supplemental
Indenture, then the Company shall have no obligation to redeem Securities of the
Fourth Series pursuant to this Section 2.02. The redemption price of the
Securities of
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the Fourth Series to be so redeemed on such Prior First Mortgage Bond Redemption
Date shall be an amount equal to 100% of the outstanding principal amount of the
Securities of the Fourth Series so to be redeemed and accrued interest thereon
to the date of prepayment, together with a premium equal to the Make-Whole
Amount, determined as of two Business Days prior to such Prior First Mortgage
Bond Redemption Date.
Section 2.03. Optional Prepayments with Make-Whole Amount. The
Company may, at its option, upon notice as provided below, prepay at any time
all, or from time to time any part of, Securities of the Fourth Series, in an
amount not less than 10% of the aggregate principal amount of Securities of the
Fourth Series then outstanding in the case of a partial prepayment, at 100% of
the principal amount so prepaid, together with interest accrued thereon to the
date of such prepayment, plus the Make-Whole Amount determined for the
prepayment date with respect to such principal amount. The Company will give
each Holder of Securities of the Fourth Series written notice of each optional
prepayment under this Section 2.03 not less than thirty (30) days and not more
than sixty (60) days prior to the date fixed for such prepayment. Each such
notice shall specify such date, the aggregate principal amount of the Securities
of the Fourth Series to be prepaid on such date, the principal amount of each
Bond held by such Holder to be prepaid (determined in accordance with Section
2.07), and the interest to be paid on the prepayment date with respect to such
principal amount being prepaid, and shall be accompanied by a certificate of an
Authorized Officer as to the estimated Make-Whole Amount due in connection with
such prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each Holder of Securities
of the Fourth Series a certificate of an Authorized Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.
Section 2.04. Required Prepayment in the Event of Certain Defaults.
So long as any Securities of the Fourth Series remain outstanding, if (a) the
Company or any Subsidiary is in default (as principal or as guarantor or other
surety) in the payment of any principal of or premium or make-whole amount or
interest on any Indebtedness that is outstanding in an aggregate principal
amount of at least $5,000,000 beyond any period of grace provided with respect
thereto, or (b) the Company or any Subsidiary is in default in the performance
of or compliance with any term of any evidence of any Indebtedness in an
aggregate outstanding principal amount of at least $5,000,000 or of any
mortgage, indenture or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition such Indebtedness has
become, or has been declared (or one or more Persons are entitled to declare
such Indebtedness to be), due and payable before its stated maturity or before
its regularly scheduled dates of payment, or (c) as a consequence of the
occurrence or continuation of any event or condition (other than the passage of
time or the right of the Holder of Indebtedness to convert such Indebtedness
into equity interests), (i) the Company or any Subsidiary has become obligated
to purchase or repay Indebtedness before its regular maturity or before its
regularly scheduled dates of payment in an aggregate outstanding principal
amount of at least $5,000,000, or (ii) one or more Persons have the right to
require the Company or any Subsidiary so to purchase or repay such Indebtedness,
then the Company shall promptly and in any event within two (2) Business Days of
the date of
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occurrence of any such event notify the Trustee and the Holders of the
Securities of the Fourth Series and the Company shall redeem, within sixty (60)
days thereafter and upon at least ten (10) days notice, all of the Securities of
the Fourth Series then Outstanding, together with interest accrued thereon to
the date of redemption, plus the Make-Whole Amount determined for such
redemption date two Business Days prior thereto. Two Business Days prior to such
redemption, the Company shall deliver to each Holder of the Securities of the
Fourth Series a certificate of an Authorized Officer specifying the calculation
of such Make-Whole Amount as of the specified redemption date.
Section 2.05. Required Prepayment in the Event of Certain Judgments.
So long as any Securities of the Fourth Series remain outstanding, if a final
judgment or judgments for the payment of money aggregating in excess of
$10,000,000 are rendered against one or more of the Company and its Subsidiaries
and which judgments are not, within sixty (60) days after entry thereof (or such
longer period as shall be permitted by the express terms of any such judgment or
judgments), bonded, discharged or stayed pending appeal, or are not discharged
within sixty (60) days (or such longer period as shall be permitted by the
express terms of any such judgment or judgments) after the expiration of such
stay, then the Company shall promptly and in any event within two (2) Business
Days of the date of occurrence of any such event notify the Trustee and the
Holders of the Securities of the Fourth Series and the Company shall redeem,
within sixty (60) days thereafter and upon at least ten (10) days notice, all of
the Securities of the Fourth Series then Outstanding, together with interest
accrued thereon to the date of redemption, plus the Make-Whole Amount determined
for such redemption date two Business Days prior thereto. Two Business Days
prior to such redemption, the Company shall deliver to each Holder of the
Securities of the Fourth Series a certificate of an Authorized Officer
specifying the calculation of such Make-Whole Amount as of the specified
redemption date.
