Loan Security Documents for Electric Borrowers
Federal RegisterJul 18, 1995
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SUMMARY: The Rural Utilities Service (RUS) hereby establishes new
policies and requirements for the form of mortgage required of electric
distribution borrowers. This rule updates and clarifies the provisions
of the mortgage, ensures that security for loans made to distribution
borrowers will continue to be adequate, generally confines the scope of
the mortgage primarily to basic issues of collateral and loan security,
and supports borrower access to other credit sources.
EFFECTIVE DATE: This rule is effective August 17, 1995.
FOR FURTHER INFORMATION CONTACT: Mr. Alex M. Cockey, Jr., Deputy
Assistant Administrator--Electric, U.S. Department of Agriculture,
Rural Utilities Service, room 4037-S, Ag Box 1560, 14th Street &
Independence Avenue, SW., Washington, DC 20250-1500. Telephone: 202-
720-9547.
SUPPLEMENTARY INFORMATION: This rule has been determined to be not
significant for the purposes of Executive Order 12866, and therefore
has not been reviewed by the Office of Management and Budget (OMB). The
Administrator of RUS has determined that the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) does not apply to this rule. The Administrator
of RUS has determined that this rule will not significantly affect the
quality of the human environment as defined by the National
Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). Therefore,
this action does not require an environmental impact statement or
assessment. This rule is excluded from the scope of Executive Order
12372, Intergovernmental Consultation, which may require consultation
with State and local officials. A Notice of Final Rule titled
Department Programs and Activities Excluded from Executive Order 12372
(50 FR 47034) exempts RUS electric loans and loan guarantees from
coverage under this Order. This rule has been reviewed under Executive
Order 12778, Civil Justice Reform. This rule: (1) Will not preempt any
State or local laws, regulations, or policies, unless they present an
irreconcilable conflict with this rule; (2) Will not have any
retroactive effect; and (3) Will not require administrative proceedings
before any parties may file suit challenging the provisions of this
rule.
The program described by this rule is listed in the Catalog of
Federal Domestic Assistance Programs under number 10.850 Rural
Electrification Loans and Loan Guarantees. This catalog is available on
a subscription basis from the Superintendent of Documents, the United
States Government Printing Office, Washington, DC 20402-9325.
Information Collection and Recordkeeping Requirements
The existing recordkeeping and reporting burdens contained in this
rule were approved by the Office of Management and Budget (OMB)
pursuant to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et
seq.), under control numbers 0572-0032 and 0572-0103.
Send questions or comments regarding these burdens or any other
aspect of these collections of information, including suggestions for
reducing the burden, to the Office of Information and Regulatory
Affairs, Office of Management and Budget, NEOB, Washington, DC 20503.
Attention: Desk Officer for USDA.
Background
On September 29, 1994, at 59 FR 49594, the Rural Utilities Service
(RUS) published a proposed rule, 7 CFR 1718 Loan Security Documents for
Electric Borrowers, Subpart B Mortgage for Distribution Borrowers,
which proposed the agency's policies and requirements for mortgages
used to secure direct and guaranteed loans made to electric
distribution borrowers. The objectives of the proposed rule were to
update and clarify the provisions of the mortgage used with
distribution borrowers, to generally confine the scope of the mortgage
primarily to basic issues of collateral and loan security, to support
borrower access to other credit sources, and to continue to provide
adequate loan security. This proposal was preceded by the revision of
the agency's policies and requirements for accommodating or
subordinating the lien of the RUS mortgage, which was published in
final form in the Federal Register on October 19, 1993 at 58 FR 53835.
Comments on the proposed rule were received from 30 different
sources, including the Ad Hoc Mortgage Committee of the National Rural
Electric Cooperative Association (NRECA), the National Rural Utilities
Cooperative Finance Corporation (CFC), CoBank, several state-wide or
regional electric cooperative associations, and a number of individual
distribution and power supply borrowers.
In addition to the written comments received, RUS met, in either
separate or combined meetings, with representatives of the ad hoc NRECA
Mortgage Committee, CFC, and CoBank to discuss and answer questions
regarding specific provisions of the proposed rule, to clarify the
meaning, scope and effect of some proposed provisions, and to listen to
alternatives to certain provisions. The NRECA Mortgage Committee also
submitted additional written comments to clarify certain points in
their earlier written comments. Also, some commenters provided
additional oral comments by telephone to clarify or expand their
written comments.
All of the written and oral comments received, some of which were
conflicting, were taken into consideration in drafting the final rule.
The more important comments and issues are discussed below.
Published elsewhere in this issue of the Federal Register is a
proposed rule that sets forth proposed amendments to RUS regulations to
update the agency's policies and requirements regarding loan contracts
with distribution borrowers. These new policies and requirements are
designed to complement the new distribution mortgage and to reflect
changes in the lending program and the electric industry that have
occurred over the past several years. Readers are encouraged to review
that proposed rule in connection with the final mortgage published
today.
Phase-in of New Mortgage
Distribution borrowers receiving a loan from RUS during the
transition period between now and the date the new model loan contract
is published in final form in the Federal Register may opt to execute
the new model mortgage and the proposed model loan contract. Such
borrowers will have the further option of executing the final form of
the model loan contract after it is published in the Federal Register.
Distribution borrowers receiving a loan from RUS during the period
after publication of the final form of the new model loan contract but
before its effective date may opt for the final forms of both the model
loan contract and the model mortgage. If there are other co-mortgagees
on the borrower's existing mortgage, which there are in most cases, the
borrower would have to obtain the approval of these co-mortgagees
before executing a new mortgage.
[[Page 36883]]
Other borrowers not obtaining a new loan from RUS could request
that a new mortgage and loan contract be executed, for example, in
connection with a lien accommodation request or if the borrower is
trying to expand its access to future private financing. RUS will
attempt to honor these requests, but may be constrained by time and
staff limitations.
After the effective date of the new model loan contract, all
distribution borrowers receiving a loan or loan guarantee from RUS will
be required to execute the new model forms of the mortgage and loan
contract. The proposed mortgage rule had proposed that borrowers
receiving a lien accommodation after the effective date of the new
mortgage would have the option of staying with their existing mortgage.
That proposed provision was not intended to give borrowers the absolute
right to stay with their existing mortgage for all time, even after
both the new mortgage and new RUS loan contract have been finalized. In
the proposed rule for the RUS loan contract, published elsewhere in
this issue of the Federal Register, borrowers receiving a lien
accommodation or other financial assistance from RUS after the
effective date of the new loan contract may on a case-by-case basis be
required by RUS to execute the new forms of the loan documents. Again,
before executing a new mortgage, borrowers may have to obtain the
approval of any other lenders secured under their existing mortgage.
Mortgage Lien; Excepted Property; Permitted Encumbrances
Both CFC and CoBank recommended that the lien of the new mortgage,
like that of the existing mortgage, should be more inclusive and cover
such assets as cash, stocks, other securities, computer records, and
other property essential to the operation of the utility system. This
recommendation has been accepted and the changes included in the final
mortgage.
One commenter recommended that emission allowances not be covered
by the mortgage lien because that would inhibit free market trading.
This recommendation was not accepted. Emission allowances represent a
very important element of collateral since they are required for
generation and because of their potential market value. RUS does not
believe that having a lien on Emission allowances will materially
inhibit a borrower's ability to obtain fair market value for these
assets. Borrowers should be able to take the necessary steps prior to
the sale of the allowances to obtain mortgagee approval to release the
lien. Moreover, Mortgagee approval of such sales would not be required
if the conditions of the mortgage are met with regard to limitations on
transfers of property.
Section 1.01 Definitions
A borrower association stated that accounting requirements should
be decided by the mortgagee with the majority of the outstanding debt.
This recommendation has not been adopted since it is in the interests
of all mortgagees to have continuity in accounting requirements and not
have the standards changed depending on which mortgagee holds a
majority of the outstanding debt. The final mortgage retains the
provision that accounting requirements will be those promulgated by RUS
so long as RUS is a mortgagee, and if RUS ceases to be a mortgagee, the
requirements will be based on generally accepted accounting principles.
One commenter recommended that the term ``regulatory created
assets'', as used in the definitions of equity and total assets, should
be defined. This has been done.
The Rate Covenant
The proposed rate covenant and proposed section 2.01 on issuing
additional notes without mortgagee approval received the greatest
number of comments. The proposed rate covenant required a borrower to
design and implement rates sufficient to maintain on an annual basis a
Modified TIER and Modified DSC each equal to at least 1.35. If the
borrower failed to achieve either ratio based on the average of the two
best years out of the past three years, the borrower would be required
to submit a plan of remedial action to the mortgagees for approval, and
then implement the approved plan.
There was substantial disagreement among the commenters regarding
the rate covenant, including disagreement among RUS, CFC, CoBank, and
NRECA. CFC recommended that the rate covenant be deleted from the
mortgage and put in the agency's loan contract (and presumably in the
loan contracts of other secured lenders). Since it appeared impossible
to reach full agreement among the three principal lenders, RUS decided
to shift the rate covenant from the mortgage to its proposed new loan
contract, which is published for comment elsewhere in this issue of the
Federal Register.
Most comments on the rate covenant focused on the formulation or
definition of Modified TIER and Modified DSC, and whether or not both
ratios are needed. Modified TIER and Modified DSC were defined the same
as the standard TIER and DSC contained in existing distribution
mortgages, with the important exception that allocations of generation
and transmission capital credits and other capital credits were
excluded from margins in calculating the ratios. The intent was to more
closely reflect the current revenues and cash flows of the borrower's
utility operations than do the standard TIER and DSC, and thus better
reflect a borrower's ability to meet expenses currently and over time.
CoBank generally supported the formulation of the proposed coverage
ratios, but recommended that cash received from retirement of capital
credits, including patronage refunds, be included in margins when
measuring past performance. CoBank also argued that certain of the
proposed procedures in the event the borrower failed to achieve the
ratios weakened the covenant and should be deleted. CFC supported the
idea of deleting capital credit allocations, but recommended a
substantially different formulation of Modified DSC and that Modified
DSC was sufficient by itself.
NRECA indicated that they recognized that many private lenders were
moving toward more cash-flow based financial tests. However, NRECA
opposed the use of Modified TIER and Modified DSC set at 1.35 (the
level specified in CFC's indenture for its collateral trust bonds, as
well as in recent mortgages executed by CFC and CoBank) because of
concerns that it would be difficult for some borrowers to meet the
test. NRECA further recommended that if Modified TIER and Modified DSC
were adopted, they should at minimum be phased in over a number of
years and cash retirements of capital credits should be included in
calculating the ratios.
A number of power supply borrowers and the distribution members of
power supply borrowers opposed the exclusion of allocations of
generation and transmission capital credits in calculating the coverage
ratios because they believed it would put pressure on the G&T to lower
the rates charged for power and thus reduce the G&T's cash flow and
weaken its financial condition. They argued that if the distribution
members of a G&T were not able to include the capital credits allocated
to them by the G&T in calculating their TIER and DSC ratios, the
members would put additional pressure on the G&T to operate on a even
thinner margin that could jeopardize the financial viability of the
G&T. Some G&Ts and some distribution members of G&Ts also argued that
using Modified TIER and Modified DSC set at 1.35 would force some
distribution systems
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to raise rates, which would weaken the financial viability of both the
members and the G&Ts. One regional borrower association supported the
use of both Modified TIER and Modified DSC.
Given the concerns and issues raised, RUS has decided to shift the
rate covenant from the mortgage to RUS' proposed new loan contract for
distribution borrowers, to retain the existing standard TIER and DSC
set at the existing minimum levels of 1.5 and 1.25 respectively, and to
add an Operating TIER and Operating DSC, both set at a minimum of 1.1
for the borrower's electric utility operations. Adding Operating TIER
(OTIER) and Operating DSC (ODSC) set at 1.1 would achieve the original
objective of excluding major non-cash margins from the coverage tests,
while also requiring that borrowers at least break even, with a small
margin for error, on their primary business. Operating TIER and
Operating DSC would be tested retrospectively using the same averaging
of the best two out of three years as is used for standard TIER and
DSC.
Since a borrower's electric utility business accounts for most of
the financing provided by RUS, is the main source of revenue for
repaying the loans, and provides the primary security for the loans,
RUS believes it is reasonable to expect this business to be financially
viable and not dependent on other sources of income to cover business
expenses. Retaining the existing standard TIER and DSC requirements
will help ensure that the borrower's overall operations are financially
sound. These existing requirements appear to be widely accepted by
borrowers, and no formal or informal complaints were received that they
are too demanding. Based on performance data as of the end of 1993,
adding OTIER and ODSC at 1.1 would affect only 18 distribution
borrowers who had met the standard TIER and DSC requirements based on
the average of the best two out of three years.
RUS also believes it is important to retain both TIER and DSC as
the coverage tests, and not rely solely on DSC. Given the fact that the
amortization of principal for virtually all debt owed by borrowers is
heavily back-end loaded and that depreciation charges substantially
exceed principal payments now and for the foreseeable future, relying
solely on Modified DSC set at 1.35, regardless of whether RUS' or CFC's
version of Modified DSC is used, would allow many distribution
borrowers to operate at a loss and still meet the coverage ratio. TIER,
on the other hand, provided that it is set at least 1.0, requires a
borrower to at least break even, either for its overall operations in
the case of standard TIER, or its electric utility operations in the
case of Operating TIER. RUS does not believe it would be in the
interests of the rural electrification program, either from the
standpoint of loan security and financial soundness or public support,
to rely on a standard that would allow a large number of borrowers to
operate at a loss.
Comments were also received on the provision which would have
prohibited borrowers from offering any services free of charge. Several
commenters suggested that this restriction be limited to electric power
and energy so as not be prevent borrowers from participating in
legitimate community service activities. RUS has adopted this change
and has included it in its proposed loan contract.