Section 2.06. Required Prepayment in the Event of Certain ERISA
Defaults. So long as any Securities of the Fourth Series remain outstanding, if
(a) any Plan shall fail to satisfy the minimum funding standards of ERISA or the
Code for any plan year or part thereof or a waiver of such standards or
extension of any amortization period is sought or granted under section 412 of
the Code, (b) a notice of intent to terminate any Plan shall have been or is
reasonably expected to be filed with the PBGC or the PBGC shall have instituted
proceedings under ERISA Section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any ERISA
Affiliate that a Plan may become a subject of any such proceedings, (c) the
aggregate "amount of unfunded benefit liabilities" (within the meaning of
Section 4001(a)(18) of ERISA) under all Plans, determined in accordance with
Title IV of ERISA, shall exceed $1,000,000, (d) the Company or any ERISA
Affiliate shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of
the Code relating to employee benefit plans, (e) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or (f) the Company or any
Subsidiary establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the liability
of the Company or any Subsidiary thereunder; and any such event or events
described in clauses (a) through (f) above, either individually or together with
any other such event or events, could reasonably be expected to
-12-
have a Material Adverse Effect, then the Company shall promptly and in any event
within two (2) Business Days of the date of occurrence of any such event notify
the Trustee and the Holders of the Securities of the Fourth Series and the
Company shall redeem, within sixty (60) days thereafter and upon at least ten
(10) days notice, all of the Securities of the Fourth Series then Outstanding,
together with interest accrued thereon to the date of redemption, plus the
Make-Whole Amount determined for such redemption date two Business Days prior
thereto. Two Business Days prior to such redemption, the Company shall deliver
to each Holder of the Securities of the Fourth Series a certificate of an
Authorized Officer specifying the calculation of such Make-Whole Amount as of
the specified redemption date.
As used in this Section 2.06, the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
Section 2.07. Allocation of Partial Prepayments. In the case of each
partial prepayment of the Securities of the Fourth Series, the principal amount
of the Securities of the Fourth Series to be prepaid shall be allocated among
all of the Securities of the Fourth Series at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for prepayment.
Section 2.08. Maturity; Surrender, Etc. In the case of each
prepayment of Securities of the Fourth Series pursuant to this Article Second,
the principal amount of each of the Securities of the Fourth Series to be
prepaid shall be and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Security of the Fourth
Series paid or prepaid in full shall be surrendered to the Company and cancelled
and shall not be reissued, and no Security of the Fourth Series shall be issued
in lieu of any prepaid principal amount of any Security of the Fourth Series.
Section 2.09. Purchase of Securities of the Fourth Series. The
Company will not and will not permit any Affiliate to purchase, redeem, prepay
or otherwise acquire, directly or indirectly, any of the outstanding Securities
of the Fourth Series except upon the payment or prepayment of the Securities of
the Fourth Series in accordance with the terms of this Third Supplemental
Indenture and the Securities of the Fourth Series. The Company will promptly
cancel all Securities of the Fourth Series acquired by it or any Affiliate
pursuant to any payment, prepayment or purchase of Securities of the Fourth
Series pursuant to any provision of this Third Supplemental Indenture and no
Securities of the Fourth Series may be issued in substitution or exchange for
any such Securities of the Fourth Series.
Section 2.10. Make-Whole Amount. The term "Make-Whole Amount" means,
with respect to any Security of the Fourth Series, an amount equal to the
excess, if any, of the Discounted Value of the Remaining Scheduled Payments with
respect to the Called Principal of such Security of the Fourth Series over the
amount of such Called Principal; provided
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that the Make-Whole Amount may in no event be less than zero. For the purposes
of determining the Make-Whole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to any Security of the
Fourth Series, the principal of such Security of the Fourth Series that
is to be prepaid pursuant to Section 2.02 (if the related prepayment,
redemption or retirement of Prior First Mortgage Bonds is made with a
premium), Section 2.03, Section 2.04, Section 2.05, Section 2.06 or has
become or is declared to be immediately due and payable pursuant to
Section 1102 of the Original Indenture, as the context requires.
"Discounted Value" means, with respect to the Called Principal
of any Security of the Fourth Series, the amount obtained by
discounting all Remaining Scheduled Payments with respect to such
Called Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in accordance
with accepted financial practice and at a discount factor (applied on
the same periodic basis as that on which interest on the Securities of
the Fourth Series is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Security of the Fourth Series, 0.50% over the yield to
maturity implied by (a) the yields reported, as of 10:00 A.M. (New York
City time) on the second Business Day preceding the Settlement Date
with respect to such Called Principal, on the display designated as
"Page USD" of the Bloomberg Financial Markets Services Screen (or, if
not available, any other national recognized trading screen reporting
on-line intraday trading in the U.S. Treasury securities) for actively
traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement
Date, or (b) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury
Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (i) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (ii) interpolating linearly between (1) the
actively traded U.S. Treasury security with the duration closest to and
greater than the Remaining Average Life and (2) the actively traded
U.S. Treasury security with the duration closest to and less than the
Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (a) such Called Principal into (b) the sum
of the products obtained by multiplying (i) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (ii) the number of years (calculated to the nearest one-
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twelfth year) that will elapse between the Settlement Date with respect
to such Called Principal and the scheduled due date of such Remaining
Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Security of the Fourth Series, all payments of
such Called Principal and interest thereon that would be due after the
Settlement Date with respect to such Called Principal if no payment of
such Called Principal were made prior to its scheduled due date;
provided that if such Settlement Date is not a date on which interest
payments are due to be made under the terms of the Securities of the
Fourth Series, then the amount of the next succeeding scheduled
interest payment will be reduced by the amount of interest accrued to
such Settlement Date and required to be paid on such Settlement Date
pursuant to Section 2.02 (if the related prepayment, redemption or
retirement of Prior First Mortgage Bonds is made with a premium),
Section 2.03, Section 2.04, Section 2.05, Section 2.06 or has become or
is declared to be immediately due and payable pursuant to Section 1102
of the Original Indenture.
"Settlement Date" means, with respect to the Called Principal
of any Security of the Fourth Series, the date on which such Called
Principal is to be prepaid pursuant to Section 2.02 (if the related
prepayment, redemption or retirement of Prior First Mortgage Bonds is
made with a premium), or Section 2.03, Section 2.04, Section 2.05,
Section 2.06 or has become or is declared to be immediately due and
payable pursuant to Section 1102 of the Original Indenture, as the
context requires.
ARTICLE THIRD
ADDITIONAL COVENANTS FOR FOURTH SERIES
Section 3.01. Debt Covenant Required Redemption. So long as any
Securities of the Fourth Series shall remain Outstanding, the Company shall file
with the Trustee, on or before March 31 of each calendar year, an Accountant's
Certificate showing as of December 31 of the immediately preceding calendar year
(1) the aggregate principal amount of Securities then Outstanding and (2) the
net book value of property, plant and equipment, determined in accordance with
GAAP, which constitute Property Additions. If such aggregate principal amount of
Securities then Outstanding exceeds sixty per centum (60%) of the net book value
of such property, plant and equipment then the Company shall promptly notify the
Trustee and, if there is only one Holder of Securities of the Fourth Series,
such Holder; and the Company shall redeem, within ninety days thereafter and
upon at least thirty days' notice, a principal amount of the Securities of such
Series then Outstanding equal to a pro rata portion of the amount necessary to
cause the aggregate principal amount of Securities then Outstanding to equal
sixty per centum (60%) of the net book value of such property, plant and
equipment, such pro rata portion of such Series to be based upon a ratio of (A)
the then Outstanding aggregate principal amount of Securities of such Series to
(B) the then Outstanding aggregate principal amounts of the Securities of the
Second Series, of the Third Series and of the Fourth Series; provided, however,
that to the extent any of the Holders of Securities of the Second Series, of the
Third Series or of the
-15-
Fourth Series waive any right of redemption, an additional principal amount of
Securities of the other Series, in an amount equal to the amount waived, shall
be redeemed, distributed pro rata among such other Series based upon the ratio
described above, but excluding from clause (B) the principal amount of the
Securities of the Series with respect to which there has been a waiver, except
to the extent waived by the Holders of the Securities of such other Series. The
Redemption Price of the Securities of the Fourth Series shall be the outstanding
principal amount of the Securities of such Series to be redeemed pursuant to
this Section 3.01 plus the Make Whole Amount plus interest accrued to the
Redemption Date. The Holders of a majority of the Securities of the Fourth
Series then Outstanding may waive redemption pursuant to this Section 3.01 by
delivering a written waiver to the Trustee, in such form as the Trustee shall
deem acceptable, with a copy to the Company, within ten days after the date of
such notice of redemption.