Section 2.01 Additional Notes Without Mortgagee Approval
Unlike the existing mortgage where the issuance of any debt secured
by the mortgage must be approved in advance by RUS, section 2.01 of the
proposed mortgage would authorize a borrower to issue additional
secured notes without the approval of RUS or the other mortgagees if
the following criteria are met:
The borrower achieved a Modified TIER and Modified DSC of
at least 1.35 in each of the two most recent years after including the
incremental interest expense of the new debt.
The borrower's equity is equal to at least 27 percent of
total assets, after including the effect of the addition to plant.
The borrower has a ratio of net utility plant to long term
debt of at least 1.1, after including the effect of the new debt and
the addition to plant.
The maturity of the loan is less than the weighted average
remaining life of the assets financed.
Loan maturity is not less than 5 years.
The loan is amortized at a rate not less than the rate
obtained under level payment of principal and interest.
Outstanding secured debt for water and sewer systems,
telecommunications systems, natural gas distribution systems, and solid
waste disposal systems would be not more than 20 percent of total
outstanding secured debt after issuing the debt.
Comments on the use of Modified TIER and Modified DSC and the
definition of these ratios were similar to those regarding the rate
covenant. In addition, several commenters opposed the inclusion of the
incremental interest expense of the new debt when calculating the
ratio, mainly because of possible problems of accurately reflecting the
interest cost of new debt for variable rate loans. While RUS believes
inclusion of incremental interest expense is sound conceptually, it
recognizes the potential problems in implementing the concept and thus
has decided not to include it in the final rule.
For the reasons explained with respect to the rate covenant, RUS
believes it would be unwise to rely on Modified DSC by itself set at a
1.35 level. We also believe it wouldn't be desirable to have three
different formulations of the coverage ratios: standard TIER and DSC
and Operating TIER and DSC in the rate covenant, and Modified TIER and
DSC in section 2.01 of the mortgage. There appears to be no particular
advantage of adding a third formulation in section 2.01, and having
three different formulations could cause administrative and
communication problems.
Standard TIER and DSC have proven to be workable over the past 25
years and acceptable to nearly all borrowers. Therefore, RUS has
decided to use in section 2.01 a standard TIER or 1.5 and standard DSC
of 1.25, the levels currently required in the existing rate covenants
of distribution borrowers. Borrowers meeting these levels in each of
the two years immediately preceding the issuance of the debt would meet
the test. The incremental interest expense of the new debt would not be
included in calculating the ratios.
For the sake of consistency with the proposed RUS rate covenant, it
could be argued that a borrower should also be required to meet an
Operating TIER and Operating DSC of at least 1.1 in each of the two
most recent years to issue debt under section 2.01 of the mortgage.
While that argument can be made, RUS believes that so long as the
borrower is required in its rate covenant to operate so as to meet the
standard TIER and DSC ratios and the Operating TIER and DSC ratios on
an ongoing basis, it is not necessary to also include Operating TIER
and DSC in section 2.01 of the mortgage. Having only the two ratios
rather than all four would also be responsive to the concerns raised by
CFC, NRECA, and some others about the tests being too numerous and too
complicated. Other lenders, it should be noted, may include additional
tests in their respective loan contracts if they do not believe that
the standard TIER and DSC tests are adequate.
Comments were mixed regarding the equity and net utility plant
tests. Several commenters argued that the tests were duplicative and
only one was needed.
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CFC favored deleting the net utility plant test and relying on equity,
set at 20 percent of total assets, after issuance of the debt. CoBank
and NRECA favored using a net utility plant test over one based on
equity. One regional borrower association also supported the use of a
net utility plant test. Another regional borrower association indicated
general support for the two tests.
RUS recognized when it proposed these two tests that they overlap
to a considerable degree. However, in the interest of establishing a
collateralization test that is no higher than necessary to preserve
reasonably adequate loan security, RUS believes it is better to use two
admittedly overlapping tests, each set at minimal levels, than to use
either test by itself set at a higher level. The net utility plant to
long term debt ratio focuses on the primary collateral for the loans,
and approximates a bondable additions test commonly used in utility
indentures. The equity test reflects the broader operations of the
borrower and focuses on the overall equity cushion available as
security for the loans. Each test has its advantages and limitations,
and when used together the advantages of one test tends to offset the
limitations of the other.
For these reasons RUS has decided to retain both the equity and the
net utility/long-term debt plant tests. The net utility plant/long-term
debt test has been reduced to a level of 1.0 from 1.1 in the proposed
rule.
Based on performance data as of the end of 1993, up to 64 percent
of distribution borrowers would have qualified under the proposed
criteria of Modified TIER and Modified DSC at 1.35 (including
incremental interest expense), equity at 27 percent, and net utility
plant to long-term debt at 1.1. Under the criteria included in the
final rule (standard TIER of 1.5, standard DSC of 1.25, equity of 27
percent, and net utility plant to long-term debt of 1.0) the number of
borrowers qualifying increases to 71 percent.
RUS believes that these criteria represent a reasonable compromise
between RUS' legitimate need (and statutorily imposed requirement) to
maintain reasonably adequate loan security, and the borrowers' needs
for financial flexibility. This issue, however, is not a we versus them
proposition. RUS believes that the tests for issuing secured debt
without mortgagee approval must be reasonably rigorous to attract other
lenders and expand the financing alternatives available to borrowers.
Any lender not familiar with rural electric systems will be looking for
reasonably rigorous financial covenants to compensate for the uncertain
financial risks of lending to unfamiliar borrowers.
Comments were also received on the other four proposed conditions
for issuing debt under section 2.01. Most of those who commented argued
that three of the four conditions (the two dealing with loan maturity
and the other with a minimum loan amortization rate) were unnecessary
and unduly cluttered the section. Some also suggested that such
conditions be put in the RUS loan contract if they were deemed
necessary to retain.
RUS does believe it is important to retain these conditions and has
shifted them to our proposed loan contract. Restricting loan maturity
to the useful life of the asset financed and requiring a minimum rate
of loan amortization (albeit a very minimal rate) is important to
ensure that the collateral for loans remains adequate. Limiting secured
lending to loans of at least 5 years will preserve the security of the
mortgage for lenders committed to providing permanent long-term
financing for rural electrification. Without these conditions in its
loan contract, RUS believes it would be necessary to have more
restrictive tests in section 2.01 of the mortgage.
As to the fourth condition, which limited the issuance of debt
under section 2.01 for the four community infrastructure purposes cited
above, NRECA recommended that the limitation be dropped, and CFC
recommended that the limitation be based on 50 percent of the
borrower's equity rather than 20 percent of the outstanding long-term
debt. Since these activities would be new to nearly all borrowers, RUS
believes some limitation ought to be placed on a borrower's ability to
issue secured debt for these activities without the approval of the
mortgagees. CFC's recommendation that the limitation be based on equity
has been adopted, but RUS believes it is more prudent to set the
limitation at 30 percent of equity rather than 50 percent. For the
typical distribution borrower, 30 percent of equity, which is
numerically equal to 26 percent of outstanding long-term debt, would
provide greater latitude to the borrower than the original proposal.
CFC also recommended that there should be no other limitations on
the purposes that can be financed under section 2.01 of the mortgage.
RUS disagrees and believes that secured debt issued under 2.01 without
mortgagee approval should be limited to property additions, which
essentially means property chargeable to the mortgagor's utility plant
accounts and used or useful in the mortgagor's utility business. The
mortgage is intended to provide security for loans made to rural
utility systems primarily for utility purposes, and any security
granted for loans to finance property or purposes that are outside of
the utility business should be subject to the approval of the
mortgagees under section 2.03 of the mortgage. This position seems
consistent with the position taken by CFC in its own 100 percent
mortgage, wherein secured debt issued without the approval of the
mortgagee is limited such that at least 95 percent of the proceeds of
the loan must be for the purpose of acquiring or constructing new or
replacement electric utility or general plant.
Other changes were made to section 2.01. In the proposed rule,
financing under the section was limited to ``mortgageable property.''
But mortgageable property was defined essentially as ``property
additions.'' The distinction between the two terms was based mainly on
expositional use of the terms. For simplicity and clarity, the term
``mortgageable property'' has be dropped from the mortgage in favor of
using ``property additions''. This change has no effect on the property
eligible for financing under section 2.01.
One commenter asked whether debt to reimburse general funds or to
replace interim financing was eligible for issuance under section 2.01,
or whether the section could be used only to finance plant added after
and as a direct result of the debt issuance. The intent was, and
remains, to allow such debt under the section so long as the general
funds and interim financing were used to finance property additions.
This question lead to the practical question of how the mortgagor and
the mortgagees will be able to determine that the debt was in fact
being issued to finance property additions, since plant added 10 or 20
years ago or plant which may not be added until 10 or 20 years in the
future might be claimed as the basis for issuing the debt.
In response to these questions, changes were made to limit
financing under section 2.01 to property additions acquired or whose
construction was completed not more than 5 years prior to the issuance
of the additional notes and property additions acquired or whose
construction is started and/or completed not more than 4 years after
issuance of the additional notes, so long as such property additions
were not financed by other debt secured under the mortgage at the time
the additional notes are issued.
Also in section 2.01, the pro forma test for net utility plant/
long-term debt has been revised to clarify and simplify
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calculation. In the proposed rule it was implicitly assumed that each
issuance of debt would entail additions to plant. However, in the case
of reimbursement of general funds or replacement of interim financing,
there many be little or no plant actually added as a result of issuing
the secured debt. In other cases, there would be uncertainty about
whether the proposed plant additions would actually materialize in
every instance. For these reasons, the pro forma net utility plant/
long-term debt test has been changed and clarified. Namely, the
principal amount of the additional debt would be added to the then
outstanding long-term debt, but no adjustment would be made for any
additional plant that may actually result from the debt issuance. For
this reason, the required ratio was reduced from 1.1 to 1.0 to
compensate for those instances where plant may be added as a result of
the debt issuance.
Two other clarifications were made to section 2.01. The date of
issuance of additional notes has been defined as the date the notes are
executed. Also, for purposes of calculating the pro forma ratios, it
has been specified that the most recently available end-of-month data
preceding debt issuance shall be used for total long-term debt and
total assets before debt issuance and for equity and net utility plant.
The data used, however, may not be for a month ending more than 180
days prior to debt issuance.
Section 2.02 Refinancing Without Mortgagee Approval
Unlike the existing mortgage where any refinancing loans to be
secured under the mortgage must be approved in advance by RUS, section
2.02 of the proposed mortgage would authorize a borrower to issue
secured refinancing notes without the approval of RUS or the other
mortgagees if the following tests are met:
The principal amount of the refinancing loan does not
exceed 103.5 percent of the loan principal being refinanced.
The weighted average life of the refinancing loan does not
exceed the remaining weighted average life of the loan being
refinanced.
The present value of the cost of the refinancing,
including all transaction costs and any required investments in the
lender, is less than the present value of the cost of the loan being
refinanced.
CFC commented that none of the three tests are needed. NRECA argued
that the net present value of cost test is sufficient by itself and
thus the other two are not necessary. CoBank supported the net present
value of costs test, but did not comment on the other two tests. CoBank
argued that documentation and certification of the tests to the
mortgagees is needed, as well as explicit guidance on calculating net
present value of costs. One borrower association indicated that it
supported the changes proposed in section 2.02 in comparison with the
present mortgage.
In view of these comments, RUS has decided to retain in section
2.02 the limitation on the principal amount of the refinancing loan, to
shift the limitation on the weighted average life of the refinancing
loan to the agency's proposed new loan contract, and to drop the net
present value of costs test. Moreover, the limitation on the principal
of the refinancing loan has been increased from 103.5 percent to 105
percent of the loan refinanced, which is the same limitation contained
in recent 100 percent mortgages executed by CFC and CoBank.
RUS believes the limitations on the weighted average life and
principal amount of the refinancing loan via-a-vis the loan refinanced
are reasonable and provide important safeguards. The limitation on
weighted average life will help ensure that refinancing, or repeated
refinancings, will not extend the borrower's debt beyond the useful
life and security value of the collateral used to secure the original
loan. Limiting the principal of the refinancing loan to 105 percent of
the loan principal refinanced is designed to prevent the accumulation
of additional debt without the addition of additional collateral. The
purpose of section 2.02 is to allow for existing secured debt to be
refinanced, not to provide for the issuance of additional debt or
extension of existing debt.
The net present value of costs test was intended to address the
comparative costs of the refinancing loan and the loan to be
refinanced, which is a different matter than that addressed by the
other two tests. However, after reviewing the comments and discussing
the question with co-mortgagees and other commenters, RUS has concluded
that it would not be possible to define a methodology for calculating
the net present value of costs that would be entirely routine and
objective and not dependent on judgment calls on how to deal with
unusual cases. For example, determining interest costs alone is
difficult when the rate is variable, and certain assumptions must be
made that may not be appropriate for all cases. While such judgments
can be made for case-by-case approvals, the tests in section 2.02 need
to be entirely generic and routine.
Section 2.05 Form of Supplemental Mortgage
The proposed mortgage indicated that a simple form of mortgage
supplement needed to be added in order to extend the lien of the
mortgage to new lenders. The form included in the final mortgage was
drafted based, in part, on a form suggested by a co-mortgagee.
Section 3.04 Environmental Obligations; Indemnification of Mortgagees
CFC suggested that this provision be moved to the RUS loan
contract, and that the 3 days to notify mortgagees of environmental
liabilities was too short. CoBank recommended that the provision remain
in the mortgage, that the mortgagees should be authorized to examine
and test borrowers' premises at the borrowers' expense, and that
indemnification of mortgagees against environmental liabilities should
continue after satisfaction and release of the mortgage. NRECA stated
that the provision was (1) unnecessary since the borrower is required
in section 3.09 to comply with all laws, including environmental laws,
(2) unworkable since it required compliance with all environmental laws
rather than all ``material'' environmental laws, and (3) if not
eliminated altogether, the provision should be moved to the RUS loan
contract.