Section 3.02. Restricted Payments. So long as any Securities of the
Fourth Series remain Outstanding, the Company shall not declare or pay any
Restricted Payments unless the Company files an Accountant's Certificate with
the Trustee and, if there is only one Holder of Securities of the Fourth Series,
sends a copy to such Holder, within thirty days prior to such declaration or
payment stating that (A) the amount of such payment shall not exceed cumulative
net additions to or deductions from Surplus, determined in accordance with GAAP,
made after December 31, 1992 (excluding any gains on sale of Property Additions
during the immediately preceding 12 months in excess of twenty per centum (20%)
of the net additions to Surplus made during such 12 month period); and (B) that
after such payment Capital plus Surplus shall equal at least thirty-five per
centum (35%) of Capitalization, determined in accordance with GAAP.
Section 3.03. Compliance with Law. The Company will, and will cause
each of its Subsidiaries to, comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, including, without
limitation, Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 3.04. Payment of Taxes and Claims. The Company will, and
will cause each of its Subsidiaries to, file all tax returns required to be
filed in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets of the
Company or any Subsidiary; provided that neither the Company nor any Subsidiary
need pay any such tax or assessment or claims if (a) the amount, applicability
or validity thereof is contested by the Company or such Subsidiary on a timely
basis in good faith and in appropriate
-16-
proceedings, and the Company or a Subsidiary has established adequate reserves
therefor in accordance with GAAP on the books of the Company or such Subsidiary
or (b) the nonpayment of all such taxes and assessments in the aggregate could
not reasonably be expected to have a Material Adverse Effect.
Section 3.05. Securities of the Fourth Series to Rank Pari Passu.
The Securities of the Fourth Series are and at all times shall remain direct and
secured obligations of the Company ranking pari passu as against the assets of
the Company with all other First Mortgage Bonds from time to time issued and
outstanding under the Indenture without any preference among themselves and pari
passu with all other present and future secured Indebtedness (actual or
contingent) of the Company issued and outstanding under the Indenture.
Section 3.06. Limitations on Indebtedness. The Company covenants
that so long as any of the Securities of the Fourth Series are outstanding:
(a) The Company will not, and will not permit any Subsidiary
to, create, issue, assume, guarantee or otherwise incur or in any
manner become liable in respect of any Indebtedness, except:
(i) Indebtedness evidenced by the Securities of the
Fourth Series;
(ii) Indebtedness of the Company evidenced by the
Prior First Mortgage Bonds;
(iii) additional Securities of the Company issued and
outstanding within the limitations of the Indenture; provided
that at the time of creation, issuance, assumption, guarantee
or incurrence thereof and after giving effect thereto and to
the application of the proceeds thereof:
(1) Consolidated Indebtedness shall not
exceed 65% of Consolidated Total Capitalization;
(2) the average of the Consolidated Net
Income Available for Consolidated Fixed Charges for
the four immediately preceding fiscal quarters shall
have been at least 150% of the average of the
Consolidated Fixed Charges for such four fiscal
quarters; and
(3) in the case of the issuance of any
Indebtedness of the Company secured by Liens
permitted by 704 of the Original Indenture and any
Indebtedness of a Subsidiary, the sum of (A) the
aggregate amount of all Indebtedness secured by Liens
permitted by 704 of the Original Indenture plus (B)
the aggregate amount of all Indebtedness of
Subsidiaries shall not exceed 5% of Consolidated
Total Capitalization;
-17-
(iv) Indebtedness of a Subsidiary to the Company or
to a Wholly-owned Subsidiary.
(b) The renewal, extension or refunding of any Indebtedness,
issued, incurred or outstanding pursuant to Section 3.06(a) shall
constitute the issuance of additional Indebtedness which is, in turn,
subject to the limitations of the applicable provisions of this Section
3.06.
(c) Any Person which becomes a Subsidiary after the date
hereof shall for all purposes of this Section 3.06 be deemed to have
created, assumed or incurred at the time it becomes a Subsidiary all
Indebtedness of such Person existing immediately after it becomes a
Subsidiary.