RUS believes the provision should remain in the mortgage itself
given the importance of this issue to all lenders and the virtual
explosion of environmental suits and potential liabilities in the past
few years. RUS agrees that is reasonable to give borrowers more time to
notify mortgagees of potential or actual environmental liabilities, and
has increased the time allowed to 10 days. RUS agrees that the
indemnification of mortgagees against environmental and other
liabilities stemming from the mortgaged property should survive the
lien of the mortgage, and has made this clear in the final language.
RUS does not agree that since section 3.09 requires borrowers to
comply with all laws that section 3.04 is not needed. Section 3.09 does
not address indemnification of mortgagees against environmental
liabilities. RUS also does not agree that the requirement should be
that borrowers need comply only with ``material'' environmental laws,
since this might imply that RUS was advising borrowers that certain
environmental laws are not themselves material.
RUS agrees that individual lenders in specific cases may want the
right to test a borrower's property for environmental
[[Page 36887]]
hazards at the expense of the borrower. RUS believes, however, that it
would be more appropriate to include such a provision in individual
loan contracts.
Section 3.08 Restrictions on Additional Permitted Debt
Comments were received regarding two of the proposed restrictions
on additional permitted debt: restricting unsecured debt to 15 percent
of the borrower's net utility plant, and restricting any debt assumed
as part of an acquisition to 90 percent of the net utility plant of the
acquired company. Those who opposed restricting unsecured debt believed
it was unnecessary and could limit interim construction financing. One
commenter said the restriction was unnecessary if borrowers were
required to maintain a minimum equity requirement. On the other hand,
one regional borrower association said that: ``The cooperatives applaud
the amendments [proposals] regarding restrictions on additional
permitted debt. The amendments make the requirements less restrictive
and more conducive to today's utility environment.''
In light of these comments, RUS has decided to move the restriction
on issuing unsecured debt without mortgagee approval to the RUS loan
contract and apply it only to borrowers with equity of less than 30
percent of total assets. Currently, only 9 percent of distribution
borrowers have less than 30 percent equity and would thus be subject to
this restriction.
The restriction limiting debt assumed through acquisitions to 90
percent of net utility plant of the acquired company (which was
intended to mirror the test in sec. 2.01) was been dropped. Such debt
would have to comply with Article II of the mortgage in order to be
secured, and thus the proposed restriction is not needed.
Section 3.10 Limitations on Consolidations and Mergers
One commenter recommended that consolidations that don't meet the
required financial ratios should have the opportunity to be approved by
mortgagees on a case-by-case basis. This in fact is the intention of
section 3.10 and language has been added to make that clear. Moreover,
the required financial ratios have been revised consistent with the
changes to the financial ratios in section 2.01 of the mortgage.
Section 3.12 Maintenance of Mortgaged Property
Most of the comments on this section focused on the professional
engineer's certification as to the condition of the borrower's
property, which the mortgagees could require not more than once every 3
years. Some commenters said the certificate need not come from an
independent professional engineer, but simply a professional engineer
acceptable to the mortgagees. RUS has adopted this change.
One mortgagee argued that the proposed second certification and
related remedial plan and process should be dropped since they
detracted from the clear intent of the section and could weaken the
provision. RUS agrees and has dropped these provisions. The section has
also been modified to make it clear that the mortgagees may direct the
mortgagor to make needed improvements in the maintenance and repair of
the borrower's system based on any information available to the
mortgagees, including the engineer's certification. The suggestion that
``good utility practice'' be changed to ``prudent utility practice''
has also been adopted.
Section 3.16 Limitations on Dividends, Patronage Refunds and Other
Cash Distributions
CFC recommended that this provision be moved to the RUS loan
contract. CoBank recommended that no restrictions be placed on
distributions at or above 30 percent equity if the borrower is not in
default, and that no distributions be allowed below 30 percent equity
(after distribution), except for membership fees upon termination of
membership. NRECA stated that the proposed provision (which was
essentially the same as that in the existing mortgage) was too
complicated, and that it should be simplified by having no restrictions
on distributions above 27 percent equity (after distribution), and
presumably allowing distributions below 27 percent equity only in the
case of membership terminations. One borrower association proposed a
fairly complicated scheme whereby different proportions of prior year's
margins could be distributed depending on the level of borrower equity.
Based on these comments, RUS has decided to move this provision to
its loan contract. In the proposed loan contract, the language of the
provision would be simplified and greater latitude would be granted.
Borrowers could make distributions without RUS approval provided that
the borrower was not in default and equity after the distribution was
equal to at least 30 percent of total assets (versus 40 percent in the
existing mortgage). Below 30 percent equity, borrowers not in default
could make distributions to the estates of deceased persons without RUS
approval. Also, between 20 percent and 30 percent equity (after
distribution) borrowers could distribute up to 25 percent of last
year's margins, including any distributions for estates. These changes
would provide substantially greater latitude to most borrowers since 91
percent of distribution borrowers have equity of 30 percent or more.
Section 4.02 Acceleration of Maturity; Rescission and Annulment
Several comments were received suggesting clarifications or
modifications of certain aspects of this section. Based on these
comments, the following clarifications or modifications have been made:
A mortgagee who accelerates a note for a non-payment default (not
just a payment default) must notify the other mortgagees.
A mortgagee who becomes aware that another mortgagee has
accelerated its notes for either a payment or a non-payment default may
in turn accelerate its own notes.
Two additional conditions have been added to those that must be met
before mortgagees representing at least 80 percent of the outstanding
secured debt may annul an acceleration by another mortgagee: all
reasonable expenses of the mortgagee in connection with the
acceleration must have been paid, and the annulment must be made before
proceedings to foreclose the lien of the mortgage have commenced.
Opinions of Borrower's Counsel
Several comments were received concerning the number and nature of
legal opinions called for in the proposed mortgage. The final mortgage
published today requires fewer opinions, and the scope of some of the
opinions has been narrowed in response to those comments. The topic of
legal opinions from borrowers' counsels has been the subject of robust
debate within the legal profession for several years, with no clear
consensus emerging. It is doubtful that all of these concerns can be
addressed to the satisfaction of the entire legal community.
List of Subjects in 7 CFR Part 1718
Administrative practice and procedure, Electric power, Electric
utilities, Loan programs--energy, Loan security documents, Reporting
and recordkeeping requirements, Rural areas.
For the reasons set out in the preamble, REA amends chapter XVII of
title 7 of the Code of Federal Regulations by adding a new part 1718 to
read as follows:
[[Page 36888]]
PART 1718--LOAN SECURITY DOCUMENTS FOR ELECTRIC BORROWERS
Subpart A--General
Sec.
1718.1-1718.49 [Reserved]
Subpart B--Mortgage for Distribution Borrowers
1718.50 Definitions.
1718.51 Policy.
1718.52 Existing mortgages.
1718.53 Rights of other mortgagees.
1718.54 Availability of model mortgage.
Appendix A to Subpart B of Part 1718--Model Form of Mortgage for
Electric Distribution Borrowers
Authority: 7 U.S.C. 901-950b; Pub. L. 103-354, 108 Stat. 3178 (7
U.S.C. 6941 et seq.).
Subpart A--General
Secs. 1718.1-1718.49 [Reserved]
Subpart B--Mortgage for Distribution Borrowers
Sec. 1718.50 Definitions.
Unless otherwise indicated, terms used in this subpart are defined
as set forth in 7 CFR 1710.2.
Sec. 1718.51 Policy.
(a) Adequate loan security must be provided for loans made or
guaranteed by RUS. The loans are required to be secured by a first
mortgage lien on most of the borrower's assets substantially in the
form set forth in Appendix A of this subpart. At the discretion of RUS,
this model form of mortgage may be adapted to satisfy different legal
requirements among the states and individual differences in lending
circumstances, provided that such adaptations are consistent with the
policies set forth in this subpart.
(b) Some borrowers, such as certain public power districts, may not
be able to provide security in the form of a first mortgage lien on
their assets. In these cases RUS will consider accepting other forms of
security, such as resolutions and pledges of revenues.
(c) RUS may require supplemental and amending mortgages to protect
its security, or in connection with additional loans.
(d) RUS may also require such other security instruments (such as
loan contracts, security agreements, financing statements, guarantees,
and pledges) as it deems appropriate.
(e) All distribution borrowers that receive a loan or loan
guarantee from RUS on or after August 17, 1995 will be required to
enter into a mortgage with RUS that meets the requirements of this
subpart. The concurrence of any other lenders secured under the
borrower's existing mortgage may be required before the borrower can
enter into a new mortgage.
Sec. 1718.52 Existing mortgages.
Nothing contained in this subpart amends, invalidates, terminates
or rescinds any existing mortgage entered into between the borrower and
RUS and any other mortgagees.
Sec. 1718.53 Rights of other mortgagees.
Nothing contained in this subpart is intended to alter or affect
any other mortgagee's rights under an existing mortgage.
Sec. 1718.54 Availability of model mortgage.
Single copies of the model mortgage (RUS Informational Publication
1718 B) are available from the Administrative Services Division, Rural
Utilities Service, United States Department of Agriculture, Washington,
DC 20250-1500. This document may be reproduced.
Appendix A to Subpart B of Part 1718--Model Form of Mortgage for
Electric Distribution Borrowers
RESTATED MORTGAGE AND SECURITY AGREEMENT Made By And Between
----------------------------------------------------------------------
Mortgagor
and UNITED STATES OF AMERICA and
----------------------------------------------------------------------
MORTGAGEE
Dated as of------------------------------------------------------------
THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY
THIS INSTRUMENT CONTAINS FUTURE ADVANCE PROVISIONS
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS
TABLE OF CONTENTS
GRANTING CLAUSES
FIRST
SECOND
THIRD
FOURTH
EXCEPTED PROPERTY
HABENDUM
ARTICLE I--DEFINITIONS & OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01 Definitions
SECTION 1.02 General Rules of Construction
SECTION 1.03 Special Rules of Construction if RUS is a Mortgagee
SECTION 1.04 Governing Law
SECTION 1.05 Notices
ARTICLE II
ADDITIONAL NOTES
SECTION 2.01 Additional Notes
SECTION 2.02 Refunding or Refinancing Notes
SECTION 2.03 Other Additional Notes
SECTION 2.04 Additional Lenders Entitled to the Benefits of This
Mortgage
SECTION 2.05 Form of Supplemental Mortgage
ARTICLE III--PARTICULAR COVENANTS OF THE MORTGAGOR
SECTION 3.01 Payment of Debt Service on Notes
SECTION 3.02 Warranty of Title
SECTION 3.03 After-Acquired Property; Further Assurances: Recording
SECTION 3.04 Environmental Requirements and Indemnity
SECTION 3.05 Payment of Taxes
SECTION 3.06 Authority to Execute and Deliver Notes, Loan
Agreements and Mortgages; All Action Taken; Enforceable Obligations
SECTION 3.07 Restrictions on Further Encumbrances on Property
SECTION 3.08 Restrictions on Additional Permitted Debt
SECTION 3.09 Preservation of Corporate Existence and Franchises
SECTION 3.10 Limitations on Consolidations and Mergers
SECTION 3.11 Limitations on Transfers of Property
SECTION 3.12 Maintenance of Mortgaged Property
SECTION 3.13 Insurance; Restoration of Damaged Mortgaged Property
SECTION 3.14 Mortgagee Right to Expend Money to Protect Mortgaged
Property
SECTION 3.15 Time Extensions for Payment of Notes
SECTION 3.16 Application of Proceeds from Condemnation
SECTION 3.17 Compliance with Loan Agreements; Notice of Amendments
to and Defaults under Loan Agreements
SECTION 3.18 Rights of Way, etc., Necessary in Business
SECTION 3.19 Limitations on Providing Free Electric Services
SECTION 3.20 Keeping Books; Inspection by Mortgagee
ARTICLE IV--EVENTS OF DEFAULT AND REMEDIES
SECTION 4.01 Events of Default
SECTION 4.02 Acceleration of Maturity; Rescission and Annulment
SECTION 4.03 Remedies of Mortgagees
SECTION 4.04 Application of Proceeds from Remedial Actions
SECTION 4.05 Remedies Cumulative; No Election
SECTION 4.06 Waiver of Appraisement Rights, Marshaling of Assets
Not Required
SECTION 4.07 Notice of Default
ARTICLE V--POSSESSION UNTIL DEFAULT--DEFEASANCE CLAUSE
SECTION 5.01 Possession Until Default
SECTION 5.02 Defeasance
SECTION 5.03 Special Defeasance
ARTICLE VI--MISCELLANEOUS
SECTION 6.01 Property Deemed Real Property
SECTION 6.02 Mortgage to Bind and Benefit Successors and Assigns
SECTION 6.03 Headings
SECTION 6.04 Severability Clause
[[Page 36889]]
SECTION 6.05 Mortgage Deemed Security Agreement
SECTION 6.06 Indemnification by Mortgagor of Mortgagees
Schedule A
Schedule B
Schedule C
Exhibit A--Manager's Certificate
Exhibit B--Form of Supplemental Mortgage
Supplemental Mortgage Schedule A--Maximum Debt Limit and Other
Information
Supplemental Mortgage Schedule B--Property Schedule
Supplemental Mortgage Schedule C--Excepted Property
RESTATED MORTGAGE AND SECURITY AGREEMENT, dated as of __________
19____, (hereinafter sometimes called this ``Mortgage'') is made by
and between
----------------------------------------------------------------------
(hereinafter called the ``Mortgagor''), a corporation existing under
the laws of the State of __________, and the UNITED STATES OF
AMERICA acting by and through the Administrator of the Rural
Utilities Service (hereinafter called the ``Government''),
__________ {Supplemental Lender}, (hereinafter called
``__________'') a __________ existing under the laws of __________,
and is intended to confer rights and benefits on both the Government
and __________ as well as any and all other lenders pursuant to
Article II of this Mortgage that enter into a supplemental mortgage
in accordance with Section [2.04] of Article II hereof (the
Government and any such other lenders being herein sometimes
collectively referred to as the ``Mortgagees'').
RECITALS
WHEREAS, the Mortgagor, the Government and __________ are
parties to that certain __________ Mortgage and Security Agreement
dated as of __________, 19____, as supplemented, amended or restated
(the ``Original Mortgage'' identified in Schedule ``A'' of this
Mortgage) originally entered into between the Mortgagor, the
Government acting by and through the Administrator of the Rural
Electrification Administration, the predecessor of RUS, and
__________;
WHEREAS, the Mortgagor deems it necessary to borrow money for
its corporate purposes and to issue its promissory notes and other
debt obligations therefor from time to time in one or more series,
and to mortgage and pledge its property hereinafter described or
mentioned to secure the payment of the same;
WHEREAS, the Mortgagor desires to enter into this Mortgage
pursuant to which all secured debt of the Mortgagor hereunder shall
be secured on parity;
WHEREAS, this Mortgage restates and consolidates the Original
Mortgage while preserving the priority of the Lien under the
Original Mortgage securing the payment of Mortgagor's outstanding
obligations secured under the Original Mortgage, which indebtedness
is described more particularly by listing the Original Notes in
Schedule ``A'' hereto; and
WHEREAS, all acts necessary to make this Mortgage a valid and
binding legal instrument for the security of such notes and
obligations, subject to the terms of this Mortgage, have been in all
respects duly authorized;
NOW, THEREFORE, THIS MORTGAGE WITNESSETH: That to secure the
payment of the principal of (and premium, if any) and interest on
the Original Notes and all Notes issued hereunder according to their
tenor and effect, and the performance of all provisions therein and
herein contained, and in consideration of the covenants herein
contained and the purchase or guarantee of Notes by the guarantors
or holders thereof, the Mortgagor has mortgaged, pledged and granted
a continuing security interest in, and by these presents does hereby
grant, bargain, sell, alienate, remise, release, convey, assign,
transfer, hypothecate, pledge, set over and confirm, pledge, and
grant a continuing security interest and lien in for the purposes
hereinafter expressed [other language may be required under various
state laws], unto the Mortgagees all property, rights, privileges
and franchises of the Mortgagor of every kind and description, real,
personal or mixed, tangible and intangible, of the kind or nature
specifically mentioned herein OR ANY OTHER KIND OR NATURE, except
any Excepted Property, now owned or hereafter acquired by the
Mortgagor (by purchase, consolidation, merger, donation,
construction, erection or in any other way) wherever located,
including (without limitation) all and singular the following:
GRANTING CLAUSE FIRST
A. all of those fee and leasehold interests in real property set
forth in Schedule ``B'' hereto, subject in each case to those
matters set forth in such Schedule;
B. all of the Mortgagor's interest in fixtures, easements,
permits, licenses and rights-of-way comprising real property, and
all other interests in real property, comprising any portion of the
Utility System (as herein defined) located in the Counties listed in
Schedule ``B'' hereto;
C. all right, title and interest of the Mortgagor in and to
those contracts of the Mortgagor (i) relating to the ownership,
operation or maintenance of any generation, transmission or
distribution facility owned, whether solely or jointly, by the
Mortgagor, (ii) for the purchase of electric power and energy by the
Mortgagor and having an original term in excess of 3 years, (iii)
for the sale of electric power and energy by the Mortgagor and
having an original term in excess of 3 years, and (iv) for the
transmission of electric power and energy by or on behalf of the
Mortgagor and having an original term in excess of 3 years,
including in respect of any of the foregoing, any amendments,
supplements and replacements thereto;
D. all the property, rights, privileges, allowances and
franchises particularly described in the annexed Schedule ``B'' are
hereby made a part of, and deemed to be described in, this Granting
Clause as fully as if set forth in this Granting Clause at length;
and
ALSO ALL OTHER PROPERTY, real estate, lands, easements,
servitudes, licenses, permits, allowances, consents, franchises,
privileges, rights of way and other rights in or relating to real
estate or the occupancy of the same; all power sites, storage
rights, water rights, water locations, water appropriations,
ditches, flumes, reservoirs, reservoir sites, canals, raceways,
waterways, dams, dam sites, aqueducts, and all other rights or means
for appropriating, conveying, storing and supplying water; all
rights of way and roads; all plants for the generation of electric
and other forms of energy (whether now known or hereafter developed)
by steam, water, sunlight, chemical processes and/or (without
limitation) all other sources of power (whether now known or
hereafter developed); all power houses, gas plants, street lighting
systems, standards and other equipment incidental thereto; all
telephone, radio, television and other communications, image and
data transmission systems, air conditioning systems and equipment
incidental thereto, water wheels, waterworks, water systems, steam
and hot water plants, substations, lines, service and supply
systems, bridges, culverts, tracks, ice or refrigeration plants and
equipment, offices, buildings and other structures and the equipment
thereto all machinery, engines, boilers, dynamos, turbines,
electric, gas and other machines, prime movers, regulators, meters,
transformers, generators (including, but not limited to, engine-
driven generators and turbogenerator units), motors, electrical, gas
and mechanical appliances, conduits, cables, water, steam, gas or
other pipes, gas mains and pipes, service pipes, fittings, valves
and connections, pole and transmission lines, towers, overhead
conductors and devices, underground conduits, underground conductors
and devices, wires, cables, tools, implements, apparatus, storage
battery equipment, and all other fixtures and personalty; all
municipal and other franchises, consents, certificates or permits;
all emissions allowances; all lines for the transmission and
distribution of electric current and other forms of energy, gas,
steam, water or communications, images and data for any purpose
including towers, poles, wires, cables, pipes, conduits, ducts and
all apparatus for use in connection therewith, and (except as
hereinbefore or hereinafter expressly excepted) all the right, title
and interest of the Mortgagor in and to all other property of any
kind or nature appertaining to and/or used and/or occupied and/or
employed in connection with any property hereinbefore described, but
in all circumstances excluding Excepted Property;
GRANTING CLAUSE SECOND
All other property, real, personal or mixed, of whatever kind
and description and wheresoever situated, including without
limitation goods, accounts, money held in a trust account pursuant
hereto or to a Loan Agreement, and general intangibles now owned or
which may be hereafter acquired by the Mortgagor, but excluding
Excepted Property, now owned or which may be hereafter acquired by
the Mortgagor, it being the intention hereof that all property,
rights, privileges, allowances and franchisees now owned by the
Mortgagor or acquired by the Mortgagor after the date hereof (other
than Excepted Property) shall be as fully embraced within and
subjected to the lien hereof as if such property were specifically
described herein.
[[Page 36890]]
GRANTING CLAUSE THIRD
Also any Excepted Property that may, from time to time
hereafter, by delivery or by writing of any kind, be subjected to
the lien hereof by the Mortgagor or by anyone in its behalf; and any
Mortgagee is hereby authorized to receive the same at any time as
additional security hereunder for the benefit of all the Mortgagees.
Such subjection to the lien hereof of any Excepted Property as
additional security may be made subject to any reservations,
limitations or conditions which shall be set forth in a written
instrument executed by the Mortgagor or the person so acting in its
behalf or by such Mortgagee respecting the use and disposition of
such property or the proceeds thereof.
GRANTING CLAUSE FOURTH
Together with (subject to the rights of the Mortgagor set forth
on Section [5.01]) all and singular the tenements, hereditaments and
appurtenances belonging or in anywise appertaining to the aforesaid
property or any part thereof, with the reversion and reversions,
remainder and remainders and all the tolls, earnings, rents, issues,
profits, revenues and other income, products and proceeds of the
property subjected or required to be subjected to the lien of this
Mortgage, and all other property of any nature appertaining to any
of the plants, systems, business or operations of the Mortgagor,
whether or not affixed to the realty, used in the operation of any
of the premises or plants or the System, or otherwise, which are now
owned or acquired by the Mortgagor, and all the estate, right, title
and interest of every nature whatsoever, at law as well as in
equity, of the Mortgagor in and to the same and every part thereof
(other than Excepted Property with respect to any of the foregoing).
EXCEPTED PROPERTY
There is, however, expressly excepted and excluded from the lien
and operation of this Mortgage the following described property of
the Mortgagor, now owned or hereafter acquired (herein sometimes
referred to as ``Excepted Property''):
A. all shares of stock, securities or other interests of the
Mortgagor in the National Rural Utilities Cooperative Finance
Corporation, the National Bank for Cooperatives and the St. Paul
Bank for Cooperatives other than any stock, securities or other
interests that are specifically described in Subclause D of Granting
Clause First as being subjected to the lien hereof;
B. all rolling stock (except mobile substations), automobiles,
buses, trucks, truck cranes, tractors, trailers and similar vehicles
and movable equipment, and all tools, accessories and supplies used
in connection with any of the foregoing;
C. all vessels, boats, ships, barges and other marine equipment,
all airplanes, airplane engines and other flight equipment, and all
tools, accessories and supplies used in connection with any of the
foregoing;
D. all office furniture, equipment and supplies that is not data
processing, accounting or other computer equipment or software;
E. all leasehold interests for office purposes;
F. all leasehold interests of the Mortgagor under leases for an
original term (including any period for which the Mortgagor shall
have a right of renewal) of less than five (5) years;
G. all timber and crops (both growing and harvested) and all
coal, ore, gas, oil and other minerals (both in place or severed);
H. the last day of the term of each leasehold estate (oral or
written) and any agreement therefor, now or hereafter enjoyed by the
Mortgagor and whether falling within a general or specific
description of property herein: PROVIDED, HOWEVER, that the
Mortgagor covenants and agrees that it will hold each such last day
in trust for the use and benefit of all of the Mortgagees and
Noteholders and that it will dispose of each such last day from time
to time in accordance with such written order as the Mortgagee in
its discretion may give;
I. all permits, licenses, franchises, contracts, agreements,
contract rights and other rights not specifically subjected or
required to be subjected to the lien hereof by the express
provisions of this Mortgage, whether now owned or hereafter acquired
by the Mortgagor, which by their terms or by reason of applicable
law would become void or voidable if mortgaged or pledged hereunder
by the Mortgagor, or which cannot be granted, conveyed, mortgaged,
transferred or assigned by this Mortgage without the consent of
other parties whose consent has been withheld, or without subjecting
any Mortgagee to a liability not otherwise contemplated by the
provisions of this Mortgage, or which otherwise may not be, hereby
lawfully and effectively granted, conveyed, mortgaged, transferred
and assigned by the Mortgagor; and
J. the property identified in Schedule ``C'' hereto.
PROVIDED, HOWEVER, that (i) if, upon the occurrence of an Event
of Default, any Mortgagee, or any receiver appointed pursuant to
statutory provision or order of court, shall have entered into
possession of all or substantially all of the Mortgaged Property,
all the Excepted Property described or referred to in the foregoing
Subdivisions A through H, inclusive, then owned or thereafter
acquired by the Mortgagor shall immediately, and, in the case of any
Excepted Property described or referred to in Subdivisions I through
J, inclusive, upon demand of any Mortgagee or such receiver, become
subject to the lien hereof to the extent permitted by law, and any
Mortgagee or such receiver may, to the extent permitted by law, at
the same time likewise take possession thereof, and (ii) whenever
all Events of Default shall have been cured and the possession of
all or substantially all of the Mortgaged Property shall have been
restored to the Mortgagor, such Excepted Property shall again be
excepted and excluded from the lien hereof to the extent and
otherwise as hereinabove set forth.
However, pursuant to Granting Clause Third, the Mortgagor may
subject to the lien of this Mortgage any Excepted Property,
whereupon the same shall cease to be Excepted Property.
HABENDUM
TO HAVE AND TO HOLD all said property, rights, privileges and
franchises of every kind and description, real, personal or mixed,
hereby and hereafter (by supplemental mortgage or otherwise)
granted, bargained, sold, aliened, remised, released, conveyed,
assigned, transferred, mortgaged, encumbered, hypothecated, pledged,
setover, confirmed, or subjected to a continuing security interest
and lien as aforesaid, together with all the appurtenances thereto
appertaining (said properties, rights, privileges and franchises,
including any cash and securities hereafter deposited with any
Mortgagee ((other than any such cash, if any, which is specifically
stated herein not to be deemed part of the Mortgaged Property)),
being herein collectively called the ``Mortgaged Property'') unto
the Mortgagees and the respective assigns of the Mortgagees forever,
to secure equally and ratably the payment of the principal of (and
premium, if any) and interest on the Notes, according to their
terms, without preference, priority or distinction as to interest or
principal (except as otherwise specifically provided herein) or as
to lien or otherwise of any Note over any other Note by reason of
the priority in time of the execution, delivery or maturity thereof
or of the assignment or negotiation thereof, or otherwise, and to
secure the due performance of all of the covenants, agreements and
provisions herein and in the Loan Agreements contained, and for the
uses and purposes and upon the terms, conditions, provisos and
agreements hereinafter expressed and declared.
SUBJECT, HOWEVER, to Permitted Encumbrances (as defined in
Section 1.01).
ARTICLE I
DEFINITIONS & OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. Definitions. In addition to the terms defined
elsewhere in this Mortgage, the terms defined in this Article I
shall have the meanings specified herein and under the UCC, unless
the context clearly requires otherwise. The terms defined herein
include the plural as well as the singular and the singular as well
as the plural.