Section 3.07. Transactions with Affiliates. The Company will not,
and will not permit any Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of the Company's or such Subsidiary's business
and upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would obtain in a comparable arm's-length transaction with a
Person other than an Affiliate.
Section 3.08. Termination of Pension Plans. The Company will not and
will not permit any Subsidiary to withdraw from any Multiemployer Plan or permit
any employee benefit plan maintained by it to be terminated if such withdrawal
or termination could result in withdrawal liability (as described in Part 1 of
Subtitle E of Title IV of ERISA) or the imposition of a Lien on any property of
the Company or any Subsidiary pursuant to Section 4068 of ERISA.
Section 3.09. Limitations on Restrictive Agreements. The Company
will not and will not permit any Subsidiary to, enter into, or suffer to exist,
any agreement with any Person which, directly or indirectly, restricts or limits
the ability of the Company to amend, modify, waive, supplement or otherwise
alter the terms applicable to the Securities of the Fourth Series, or the
Indenture or to prepay, pay, or redeem, optionally or otherwise, the Securities
of the Fourth Series.
Section 3.10. Amendment or Waiver of Covenants. The provisions of
this Article Third may be waived or amended, at the request of the Company, with
the written consent of the Holders of at least a majority of the aggregate
principal amount of the Securities of the Fourth Series then Outstanding.
-18-
ARTICLE FOURTH
AMENDMENTS TO SECOND SUPPLEMENTAL INDENTURE
Sections 3.01(B), 3.01 (C), 3.03(A), 3.03(B), 3.03(C), 3.03(D), 3.05,
4.01(B), 4.01(C), 4.03(A), 4.03(B), 4.03(C), 4.03(D) and 4.05 of the Second
Supplemental Indenture are hereby amended to provide that the "pro rata portion"
of Securities of the applicable Series shall be based upon the ratio of (a) then
Outstanding aggregate principal amount of Securities of such Series to (b) then
Outstanding aggregate principal amount of the Securities of the Second Series,
of the Third Series and of the Fourth Series.
ARTICLE FIFTH
MISCELLANEOUS
Section 5.01. Acceptance of Trust. The Trustee hereby accepts the
trust herein created and agrees to perform the same upon the terms and
conditions herein and in the Indenture set forth and upon the following terms
and conditions:
The Trustee shall not be responsible in any manner
whatsoever for or in respect to the validity or sufficiency of this Third
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made by the Company alone. In general each and every
term and condition contained in Article Sixteen of the Original Indenture shall
apply to and form part of this Third Supplemental Indenture with the same force
and effect as if the same were herein set forth in full with such omissions,
variations and insertions, if any, as may be appropriate to make the same
conform to the provisions of this Third Supplemental Indenture.
Section 5.02. Successors and Assigns. Whenever in this Third
Supplemental Indenture either of the parties hereto is named or referred to,
this shall, subject to the provisions of Articles Fifteen and Sixteen of the
Original Indenture, be deemed to include the successors and assigns of such
party, and all the covenants and agreements in this Third Supplemental Indenture
contained by or on behalf of the Company, or by or on behalf of the Trustee, or
either of them, shall, subject as aforesaid, bind and inure to the respective
benefits of the respective successors and assigns of such parties, whether so
expressed or not.
Section 5.03. Benefit of the Parties. Nothing in this Third
Supplemental Indenture, expressed or implied, is intended, or shall be
construed, to confer upon, or to give to, any Person, firm or corporation, other
than the parties hereto and the Holders of the Securities Outstanding under the
Indenture, any right, remedy or claim under or by reason of this Third
Supplemental Indenture or any covenant, condition, stipulation, promise or
agreement hereof, and all the covenants, conditions, stipulations promises and
agreements in this Third Supplemental Indenture contained by or on behalf of the
Company shall be for the sole and exclusive benefit of the parties hereto and of
the Holders of the Securities Outstanding under the Indenture.
-19-
Section 5.04. Counterparts. This Third Supplemental Indenture shall
be executed in several counterparts, each of which shall be an original and all
of which shall constitute but one and the same instrument.
* * *
-20-
IN WITNESS WHEREOF, the Company has caused this Third Supplemental
Indenture to be executed in its corporate name by its President or one of its
Vice Presidents and its corporate seal to be hereunto affixed and to be attested
by its Secretary or one of its Assistant Secretaries, and SunTrust Bank, Central
Florida, National Association, to evidence its acceptance hereof, has caused
this Third Supplemental Indenture to be executed in its corporate name by a duly
authorized officer thereof and its corporate seal to be hereunto affixed and to
be attested by a duly authorized officer thereof, in several counterparts, all
as of the day and year first above written.