Accounting Requirements shall mean the requirements of any
system of accounts prescribed by RUS so long as the Government is
the holder, insurer or guarantor of any Notes, or, in the absence
thereof, the requirements of generally accepted accounting
principles applicable to businesses similar to that of the
Mortgagor.
Additional Notes shall mean any Notes issued by the Mortgagor to
the Government or any other lender pursuant to Article II of this
Mortgage including any refunding, renewal, or substitute Notes which
may from time to time be executed and delivered by the Mortgagor
pursuant to the terms of Article II.
Board shall mean either the Board of Directors or the Board of
Trustees, as the case may be, of the Mortgagor.
Business Day shall mean any day that the Government is open for
business.
Debt Service Coverage Ratio (``DSC'') shall mean the ratio
determined as follows: for each calendar year add (i) Patronage
Capital or Margins of the Mortgagor, (ii) Interest
[[Page 36891]]
Expense on Total Long Term Debt of the Mortgagor (as computed in
accordance with the principles set forth in the definition of TIER)
and (iii) Depreciation and Amortization Expense of the Mortgagor,
and divide the total so obtained by an amount equal to the sum of
all payments of principal and interest required to be made on
account of Total Long-Term Debt during such calendar year increasing
said sum by any addition to interest expense on account of
Restricted Rentals as computed with respect to the Times Interest
Earned Ratio herein; provided, however, that in the event that any
Long-Term Debt (being any amount included in Total Long-Term Debt
computed as provided above) has been refinanced during such year the
payments of principal and interest required to be made during such
year on account of such Long-Term Debt shall be based (in lieu of
actual payments required to be made on such refinanced Debt) upon
the larger of (i) an annualization of the payments required to be
made with respect to the refinancing debt during the portion of such
year such refinancing debt is outstanding or (ii) the payment of
principal and interest required to be made during the following year
on account of such refinancing debt.
Depreciation and Amortization Expense shall mean an amount
constituting the depreciation and amortization of the Mortgagor as
computed pursuant to Accounting Requirements.
Electric System shall mean, and shall be broadly construed to
encompass and include, all of the Mortgagor's interests in all
electric production, transmission, distribution, conservation, load
management, general plant and other related facilities, equipment or
property and in any mine, well, pipeline, plant, structure or other
facility for the development, production, manufacture, storage,
fabrication or processing of fossil, nuclear or other fuel of any
kind or in any facility or rights with respect to the supply of
water, in each case for use, in whole or in major part, in any of
the Mortgagor's generating plants, now existing or hereafter
acquired by lease, contract, purchase or otherwise or constructed by
the Mortgagor, including any interest or participation of the
Mortgagor in any such facilities or any rights to the output or
capacity thereof, together with all additions, betterments,
extensions and improvements to such Electric System or any part
thereof hereafter made and together with all lands, easements and
rights-of-way of the Mortgagor and all other works, property or
structures of the Mortgagor and contract rights and other tangible
and intangible assets of the Mortgagor used or useful in connection
with or related to such Electric System, including without
limitation a contract right or other contractual arrangement
referred to in Granting Clause First, Subclause [(C)] but excluding
any excepted property.
Environmental Law and Environmental Laws shall mean all federal,
state, and local laws, regulations, and requirements related to
protection of human health or the environment, including but not
limited to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. 9601 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the Clean
Water Act (33 U.S.C. 1251 et seq.) and the Clean Air Act (42 U.S.C.
7401 et seq.), and any amendments and implementing regulations of
such acts.
Equity shall mean the total margins and equities and margins
computed pursuant to Accounting Requirements, but excluding any
Regulatory Created Assets.
Event of Default shall have the meaning specified in Section
[4.01] hereof.
Excepted Property shall have the meaning stated in the Granting
Clauses.
Government shall mean the United States of America acting by and
through the Administrator of RUS and shall include its successors
and assigns.
Government Notes shall mean the Original Notes, and any
Additional Notes, issued by the Mortgagor to the Government, or
guaranteed or insured as to payment by the Government.
Independent shall mean when used with respect to any specified
person or entity means such a person or entity who (1) is in fact
independent, (2) does not have any direct financial interest or any
material indirect financial interest in the Mortgagor or in any
affiliate of the Mortgagor and (3) is not connected with the
Mortgagor as an officer, employee, promoter, underwriter, trustee,
partner, director or person performing similar functions.
Interest Expense shall mean an amount constituting the interest
expense of the Mortgagor as computed pursuant to Accounting
Requirements.
Lien shall mean any statutory or common law consensual or non-
consensual mortgage, pledge, security interest, encumbrance, lien,
right of set off, claim or charge of any kind, including, without
limitation, any conditional sale or other title retention
transaction, any lease transaction in the nature thereof and any
secured transaction under the UCC.
Loan Agreement shall mean any agreement executed by and between
the Mortgagor and the Government or any other lender in connection
with the execution and delivery of any Notes secured hereby.
Long-Term Debt shall mean any amount included in Total Long-Term
Debt pursuant to Accounting Requirements.
Long-Term Lease shall mean a lease having an unexpired term
(taking into account terms of renewal at the option of the lessor,
whether or not such lease has previously been renewed) of more than
12 months.
Margins shall mean the sum of amounts recorded as operating
margins and non-operating margins as computed in accordance with
Accounting Requirements.
Maximum Debt Limit, if any, shall mean the amount more
particularly described in Schedule ``A'' hereof.
Mortgage shall mean this Restated Mortgage and Security
Agreement, including any amendments or supplements thereto from time
to time.
Mortgaged Property shall have the meaning specified as stated in
the Habendum to the Granting Clauses.
MORTGAGEE or MORTGAGEES shall mean the Government, __________
{the supplemental lender}, __________ their successors and assigns
as well as any and all other lenders pursuant to Article II of this
Mortgage that enter into a supplemental mortgage in accordance with
Section [2.04] of Article II hereof, their successors and assigns.
Net Utility Plant shall mean the amount constituting the total
utility plant of the Mortgagor less depreciation computed in
accordance with Accounting Requirements.
Note or Notes shall mean one or more of the Government Notes,
and any other Notes which may, from time to time, be secured under
this Mortgage.
Noteholder or Noteholders shall mean one or more of the holders
of Notes secured by this Mortgage; PROVIDED, however, that in the
case of any Notes that have been guaranteed or insured as to payment
by RUS, as to such Notes Noteholder or Noteholders shall mean RUS,
exclusively, regardless of whether such notes are in the possession
of RUS.
Original Mortgage means the instrument(s) identified as such in
Schedule ``A'' hereof.
Original Notes shall mean the Notes listed on Schedule ``A''
hereto as such, such Notes being instruments evidencing outstanding
indebtedness of the Mortgagor (i) to the Government (including
indebtedness which has been issued by the Mortgagor to a third party
and guaranteed or insured as to payment by the Government) and (ii)
to each other Mortgagee on the date of this Mortgage.
Outstanding Notes shall mean as of the date of determination,
(i) all Notes theretofore issued, executed and delivered to any
Mortgagee and (ii) any Notes guaranteed or insured as to payment by
the Government, except (a) Notes referred to in clause (i) or (ii)
for which the principal and interest have been fully paid and which
have been canceled by the Noteholder, and (b) Notes the payment for
which has been provided for pursuant to Section [5.03].
Permitted Debt shall have the meaning specified in Section
[3.08].
Permitted Encumbrances shall mean:
(1) as to the property specifically described in Granting Clause
First, the restrictions, exceptions, reservations, conditions,
limitations, interests and other matters which are set forth or
referred to in such descriptions and each of which fits one or more
of the clauses of this definition, PROVIDED, such matters do not in
the aggregate materially detract from the value of the Mortgaged
Property taken as a whole and do not materially impair the use of
such property for the purposes for which it is held by the
Mortgagor;
(2) liens for taxes, assessments and other governmental charges
which are not delinquent;
(3) liens for taxes, assessments and other governmental charges
already delinquent which are currently being contested in good faith
by appropriate proceedings; PROVIDED the Mortgagor shall have set
aside on its books adequate reserves with respect thereto;
(4) mechanics', workmen's, repairmen's, materialmen's,
warehousemen's and carriers' liens and other similar liens arising
in the ordinary course of business for charges which are not
delinquent, or which are being contested in good faith and have not
proceeded to judgment; PROVIDED the
[[Page 36892]]
Mortgagor shall have set aside on its books adequate reserves with
respect thereto;
(5) liens in respect of judgments or awards with respect to
which the Mortgagor shall in good faith currently be prosecuting an
appeal or proceedings for review and with respect to which the
Mortgagor shall have secured a stay of execution pending such appeal
or proceedings for review; PROVIDED the Mortgagor shall have set
aside on its books adequate reserves with respect thereto;
(6) easements and similar rights granted by the Mortgagor over
or in respect of any Mortgaged Property, PROVIDED that in the
opinion of the Board or a duly authorized officer of the Mortgagor
such grant will not impair the usefulness of such property in the
conduct of the Mortgagor's business and will not be prejudicial to
the interests of the Mortgagees, and similar rights granted by any
predecessor in title of the Mortgagor;
(7) easements, leases, reservations or other rights of others in
any property of the Mortgagor for streets, roads, bridges, pipes,
pipe lines, railroads, electric transmission and distribution lines,
telegraph and telephone lines, the removal of oil, gas, coal or
other minerals and other similar purposes, flood rights, river
control and development rights, sewage and drainage rights,
restrictions against pollution and zoning laws and minor defects and
irregularities in the record evidence of title, PROVIDED that such
easements, leases, reservations, rights, restrictions, laws, defects
and irregularities do not materially affect the marketability of
title to such property and do not in the aggregate materially impair
the use of the Mortgaged Property taken as a whole for the purposes
for which it is held by the Mortgagor;
(8) liens upon lands over which easements or rights of way are
acquired by the Mortgagor for any of the purposes specified in
Clause [(7)] of this definition, securing indebtedness neither
created, assumed nor guaranteed by the Mortgagor nor on account of
which it customarily pays interest, which liens do not materially
impair the use of such easements or rights of way for the purposes
for which they are held by the Mortgagor;
(9) leases existing at the date of this instrument affecting
property owned by the Mortgagor at said date which have been
previously disclosed to the Mortgagees in writing and leases for a
term of not more than two years (including any extensions or
renewals) affecting property acquired by the Mortgagor after said
date;
(10) terminable or short term leases or permits for occupancy,
which leases or permits expressly grant to the Mortgagor the right
to terminate them at any time on not more than six months' notice
and which occupancy does not interfere with the operation of the
business of the Mortgagor;
(11) any lien or privilege vested in any lessor, licensor or
permittor for rent to become due or for other obligations or acts to
be performed, the payment of which rent or performance of which
other obligations or acts is required under leases, subleases,
licenses or permits, so long as the payment of such rent or the
performance of such other obligations or acts is not delinquent;
(12) liens or privileges of any employees of the Mortgagor for
salary or wages earned but not yet payable;
(13) the burdens of any law or governmental regulation or permit
requiring the Mortgagor to maintain certain facilities or perform
certain acts as a condition of its occupancy of or interference with
any public lands or any river or stream or navigable waters;
(14) any irregularities in or deficiencies of title to any
rights-of-way for pipe lines, telephone lines, telegraph lines,
power lines or appurtenances thereto, or other improvements thereon,
and to any real estate used or to be used primarily for right-of-way
purposes, PROVIDED that in the opinion of counsel for the Mortgagor,
the Mortgagor shall have obtained from the apparent owner of the
lands or estates therein covered by any such right-of-way a
sufficient right, by the terms of the instrument granting such
right-of-way, to the use thereof for the construction, operation or
maintenance of the lines, appurtenances or improvements for which
the same are used or are to be used, or PROVIDED that in the opinion
of counsel for the Mortgagor, the Mortgagor has power under eminent
domain, or similar statutes, to remove such irregularities or
deficiencies;
(15) rights reserved to, or vested in, any municipality or
governmental or other public authority to control or regulate any
property of the Mortgagor, or to use such property in any manner,
which rights do not materially impair the use of such property, for
the purposes for which it is held by the Mortgagor;
(16) any obligations or duties, affecting the property of the
Mortgagor, to any municipality or governmental or other public
authority with respect to any franchise, grant, license or permit;
(17) any right which any municipal or governmental authority
may have by virtue of any franchise, license, contract or statute to
purchase, or designate a purchaser of or order the sale of, any
property of the Mortgagor upon payment of cash or reasonable
compensation therefor or to terminate any franchise, license or
other rights or to regulate the property and business of the
Mortgagor; PROVIDED, HOWEVER, that nothing in this clause 17 is
intended to waive any claim or rights that the Government may
otherwise have under Federal laws;
(18) as to properties of other operating electric companies
acquired after the date of this Mortgage by the Mortgagor as
permitted by Section [3.10] hereof, reservations and other matters
as to which such properties may be subject as more fully set forth
in such Section;
(19) any lien required by law or governmental regulations as a
condition to the transaction of any business or the exercise of any
privilege or license, or to enable the Mortgagor to maintain self-
insurance or to participate in any fund established to cover any
insurance risks or in connection with workmen's compensation,
unemployment insurance, old age pensions or other social security,
or to share in the privileges or benefits required for companies
participating in such arrangements; PROVIDED, HOWEVER, that nothing
in this clause 19 is intended to waive any claim or rights that the
Government may otherwise have under Federal laws;
(20) liens arising out of any defeased mortgage or indenture of
the Mortgagor;
(21) the undivided interest of other owners, and liens on such
undivided interests, in property owned jointly with the Mortgagor as
well as the rights of such owners to such property pursuant to the
ownership contracts;
(22) any lien or privilege vested in any lessor, licensor or
permittor for rent to become due or for other obligations or acts to
be performed, the payment of which rent or the performance of which
other obligations or acts is required under leases, subleases,
licenses or permits, so long as the payment of such rent or the
performance of such other obligations or acts is not delinquent;
(23) purchase money mortgages permitted by Section [3.08]; and
(24) the Original Mortgage.
Property Additions shall mean Utility System property as to
which the Mortgagor shall provide Title Evidence and which shall be
(or, if retired, shall have been) subject to the lien of this
Mortgage, which shall be properly chargeable to the Mortgagor's
utility plant accounts under Accounting Requirements (including
property constructed or acquired to replace retired property
credited to such accounts) and which shall be:
(1) acquired (including acquisition by merger, consolidation,
conveyance or transfer) or constructed by the Mortgagor after the
date hereof, including property in the process of construction,
insofar as not reflected on the books of the Mortgagor with respect
to periods on or prior to the date hereof, and
(2) used or useful in the utility business of the Mortgagor
conducted with the properties described in the Granting Clauses of
this Mortgage, even though separate from and not physically
connected with such properties.
``Property Additions'' shall also include:
(3) easements and rights-of-way that are useful for the conduct
of the utility business of the Mortgagor, and
(4) property located or constructed on, over or under public
highways, rivers or other public property if the Mortgagor has the
lawful right under permits, licenses or franchises granted by a
governmental body having jurisdiction in the premises or by the law
of the State in which such property is located to maintain and
operate such property for an unlimited, indeterminate or indefinite
period or for the period, if any, specified in such permit, license
or franchise or law and to remove such property at the expiration of
the period covered by such permit, license or franchise or law, or
if the terms of such permit, license, franchise or law require any
public authority having the right to take over such property to pay
fair consideration therefor.
``Property Additions'' shall NOT include:
(a) good will, going concern value, contracts, agreements,
franchises, licenses or permits, whether acquired as such, separate
and distinct from the property operated in connection therewith, or
acquired as an incident thereto, or
[[Page 36893]]
(b) any shares of stock or indebtedness or certificates or
evidences of interest therein or other securities, or
(c) any plant or system or other property in which the Mortgagor
shall acquire only a leasehold interest, or any betterments,
extensions, improvements or additions (other than movable physical
personal property which the Mortgagor has the right to remove), of,
upon or to any plant or system or other property in which the
Mortgagor shall own only a leasehold interest unless (i) the term of
the leasehold interest in the property to which such betterment,
extension, improvement or addition relates shall extend for at least
75% of the useful life of such betterment, extension, improvement or
addition and (ii) the lessor shall have agreed to give the Mortgagee
reasonable notice and opportunity to cure any default by the
Mortgagor under such lease and not to disturb any Mortgagee's
possession of such leasehold estate in the event any Mortgagee
succeeds to the Mortgagor's interest in such lease upon any
Mortgagee's exercise of any remedies under this Mortgage so long as
there is no default in the performance of the tenant's covenants
contained therein, or
(d) any property of the Mortgagor subject to the Permitted
Encumbrance described in clause [(23)] of the definition thereof.
Prudent Utility Practice shall mean any of the practices,
methods and acts which, in the exercise of reasonable judgment, in
light of the facts, including, but not limited to, the practices,
methods and acts engaged in or approved by a significant portion of
the electric utility industry prior thereto, known at the time the
decision was made, would have been expected to accomplish the
desired result consistent with cost-effectiveness, reliability,
safety and expedition. It is recognized that Prudent Utility
Practice is not intended to be limited to optimum practice, method
or act to the exclusion of all others, but rather is a spectrum of
possible practices, methods or acts which could have been expected
to accomplish the desired result at the lowest reasonable cost
consistent with cost-effectiveness, reliability, safety and
expedition.
REA shall mean the Rural Electrification Administration of the
United States Department of Agriculture, the predecessor of RUS.
Regulatory Created Assets shall mean the sum of any amounts
properly recordable as unrecovered plant and regulatory study costs
or as other regulatory assets, pursuant to Accounting Requirements.
Restricted Rentals shall mean all rentals required to be paid
under finance leases and charged to income, exclusive of any amounts
paid under any such lease (whether or not designated therein as
rental or additional rental) for maintenance or repairs, insurance,
taxes, assessments, water rates or similar charges. For the purpose
of this definition the term ``finance lease'' shall mean any lease
having a rental term (including the term for which such lease may be
renewed or extended at the option of the lessee) in excess of 3
years and covering property having an initial cost in excess of
$250,000 other than aircraft, ships, barges, automobiles, trucks,
trailers, rolling stock and vehicles; office, garage and warehouse
space; office equipment and computers.
RUS shall mean the Rural Utilities Service, an agency of the
United States Department of Agriculture, or if at any time after the
execution of this Mortgage RUS is not existing and performing the
duties of administering a program of rural electrification as
currently assigned to it, then the entity performing such duties at
such time.
Security Interest shall mean any assignment, transfer, mortgage,
hypothecation or pledge.
Subordinated Indebtedness shall mean secured indebtedness of the
Mortgagor, payment of which shall be subordinated to the prior
payment of the Notes in accordance with the provisions of Section
[3.08] hereof by subordination agreement in form and substance
satisfactory to each Mortgagee which approval will not be
unreasonably withheld.
Supplemental Mortgage shall mean an instrument of the type
described in Section [2.04].
Times Interest Earned Ratio (``TIER'') shall mean the ratio
determined as follows: for each calendar year: add (i) patronage
capital or margins of the Mortgagor, (ii) Interest Expense on Total
Long-Term Debt of the Mortgagor and (iii) taxes paid, if any, based
upon income during the year and divide the total so obtained by
Interest Expense on Total Long-Term Debt of the Mortgagor, provided,
however, that in computing Interest Expense on Total Long-Term Debt,
there shall be added, to the extent not otherwise included, an
amount equal to 33\1/3\% of the excess of Restricted Rentals paid by
the Mortgagor over 2% of the Mortgagor's Equity.
Title Evidence shall mean with respect to any real property:
(1) an opinion of counsel to the effect that the Mortgagor has
title, whether fairly deducible of record or based upon prescriptive
rights (or, as to personal property, based on such evidence as
counsel shall determine to be sufficient), as in the opinion of
counsel is satisfactory for the use thereof in connection with the
operations of the Mortgagor, and counsel in giving such opinion may
disregard any irregularity or deficiency in the record evidence of
title which, in the opinion of such counsel, can be cured by
proceedings within the power of the Mortgagor or does not
substantially impair the usefulness of such property for the purpose
of the Mortgagor and may base such opinion upon counsel's own
investigation or upon affidavits, certificates, abstracts of title,
statements or investigations made by persons in whom such counsel
has confidence or upon examination of a certificate or guaranty of
title or policy of title insurance in which counsel has confidence;
or
(2) a mortgagee's policy of title insurance in the amount of the
cost to the Mortgagor of the land included in Property Additions, as
such cost is determined by the Mortgagor in accordance with the
Accounting Requirements, issued in favor of the Mortgagees by an
entity authorized to insure title in the states where the subject
property is located, showing the Mortgagor as the owner of the
subject property and insuring the lien of this Mortgage; and with
respect to any personal property a certificate of the general manage
or other duly authorized officer that the Mortgagor lawfully owns
and is possessed of such property.
Total Assets shall mean an amount constituting total assets of
the Mortgagor as computed pursuant to Accounting Requirements, but
excluding any Regulatory Created Assets.
Total Long-Term Debt shall mean the total outstanding long-term
debt of the Mortgagor as computed pursuant to Accounting
Requirements.
Total Utility Plant shall mean the total of all property
properly recorded in the utility plant accounts of the Mortgagor,
pursuant to Accounting Requirements.
Uniform Commercial Code or UCC shall mean the UCC of the state
referred to in Section [1.04], and if Mortgaged Property is located
in a state other than that state, then as to such Mortgaged Property
UCC refers to the UCC in effect in the state where such property is
located.
Utility System shall mean the Electric System and all of the
Mortgagor's interest in community infrastructure located
substantially within its electric service territory, namely water
and waste systems, solid waste disposal facilities,
telecommunications and other electronic communications systems, and
natural gas distribution systems.
SECTION 1.02. General Rules of Construction:
a. Accounting terms not referred to above are used in this
Mortgage in their ordinary sense and any computations relating to
such terms shall be computed in accordance with the Accounting
Requirements.
b. Any reference to ``directors'' or ``board of directors''
shall be deemed to mean ``trustees'' or ``board of trustees,'' as
the case may be.
SECTION 1.03. Special Rules of Construction if RUS is a
Mortgagee: During any period that RUS is a Mortgagee, the following
additional provisions shall apply:
a. In the case of any Notes that have been guaranteed or insured
as to payment by RUS, as to such Notes RUS shall be considered to be
the Noteholder, exclusively, regardless of whether such Notes are in
the possession of RUS.
b. In the case of any prior approval rights conferred upon RUS
by Federal statutes, including (without limitation) Section 7 of the
Rural Electrification Act of 1936, as amended, with respect to the
sale or disposition of property, rights, or franchises of the
Mortgagor, all such statutory rights are reserved except to the
extent that they are expressly modified or waived in this Mortgage.
SECTION 1.04. Governing Law: This Mortgage shall be construed in
and governed by Federal law to the extent applicable, and otherwise
by the laws of the State of ________.
SECTION 1.05 Notices: All demands, notices, reports, approvals,
designations, or directions required or permitted to be given
hereunder shall be in writing and shall be deemed to be properly
given if sent by
[[Page 36894]]
registered or certified mail, postage prepaid, or delivered by hand, or
sent by facsimile transmission, receipt confirmed, addressed to the
proper party or parties at the following address:
As to the Mortgagor:
----------------------------------------------------------------------
----------------------------------------------------------------------
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As to the Mortgagee:
Rural Utilities Service,
United States Department of Agriculture,
Washington, DC 20250-1500
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and as to any other person, firm, corporation or governmental body
or agency having an interest herein by reason of being a Mortgagee,
at the last address designated by such person, firm, corporation,
governmental body or agency to the Mortgagor and the other
Mortgagees. Any such party may from time to time designate to each
other a new address to which demands, notices, reports, approvals,
designations or directions may be addressed, and from and after any
such designation the address designated shall be deemed to be the
address of such party in lieu of the address given above.
ARTICLE II
ADDITIONAL NOTES
SECTION 2.01. Additional Notes: (a) Without the prior consent of
any Mortgagee or any Noteholder, the Mortgagor may issue Additional
Notes to the Government or to another lender or lenders for the
purpose of acquiring, procuring or constructing new or replacement
Eligible Property Additions which Notes will thereupon be secured
equally and ratably with the Notes if each of the following
requirements are satisfied:
(1) As evidenced by a certificate of an Independent certified
public accountant sent to each Mortgagee on or before the first
advance of proceeds from such Additional Notes:
(i) The Mortgagor shall have achieved for each of the two
calendar years immediately preceding the issuance of such Additional
Notes, a TIER of not less than 1.5 and a DSC of not less than 1.25;
(ii) After taking into account the effect of such Additional
Notes on the Total Long Term Debt of the Mortgagor, the ratio of the
Mortgagor's Net Utility Plant to its Total Long Term Debt shall be
greater than or equal to 1.0 on a pro forma basis;
(iii) After taking into account the effect of such Additional
Notes on the Total Assets of such Mortgagor, the Mortgagor shall
have Equity greater than or equal to 27 percent of Total Assets on a
pro forma basis; and
(iv) The sum of the aggregate principal amount of such
Additional Notes (if any) that are not related to the Electric
System if added to the aggregate outstanding principal amount of all
the existing Notes (if any) that are not related to the Electric
System will not exceed 30% of the Mortgagor's Equity on a pro forma
basis.
(2) No Event of Default has occurred and is continuing
hereunder, or any event which with the giving of notice or lapse of
time or both would become an Event of Default has occurred and is
continuing.
(3) The Eligible Property Additions being constructed, acquired,
procured or replaced are part of the Mortgagor's Utility System.
(4) The Borrower's general manager or other duly authorized
officer shall send to each of the Mortgagees a certificate in
substantially the form attached hereto as [Exhibit A] on or before
the date of the first advance of proceeds from such Additional
Notes.
(b) For purposes of this section:
(1) ``Eligible Property Additions'' shall mean Property
Additions acquired or whose construction was completed not more than
5 years prior to the issuance of the Additional Notes and Property
Additions acquired or whose construction is started and/or completed
not more than 4 years after issuance of the Additional Notes, but
shall exclude any Property Additions financed by any other debt
secured under the Mortgage at the time additional Notes are issued;
(2) Notes are considered to be ``issued'' on, and the date of
``issuance'' shall be, the date on which they are executed by the
Mortgagor; and
(3) For purposes of calculating the pro forma ratios in
subparagraphs (a)(1)(ii) and (iii), the values for Total Long Term
Debt and Total Assets before debt issuance and the values for Equity
and Net Utility Plant shall be the most recently available end-of-
month figures preceding the issuance of the Additional Notes, but in
no case for a month ending more than 180 days preceding such
issuance.
SECTION 2.02. Refunding or Refinancing Notes: The Mortgagor
shall also have the right without the consent of any Mortgagee or
any Noteholder to issue Additional Notes for the purpose of
refunding or refinancing any Notes so long as the total amount of
outstanding indebtedness evidenced by such Additional Note or Notes
is not greater than 105% of the then outstanding principal balance
of the Note or Notes being refunded or refinanced. PROVIDED,
HOWEVER, that the Mortgagor may not exercise its rights under this
Section if an Event of Default has occurred and is continuing, or
any event which with the giving of notice or lapse of time or both
would become an Event of Default has occurred and is continuing. On
or before the first advance of proceeds from Notes issued under this
section, the Mortgagor shall notify each Mortgagee of the refunding
or refinancing. Additional Notes issued pursuant to this Section
[2.02] will thereupon be secured equally and ratably with the Notes.