Attest: FLORIDA WATER SERVICES CORPORATION,
formerly known as Southern States
Utilities, Inc.
/s/ Donna Henry /s/ Morris Bencini
- --------------------------------- -------------------------------------
Donna Henry By
Name: Morris Bencini
Title: Vice President-Finance
and Treasurer
Address: 1000 Apopka, FL 32703
In the presence of:
/s/ Greg W. Glass
- ---------------------------------
Greg W. Glass
/s/ Kristi Jung
- ---------------------------------
Kristi Jung
-21-
STATE OF FLORIDA )
COUNTY OF ORANGE )
The foregoing instrument was executed before me, an officer duly
authorized in the state and county aforesaid to administer oaths and to take
acknowledgments, this 28th day of May, 1997, by Morris Bencini as Vice
President-Finance and Treasurer of FLORIDA WATER SERVICES CORPORATION,
formerly known as Southern States Utilities, Inc., a Florida corporation, on
behalf of said corporation, who is personally known to me or who produced
_________________________________ as identification.
/s/ Gregory W. Glass
---------------------------------------
Notary Public
Gregory W. Glass
---------------------------------------
Print Name
Attest: SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
/s/ Lisa George
- --------------------------------
(Assistant Vice President) By: /s/ M.B. Daiger
---------------------------------------
Lisa George Name: M. Bruce Daiger
- -------------------------------- --------------------------------------
(Print Name) Title: Vice President
-------------------------------------
Address: 225 East Robinson Street, Suite 250
-----------------------------------
Orlando, FL 3280l
-----------------------------------
In the presence of:
/s/ Paige Turnbow
- ---------------------------------
(Witness)
Paige Turnbow
- ---------------------------------
(Print Name)
/s/ Leslie King
- ---------------------------------
(Witness)
Leslie King
- ---------------------------------
(Print Name)
STATE OF FLORIDA )
COUNTY OF ORANGE )
The foregoing instrument was executed before me, an officer duly
authorized in the state and county aforesaid to administer oaths and to take
acknowledgments, this 28th day of May, 1997, by M. Bruce Daiger as Vice
President of SUNTRUST BANK CENTRAL FLORIDA, NATIONAL ASSOCIATION, on behalf
of said bank, who is personally known to me or who produced ____________________
as identification.
/s/ Donna L. Hensel
-----------------------------------------
Notary Public
Donna L. Hensel
------------------------------------------
Print Name
REGISTERED SECURITY
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND MAY BE TRANSFERRED ONLY IN COMPLIANCE
THEREWITH OR UNDER AN EXEMPTION THEREUNDER.
FLORIDA WATER SERVICES CORPORATION,
FORMERLY KNOWN AS SOUTHERN STATES UTILITIES, INC.
FIRST MORTGAGE BONDS,
8.01% SERIES, DUE MAY 30, 2017
NO. R4-1 PRINCIPAL AMOUNT: $28,000,000.00
INTEREST RATE: 8.01% MATURITY DATE: MAY 30, 2017
PPN: 34324# AA 2
FLORIDA WATER SERVICES CORPORATION, formerly known as Southern States
Utilities, Inc., a corporation of the State of Florida (hereinafter called the
"Company"), for value received, hereby promised to pay to the order of:
____________________ , or to registered assigns,
Twenty-Eight Million Dollars ($28,000,000.00) on the Maturity Date specified
above, and to pay interest thereon at the Interest Rate specified above, payable
on November 30, 1997 for the period from and including the original date of
issuance thereof to November 30, 1997, and semi-annually on the thirtieth day of
May and November in each year until maturity (each an Interest Payment Date), in
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts, at the office or agency of the
Company in Apopka, Florida on the Interest Payment Dates in each year, until the
Company's obligation with respect to the payment of such principal shall have
been discharged. If the Company shall default in the payment of interest due on
any Interest Payment Date, then interest shall be payable from the next
preceding Interest Payment Date to which interest has been paid. Interest shall
be computed on the basis of a 360-day year consisting of twelve thirty-day
months.