SECTION 2.03. Other Additional Notes. With the prior written
consent of each Mortgagee, the Mortgagor may issue Additional Notes
to the Government or any lender or lenders, which Notes will
thereupon be secured equally and ratably with Notes without regard
to whether any of the requirements of Sections [2.01] or [2.02] are
satisfied.
SECTION 2.04. Additional Lenders Entitled to the Benefit of This
Mortgage: Without the prior consent of any Mortgagee or any
Noteholder, each new lender designated as a payee in any Additional
Notes issued by the Mortgagor pursuant to Section [2.01] or [2.02]
of this Mortgage shall become a Mortgagee hereunder upon the
execution and delivery by the Mortgagor and such lender of a
supplemental mortgage hereto designating such lender as a Mortgagee
hereunder. Such new lender shall be entitled to the benefits of this
Mortgage without further act or deed. Each Mortgagee and each person
or entity that becomes a lender pursuant to Section [2.01] or [2.02]
of this Mortgage shall, upon the request of the Mortgagor to do so,
execute and deliver a supplement to this Mortgage in substantially
the form set forth in Section [2.05] to evidence the addition of
such new lender as an additional Mortgagee entitled to the benefits
of this Mortgage. The failure of any existing Mortgagee to enter
into such supplemental mortgage shall not deprive the new lender of
its rights under this Mortgage; provided that such additional
indebtedness otherwise conforms in all respects with the
requirements for issuing Additional Notes under this Mortgage.
SECTION 2.05. Form of Supplemental Mortgage: (a) The form of
supplemental mortgage referred to in Section [2.04] is attached to
this Mortgage as Exhibit B and hereby incorporated by reference as
if set forth in full at this point.
(b) In the event that the Mortgagor subsequently issues
Additional Notes pursuant to Sections [2.01] or [2.02] to any
existing Mortgagee and that Mortgagee desires further assurance that
such Additional Notes will be secured by the lien of the Mortgage,
an instrument substantially in the form of the supplemental mortgage
attached as Exhibit B may be used.
(c) In the event that the Mortgagor issues Additional Notes
pursuant to Section [2.03] to either an existing Mortgagee or a new
lender, in either case with the prior written consent of each
Mortgagee, then an instrument substantially in the form of the
supplemental mortgage attached as Exhibit B may also be used.
ARTICLE III--PARTICULAR COVENANTS OF THE MORTGAGOR
SECTION 3.01. Payment of Debt Service on Notes: The Mortgagor
will duly and punctually pay the principal, premium, if any, and
interest on the Notes in accordance with the terms of the Notes, the
Loan Contracts, this Mortgage and any Supplemental Mortgage
authorizing such Notes.
SECTION 3.02. Warranty of Title: (a) At the time of the
execution and delivery of this instrument, the Mortgagor has good
and marketable title in fee simple to the real property specifically
described in Granting Clause First as owned in fee and good and
marketable title to the interests in real property specifically
described in Granting Clause [First], subject to no mortgage, lien,
charge or encumbrance except as stated therein, and has full power
and lawful authority to grant, bargain, sell, alien, remise,
release, convey, assign, transfer, encumber, mortgage, pledge, set
over and confirm said real property and interests in real property
in the manner and form aforesaid.
(b) At the time of the execution and delivery of this
instrument, the Mortgagor lawfully owns and is possessed of the
[[Page 36895]]
personal property specifically described in Granting Clauses [First and
Second], subject to no mortgage, lien, charge or encumbrance except
as stated therein, and has full power and lawful authority to
mortgage, assign, transfer, deliver, pledge and grant a continuing
security interest in said property and, including any proceeds
thereof, in the manner and form aforesaid.
(c) The Mortgagor hereby does and will forever warrant and
defend the title to the property specifically described in Granting
Clause First against the claims and demands of all persons
whomsoever, except Permitted Encumbrances.
SECTION 3.03. After-Acquired Property; Further Assurances;
Recording: (a) All property of every kind, other than Excepted
Property, acquired by the Mortgagor after the date hereof, shall,
immediately upon the acquisition thereof by the Mortgagor, and
without any further mortgage, conveyance or assignment, become
subject to the lien of this Mortgage; SUBJECT, HOWEVER, to Permitted
Encumbrances and the exceptions, if any, to which all of the
Mortgagees consent. Nevertheless, the Mortgagor will do, execute,
acknowledge and deliver all and every such further acts,
conveyances, mortgages, financing statements and assurances as any
Mortgagee shall require for accomplishing the purposes of this
Mortgage.
(b) The Mortgagor will cause this Mortgage and all Supplemental
Mortgages and other instruments of further assurance, including all
financing statements covering security interests in personal
property, to be promptly recorded, registered and filed, and will
execute and file such financing statements and cause to be issued
and filed such continuation statements, all in such manner and in
such places as may be required by law fully to preserve and protect
the rights of all of the Mortgagees and Noteholders hereunder to all
property comprising the Mortgaged Property. The Mortgagor will
furnish to each Mortgagee:
(1) promptly after the execution and delivery of this instrument
and of each Supplemental Mortgage or other instrument of further
assurance, an Opinion of Counsel stating that, in the opinion of
such Counsel, this instrument and all such Supplemental Mortgages
and other instruments of further assurance have been properly
recorded, registered and filed to the extent necessary to make
effective the lien intended to be created by this Mortgage, and
reciting the details of such action or referring to prior Opinions
of Counsel in which such details are given, and stating that all
financing statements and continuation statements have been executed
and filed that are necessary fully to preserve and protect the
rights of all of the Mortgagees and Noteholders hereunder, or
stating that, in the opinion of such Counsel, no such action is
necessary to make the lien effective; and
(2) within 30 days after __________ in each year beginning with
the year ____, an Opinion of Counsel, dated as of such date, either
stating that, in the opinion of such Counsel, such action has been
taken with respect to the recording, registering, filing, re-
recording, re-registering and re-filing of this instrument and of
all Supplemental Mortgages, financing statements, continuation
statements or other instruments of further assurances as is
necessary to maintain the lien of this Mortgage (including the lien
on any property acquired by the Mortgagor after the execution and
delivery of this instrument and owned by the Mortgagor at the end of
preceding calendar year) and reciting the details of such action or
referring to prior Opinions of Counsel in which such details are
given, and stating that all financing statements and continuation
statements have been executed and filed that are necessary to fully
preserve and protect the rights of all of the Mortgagees and
Noteholders hereunder, or stating that, in the opinion of such
Counsel, no such action is necessary to maintain such lien.
SECTION 3.04. Environmental Requirements and Indemnity: (a) The
Mortgagor shall, with respect to all facilities which may be part of
the Mortgaged Property, comply with all Environmental Laws.
(b) The Mortgagor shall defend, indemnify, and hold harmless
each Mortgagee, its successors and assigns, from and against any and
all liabilities, losses, damages, costs, expenses (including but not
limited to reasonable attorneys' fees and expenses), causes of
actions, administrative proceedings, suits, claims, demands, or
judgments of any nature arising out of or in connection with any
matter related to the Mortgage Property and any Environmental Law,
including but not limited to:
(1) the past, present, or future presence of any hazardous
substance, contaminant, pollutant, or hazardous waste on or related
to the Mortgaged Property;
(2) any failure at any time by the undersigned to comply with
the terms of any order related to the Mortgaged Property and issued
by any federal, state, or municipal department or agency (other than
RUS) exercising its authority to enforce any Environmental Law; and
(3) any lien or claim imposed under any Environmental Law
related to clause (1).
(c) Within 10 (ten) business days after receiving knowledge of
any liability, losses, damages, costs, expenses (including but not
limited to reasonable attorneys' fees and expenses), cause of
action, administrative proceeding, suit, claim, demand, judgment,
lien, reportable event including but not limited to the release of a
hazardous substance, or potential or actual violation or non-
compliance arising out of or in connection with the Mortgaged
Property and any Environmental Law, the Mortgagor shall provide each
Mortgagee with written notice of such matter. With respect to any
matter upon which it has provided such notice, the Mortgagor shall
immediately take any and all appropriate actions to remedy, cure,
defend, or otherwise affirmatively respond to the matter.
SECTION 3.05. Payment of Taxes: The Mortgagor will pay or cause
to be paid as they become due and payable all taxes, assessments and
other governmental charges lawfully levied or assessed or imposed
upon the Mortgaged Property or any part thereof or upon any income
therefrom, and also (to the extent that such payment will not be
contrary to any applicable laws) all taxes, assessments and other
governmental charges lawfully levied, assessed or imposed upon the
lien or interest of the Noteholders or of the Mortgagees in the
Mortgaged Property, so that (to the extent aforesaid) the lien of
this Mortgage shall at all times be wholly preserved at the cost of
the Mortgagor and without expense to the Mortgagees or the
Noteholders; PROVIDED, HOWEVER, that the Mortgagor shall not be
required to pay and discharge or cause to be paid and discharged any
such tax, assessment or governmental charge to the extent that the
amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and the Mortgagor
shall have established and shall maintain adequate reserves on its
books for the payment of the same.
SECTION 3.06. Authority to Execute and Deliver Notes, Loan
Agreements and Mortgage; All Action Taken; Enforceable Obligations:
The Mortgagor is authorized under its articles of incorporation and
bylaws [or code of regulations] and all applicable laws and by
corporate action to execute and deliver the Notes, any Additional
Notes, the Loan Agreements and this Mortgage. The Notes, the Loan
Agreements and this Mortgage are, and any Additional Notes and Loan
Agreements when executed and delivered will be, the valid and
enforceable obligations of the Mortgagor in accordance with their
respective terms.
SECTION 3.07. Restrictions on Further Encumbrances on Property:
Except to secure Additional Notes, the Mortgagor will not, without
the prior written consent of each Mortgagee, create or incur or
suffer or permit to be created or incurred or to exist any Lien,
charge, assignment, pledge, mortgage on any of the Mortgaged
Property inferior to, prior to, or on a parity with the Lien of this
Mortgage except for the Permitted Encumbrances. Subject to the
provisions of Section [3.08], or unless approved by each of the
Mortgagees, the Mortgagor will purchase all materials, equipment and
replacements to be incorporated in or used in connection with the
Mortgaged Property outright and not subject to any conditional sales
agreement, chattel mortgage, bailment, lease or other agreement
reserving to the seller any right, title or Lien.
SECTION 3.08. Restrictions On Additional Permitted Debt: The
Mortgagor shall not incur, assume, guarantee or otherwise become
liable in respect of any debt for borrowed money and Restricted
Rentals (including Subordinated Debt) other than the following:
(``Permitted Debt'')
(1) Additional Notes issued in compliance with Article II
hereof;
(2) Purchase money indebtedness in non-Utility System property,
in an amount not exceeding 10% of Net Utility Plant;
(3) Restricted Rentals in an amount not to exceed 5% of Equity
during any 12 consecutive calendar month period;
(4) Unsecured lease obligations incurred in the ordinary course
of business except Restricted Rentals;
(5) Debt represented by dividends declared but not paid; and
(6) Subordinated Indebtedness approved by each Mortgagee.
[[Page 36896]]
PROVIDED, However, that the Mortgagor may incur Permitted Debt
without the consent of the Mortgagee only so long as there exists no
Event of Default hereunder and there has been no continuing
occurrence which with the passage of time and giving of notice could
become an Event of Default hereunder.
PROVIDED, FURTHER, by executing this Mortgage any consent of RUS
that the Mortgagor would otherwise be required to obtain under this
Section is hereby deemed to be given or waived by RUS by operation
of law to the extent, but only to the extent, that to impose such a
requirement of RUS consent would clearly violate existing federal
laws or government regulations.
SECTION 3.09. Preservation of Corporate Existence and
Franchises: The Mortgagor will, so long as any Outstanding Notes
exist, take or cause to be taken all such action as from time to
time may be necessary to preserve its corporate existence and to
preserve and renew all franchises, rights of way, easements,
permits, and licenses now or hereafter to be granted or upon it
conferred the loss of which would have a material adverse affect on
the Mortgagor's financial condition or business. The Mortgagor will
comply with all laws, ordinances, regulations, orders, decrees and
other legal requirements applicable to it or its property the
violation of which could have a material adverse affect on the
Mortgagor's financial condition or business.
SECTION 3.10. Limitations on Consolidations and Mergers: The
Mortgagor shall not, without the prior written approval of each
Mortgagee, consolidate or merge with any other corporation or convey
or transfer the Mortgaged Property substantially as an entirety
unless: (1) such consolidation, merger, conveyance or transfer shall
be on such terms as shall fully preserve the lien and security
hereof and the rights and powers of the Mortgagees hereunder; (2)
the entity formed by such consolidation or with which the Mortgagor
is merged or the corporation which acquires by conveyance or
transfer the Mortgaged Property substantially as an entirety shall
execute and deliver to the Mortgagees a mortgage supplemental hereto
in recordable form and containing an assumption by such successor
entity of the due and punctual payment of the principal of and
interest on all of the Outstanding Notes and the performance and
observance of every covenant and condition of this Mortgage; (3)
immediately after giving effect to such transaction, no default
hereunder shall have occurred and be continuing; (4) the Mortgagor
shall have delivered to the Mortgagees a certificate of its general
manager or other officer, in form and substance satisfactory to each
of the Mortgagees, which shall state that such consolidation,
merger, conveyance or transfer and such supplemental mortgage comply
with this subsection and that all conditions precedent herein
provided for relating to such transaction have been complied with;
(5) the Mortgagor shall have delivered to the Mortgagees an opinion
of counsel in form and substance satisfactory to each of the
Mortgagees; and (6) the entity formed by such consolidation or with
which the Mortgagor is merged or the corporation which acquires by
conveyance or transfer the Mortgaged Property substantially as an
entirety shall be an entity--(A) having Equity equal to at least 27%
of its Total Assets on a pro forma basis after giving effect to such
transaction, (B) having a pro forma TIER of not less than 1.50 and a
pro forma DSC of not less than 1.25 for each of the two preceding
calendar years, and (C) having Net Utility Plant equal to or greater
than 1.0 times its Total Long-Term Debt on a pro forma basis. Upon
any consolidation or merger or any conveyance or transfer of the
Mortgaged Property substantially as an entirety in accordance with
this subsection, the successor entity formed by such consolidation
or with which the Mortgagor is merged or to which such conveyance or
transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Mortgagor under this Mortgage
with the same effect as if such successor entity had been named as
the Mortgagor herein.