If the Company shall default in the payment of the principal of, or
premium or interest on, this Security, then the Company shall pay to the Holder
of this Security such overdue principal, premium or interest, together with
interest on such overdue principal and (to the extent permitted by law) on such
overdue premium or interest at that rate of interest that is the greater of (a)
two percent (2%) per annum above the rate borne by this Security immediately
prior to such default or (b) two percent (2%) over the rate of interest publicly
announced by Morgan Guaranty Trust Company in New York, New York, as its "base"
or "prime" rate.
EXHIBIT A
(to Third Supplemental Indenture)
The interest so payable on any Interest Payment Date will, subject to
certain exceptions provided in the Indenture hereinafter referred to, be paid to
the person in whose name this Security is registered at the close of business on
the first Business Day (a Record Date) next preceding such Interest Payment
Date, provided, that, interest payable on the Maturity Date will be payable to
the person to whom the principal hereof shall be payable.
This Security is one of a duly authorized issue of Securities of the
Company, issued and to be issued under, pursuant to and all equally secured by
an Indenture dated as of March 1, 1993, made by and between the Company and
NationsBank of Georgia, National Association, as Trustee (the "Original
Trustee"), as supplemented by (i) that certain First Supplemental Indenture
dated as of March 1, 1993, made by and between the Company and the Original
Trustee, (ii) that certain Second Supplemental Indenture dated as of March 31,
1997, made by and between the Company and SunTrust Bank, Central Florida,
National Association, as successor trustee to the Original Trustee (the
"Trustee") and (iii) that certain Third Supplemental Indenture dated as of May
28, 1997, made by and between the Company and the Trustee (said Indenture, as
supplemented, being hereinafter called the "Indenture"), to which Indenture
reference is hereby made for a description of the property thereby mortgaged and
pledged, the nature and extent of the security thereby created, the rights
thereunder of the bearers or registered owners of the Securities and of the
Trustee, the duties and immunities of the Trustee, the terms and conditions upon
which the Securities are and are to be secured, the circumstances under which
additional securities may be issued and the definition of certain terms used
herein. To the extent permitted by and as provided in the Indenture,
modifications or alterations of the Indenture, and of the rights and obligations
of the Company and of the Holders of the Securities may be made with the consent
of the Company by such affirmative vote or votes of the Holders as provided in
the Indenture; provided, however, that, among other things, no such modification
or alteration shall be made which will affect the terms of payment of the
principal at maturity of, or interest on, this Security, which are
unconditional, or reduce the aforesaid percentages without the consent of the
Holder of this Security. The Securities may be issued in series, for various
principal amounts, may mature at different times, may bear interest at different
rates and may otherwise vary as in the Indenture provided.
The Securities of this Series are redeemable as provided in the
Indenture.
In case an Event of Default as defined in the Indenture shall occur,
the principal of all Securities then outstanding under the Indenture may be
declared or become due and payable upon the conditions and in the manner and
with the effect provided in the Indenture.
This Security is transferable by the Holder hereof, in person or by
duly authorized attorney, on the books of the Company to be kept for that
purpose at the principal office of the Security Registrar under the Indenture,
upon surrender and cancellation of this Security and on presentation of a duly
executed written instrument of transfer, and thereupon a new Security or
Securities, of the same series and tenor, of the same aggregate principal amount
and in authorized denominations will be issued to the transferee or transferees
in exchange therefor; and this Security, with or without others of like form and
series, may in like manner be exchanged for one or more new Securities of the
same series and tenor in other
-2-
authorized denominations but in the same aggregate principal amount; all
subject to the terms and conditions set forth in the Indenture.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest, if any, on this Security, or any part hereof, or
for any claim based hereon or otherwise in respect hereof, or of the
indebtedness represented hereby, or upon any obligation, covenant or agreement
under the Indenture, against any incorporator, stockholder, director or officer,
as such, past, present or future, of the Company or of any predecessor or
successor corporation (either directly or through the Company, or a predecessor
or successor corporation), whether by virtue of any constitutional provision,
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability being waived and released by every Holder hereof
by the acceptance of this Security and as part of the consideration for the
issue hereof, and being likewise waived and released by the terms of the
Indenture.
This Security shall not become valid or obligatory for any purpose or
be entitled to any benefit under the Indenture until SunTrust Bank, Central
Florida, National Association, or its successor as Trustee under the Indenture,
shall have signed the form of certificate endorsed hereon.
IN WITNESS WHEREOF, FLORIDA WATER SERVICES CORPORATION, formerly known
as Southern States Utilities, Inc., has caused this Security to be duly executed
in its corporate name by the manual or facsimile signature of its President or a
Vice President and its corporate seal to be impressed or imprinted hereon and
attested by the manual or facsimile signature of its Secretary or an Assistant
Secretary.
Dated as of: May 29, 1997 FLORIDA WATER SERVICES CORPORATION
By
------------------------------------
Its
------------------------------------
(CORPORATE SEAL)
Attest:
- ---------------------------------
-3-
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL
ASSOCIATION, as Trustee
By
-----------------------------------
Authorized Signatory
-4-
COMPOSITE EXHIBIT "B"
Page 1 of 3
Recording of Indenture
County Date Recorded OR Book/Page
------ -------------- ------------
Bradford March 15, 1993 0525/002
Brevard March 15, 1993 3274/137
Charlotte March 15, 1993 1266/1588
Citrus March 15, 1993 0974/0150
Clay March 15, 1993 1447/0898
Duval March 16, 1993 7534/642
Highlands March 15, 1993 1209/0099
Lake March 15, 1993 1214/2318
Marion March 15, 1993 1908/668
Martin March 15, 1993 1002/0459
Nassau March 31, 1993 0677/1668
Orange March 16, 1993 4536/2836
Osceola April 1, 1993 1117/1623
Pasco March 15, 1993 3126/572
Polk March 15, 1993 3211/2008
Putnam March 15, 1993 0622/429
Sarasota March 15, 1993 2487/1418
Seminole March 12, 1993 2556/251
St. Johns March 15, 1993 0982/1925
St. Lucie March 15, 1993 0831/2693
Volusia March 16, 1993 3813/0519
Washington March 15, 1993 0258/1206
EXHIBIT B
(to Third Supplemental Indenture)
COMPOSITE EXHIBIT "B"
Page 2 of 3
Recording of First Supplemental Indenture
County Date Recorded OR Book/Page
------ ------------- ------------
Bradford April 12, 1993 0529/062
Brevard April 12, 1993 3281/0245
Charlotte April 12, 1993 1271/1296
Citrus April 12, 1993 0977/0938
Clay April 12, 1993 1450/1191
Duval April 12, 1993 7555/1607
Highlands April 12, 1993 1212/1101
Lake April 12, 1993 1219/2345
Marion April 12, 1993 1915/1923
Martin April 12, 1993 1006/0204
Nassau October 4, 1993 0689/1106
Orange April 12, 1993 4549/4202
Osceola April 12, 1993 1119/0685
Pasco April 12, 1993 3136/1287
Polk April 12, 1993 3222/1158
Putnam April 12, 1993 0623/1844
Sarasota April 12, 1993 2496/808
Seminole April 5, 1993 2565/1850
St. Johns April 12, 1993 987/067
St. Lucie April 12, 1993 0835/2713
Volusia April 12, 1993 3819/1701
Washington April 12, 1993 0258/2285
COMPOSITE EXHIBIT "B"
Page 3 of 3
Recording of Second Supplemental Indenture
County OR Book/Page
------ ------------
1. Bradford County 727/207
2. Brevard County 3660/0230
3. Charlotte County 1524/0207
4. Citrus County 1178/0736
5. Clay County 1649/1876
6. Collier County 2302/1862
7. Duval County 8585/1315
8. Hernando County 1117/1794
9. Highlands County 1364/1394
10. Hillsborough 8517/1909
11. Lake County 1507/1439
12. Lee County 2810/562
13. Marion County 2352/1536
14. Martin County 1229/0854
15. Nassau County 789/775
16. Orange County 5229/1608
17. Osceola County 1392/0528
18. Pasco County 3722/888
19. Polk County 3820/964
20. Putnam County 725/1490
21. Seminole County 3218/0322
22. St. Johns County 1231/1464
23. St. Lucie County 1069/1403
24. Volusia County 4190/2943
25. Washington County 283/40
UT
1,000
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
PER-BOOK
1,111,079
413,125
417,559
108,135
174,084
2,223,982
404,089
0
285,743
625,782
75,000
31,492
671,263
205,998
0
0
24,660
0
0
0
525,737
2,223,982
452,499
21,360
367,255
400,624
59,196
4,302
68,186
33,369
34,817
974
33,843
31,057
0
26,781
1.12
1.12
Includes $7,321 of Income from Equity Investment and $3,019 for
Distributions on Redeemable Preferred Securities of Subsidiary.