SECTION 3.11. Limitations on Transfers of Property: The
Mortgagor may not, except as provided in [Section 3.10] above,
without the prior written approval of each Mortgagee, sell, lease or
transfer any Mortgaged Property to any other person or entity
(including any subsidiary or affiliate of the Mortgagor), unless (1)
there exists no Event of Default or occurrence which with the
passing of time and the giving of notice would be an Event of
Default, (2) fair market value is obtained for such property, (3)
the aggregate value of assets so sold, leased or transferred in any
12-month period is less than 10% of Net Utility Plant, and (4) the
proceeds of such sale, lease or transfer, less ordinary and
reasonable expenses incident to such transaction, are immediately
(i) applied as a prepayment of all Notes equally and ratably, (ii)
in the case of dispositions of equipment, materials or scrap,
applied to the purchase of other property useful in the Mortgagor's
utility business, not necessarily of the same kind as the property
disposed of, which shall forthwith become subject to the Lien of the
Mortgage, or (iii) applied to the acquisition or construction of
utility plant.
SECTION 3.12. Maintenance of Mortgaged Property: (a) So long as
the Mortgagor holds title to the Mortgaged Property, the Mortgagor
will at all times maintain and preserve the Mortgaged Property which
is used or useful in the Mortgagor's business and each and every
part and parcel thereof in good repair, working order and condition,
ordinary wear and tear and acts of God excepted, and in compliance
with Prudent Utility Practice and in compliance with all applicable
laws, regulations and orders, and will from time to time make all
needed and proper repairs, renewals and replacements, and useful and
proper alterations, additions, betterments and improvements, and
will, subject to contingencies beyond its reasonable control, at all
times use all reasonable diligence to furnish the consumers served
by it through the Mortgaged Property, or any part thereof, with an
adequate supply of electric power and energy. If any substantial
part of the Mortgaged Property is leased by the Mortgagor to any
other party, the lease agreement between the Mortgagor and the
lessee shall obligate the lessee to comply with the provisions of
subsections (a) and (b) of this Section in respect of the leased
facilities and to permit the Mortgagor to operate the leased
facilities in the event of any failure by the lessee to so comply.
(b) If in the sole judgement of any Mortgagee, the Mortgaged
Property is not being maintained and repaired in accordance with
paragraph (a) of this section, such Mortgagee may send to the
Mortgagor a written report of needed improvements and the Mortgagor
will upon receipt of such written report promptly undertake to
accomplish such improvements.
(c) The Mortgagor further agrees that upon reasonable written
request of any Mortgagee, which request together with the requests
of any other Mortgagees shall be made no more frequently than once
every three years, the Mortgagor will supply promptly to each
Mortgagee a certification (hereinafter called the ``Engineer's
Certification''), in form satisfactory to the requestor, prepared by
a professional engineer, who shall be satisfactory to the
Mortgagees, as to the condition of the Mortgaged Property. If in the
sole judgment of any Mortgagee the Engineer's Certification
discloses the need for improvements to the condition of the
Mortgaged Property or any other operations of the Mortgagor, such
Mortgagee may send to the Mortgagor a written report of such
improvements and the Mortgagor will upon receipt of such written
report promptly undertake to accomplish such of these improvements
as are required by such Mortgagee.
SECTION 3.13. Insurance; Restoration of Damaged Mortgaged
Property: (a) The Mortgagor will take out, as the respective risks
are incurred, and maintain the classes and amounts of insurance in
conformance with generally accepted utility industry standards for
such classes and amounts of coverages of utilities of the size and
character of the Mortgagor and consistent with Prudent Utility
Practice.
(b) The foregoing insurance coverage shall be obtained by means
of bond and policy forms approved by regulatory authorities having
jurisdiction, and, with respect to insurance upon any part of the
Mortgaged Property, shall provide that the insurance shall be
payable to the Mortgagees as their interests may appear by means of
the standard mortgagee clause without contribution. Each policy or
other contract for such insurance shall contain an agreement by the
insurer that, notwithstanding any right of cancellation reserved to
such insurer, such policy or contract shall continue in force for at
least 30 days after written notice to each Mortgagee of
cancellation.
(c) In the event of damage to or the destruction or loss of any
portion of the Mortgaged Property which is used or useful in the
Mortgagor's business and which shall be covered by insurance, unless
each Mortgagee shall otherwise agree, the Mortgagor shall replace or
restore such damaged, destroyed or lost portion so that such
Mortgaged Property shall be in substantially the same condition as
it was in prior to such damage, destruction or loss, and
[[Page 36897]]
shall apply the proceeds of the insurance for that purpose. The
Mortgagor shall replace the lost portion of such Mortgaged Property
or shall commence such restoration promptly after such damage,
destruction or loss shall have occurred and shall complete such
replacement or restoration as expeditiously as practicable, and
shall pay or cause to be paid out of the proceeds of such insurance
all costs and expenses in connection therewith.
(d) Sums recovered under any policy or fidelity bond by the
Mortgagor for a loss of funds advanced under the Notes or recovered
by any Mortgagee or any Noteholder for any loss under such policy or
bond shall, unless applied as provided in the preceding paragraph,
be used to finance construction of utility plant secured or to be
secured by this Mortgage, or unless otherwise directed by the
Mortgagees, be applied to the prepayment of the Notes pro rata
according to the unpaid principal amounts thereof (such prepayments
to be applied to such Notes and installments thereof as may be
designated by the respective Mortgagee at the time of any such
prepayment), or be used to construct or acquire utility plant which
will become part of the Mortgaged Property. At the request of any
Mortgagee, the Mortgagor shall exercise such rights and remedies
which they may have under such policy or fidelity bond and which may
be designated by such Mortgagee, and the Mortgagor hereby
irrevocably appoints each Mortgagee as its agent to exercise such
rights and remedies under such policy or bond as such Mortgagee may
choose, and the Mortgagor shall pay all costs and reasonable
expenses incurred by the Mortgagee in connection with such exercise.
SECTION 3.14. Mortgagee Right to Expend Money to Protect
Mortgaged Property: The Mortgagor agrees that any Mortgagee from
time to time hereunder may, in its sole discretion, after having
given 5 Business days prior written notice to Mortgagor, but shall
not be obligated to, advance funds on behalf of Mortgagor, in order
to insure the Mortgagor's compliance with any covenant, warranty,
representation or agreement of the Mortgagor made in or pursuant to
this Mortgage or any of the Loan Agreements, to preserve or protect
any right or interest of the Mortgagees in the Mortgaged Property or
under or pursuant to this Mortgage or any of the Loan Agreements,
including without limitation, the payment of any insurance premiums
or taxes and the satisfaction or discharge of any judgment or any
Lien upon the Mortgaged Property or other property or assets of
Mortgagor; provided, however, that the making of any such advance by
or through any Mortgagee shall not constitute a waiver by any
Mortgagee of any Event of Default with respect to which such advance
is made nor relieve the Mortgagor of any such Event of Default. The
Mortgagor shall pay to a Mortgagee upon demand all such advances
made by such Mortgagee with interest thereon at a rate equal to that
on the Note having the highest interest rate but in no event shall
such rate be in excess of the maximum rate permitted by applicable
law. All such advances shall be included in the obligations and
secured by the security interest granted hereunder.
SECTION 3.15. Time Extensions for Payment of Notes: Any
Mortgagee may, at any time or times in succession without notice to
or the consent of the Mortgagor, or any other Mortgagee, and upon
such terms as such Mortgagee may prescribe, grant to any person,
firm or corporation who shall have become obligated to pay all or
any part of the principal of (and premium, if any) or interest on
any Note held by or indebtedness owed to such Mortgagee or who may
be affected by the lien hereby created, an extension of the time for
the payment of such principal, (and premium, if any) or interest,
and after any such extension the Mortgagor will remain liable for
the payment of such Note or indebtedness to the same extent as
though it had at the time of such extension consented thereto in
writing.
SECTION 3.16. Application of Proceeds from Condemnation: (a) In
the event that the Mortgaged Property or any part thereof, shall be
taken under the power of eminent domain, all proceeds and avails
therefrom may be used to finance construction of utility plant
secured or to be secured by this Mortgage. Any proceeds not so used
shall forthwith be applied by the Mortgagor: first, to the ratable
payment of any indebtedness secured by this Mortgage other than
principal of or interest on the Notes; second, to the ratable
payment of interest which shall have accrued on the Notes and be
unpaid; third, to the ratable payment of or on account of the unpaid
principal of the Notes, to such installments thereof as may be
designated by the respective Mortgagee at the time of any such
payment; and fourth, the balance shall be paid to whomsoever shall
be entitled thereto.
(b) If any part of the Mortgaged Property shall be taken by
eminent domain, each Mortgagee shall release the property so taken
from the Mortgaged Property and shall be fully protected in so doing
upon being furnished with:
(1) A certificate of a duly authorized officer of the Mortgagor
requesting such release, describing the property to be released and
stating that such property has been taken by eminent domain and that
all conditions precedent herein provided or relating to such release
have been complied with; and
(2) an opinion of counsel to the effect that such property has
been lawfully taken by exercise of the right of eminent domain, that
the award for such property so taken has become final and that all
conditions precedent herein provided for relating to such release
have been complied with.
SECTION 3.17. Compliance with Loan Agreements; Notice of
Amendments to and Defaults under Loan Agreements: The Mortgagor will
observe and perform all of the material covenants, agreements, terms
and conditions contained in any Loan Agreement entered into in
connection with the issuance of any of the Notes, as from time to
time amended. The Mortgagor will send promptly to each Mortgagee
notice of any default by the Mortgagor under any Loan Agreement and
notice of any amendment to any Loan Agreement. Upon request of any
Mortgagee, the Mortgagor will furnish to such Mortgagee single
copies of such Loan Agreements and amendments thereto as such
Mortgagee may request.
SECTION 3.18. Rights of Way, etc., Necessary in Business: The
Mortgagor will use its best efforts to obtain all such rights of
way, easements from landowners and releases from lienors as shall be
necessary or advisable in the conduct of its business, and, if
requested by any Mortgagee, deliver to such Mortgagee evidence
satisfactory to such Mortgagee of the obtaining of such rights of
way, easements or releases.
SECTION 3.19. Limitations on Providing Free Electric Services.
The Mortgagor will not furnish or supply or cause to be furnished or
supplied any electric power, energy or capacity free of charge to
any person, firm or corporation, public or private, and the
Mortgagor will enforce the payment of any and all amounts owning to
the Mortgagor by reason of the ownership and operation of the
Utility System by discontinuing such use, output, capacity, or
service, or by filing suit therefor within 90 days after any such
accounts are due, or by both such discontinuance and by filing suit.
SECTION 3.20. Keeping Books; Inspection by Mortgagee: The
Mortgagor will keep proper books, records and accounts, in which
full and correct entries shall be made of all dealings or
transactions of or in relation to the Notes and the Utility Systems,
properties, business and affairs of the Mortgagor in accordance with
the Accounting Requirements. The Mortgagor will at any and all
times, upon the written request of any Mortgagee and at the expense
of the Mortgagor, permit such Mortgagee by its representatives to
inspect the Utility Systems and properties and properties, books of
account, records, reports and other papers of the Mortgagor and to
take copies and extracts therefrom, and will afford and procure a
reasonable opportunity to make any such inspection, and the
Mortgagor will furnish to each Mortgagee any and all such
information as such Mortgagee may request, with respect to the
performance by the Mortgagor of its covenants under this Mortgage,
the Notes and the Loan Agreements.
ARTICLE IV
EVENTS OF DEFAULT AND REMEDIES
SECTION 4.01. Events of Default: Each of the following shall be
an ``Event of Default'' under this Mortgage:
(a) default shall be made in the payment of any installment of
or on account of interest on or principal of (or premium, if any
associated with) any Note or Notes for more than five (5) Business
Days after the same shall be required to be made;
(b) default shall be made in the due observance or performance
of any other of the covenants, conditions or agreements on the part
of the Mortgagor, in any of the Notes, Loan Agreements or in this
Mortgage, and such default shall continue for a period of thirty
(30) days after written notice specifying such default and requiring
the same to be remedied and stating that such notice is a ``Notice
of Default'' hereunder shall have been given to the Mortgagor by any
Mortgagee; PROVIDED, HOWEVER that in the case of a default on the
terms of a Note or Loan Agreement of a particular Mortgagee, the
``Notice of Default'' required under this paragraph may only be
given by that Mortgagee;
[[Page 36898]]
(c) the Mortgagor shall file a petition in bankruptcy or be
adjudicated a bankrupt or insolvent, or shall make an assignment for
the benefit of its creditors, or shall consent to the appointment of
a receiver of itself or of its property, or shall institute
proceedings for its reorganization or proceedings instituted by
others for its reorganization shall not be dismissed within sixty
(60) days after the institution thereof;
(d) a receiver or liquidator of the Mortgagor or of any
substantial portion of its property shall be appointed and the order
appointing such receiver or liquidator shall not be vacated within
sixty (60) days after the entry thereof;
(e) the Mortgagor shall forfeit or otherwise be deprived of its
corporate charter or franchises, permits, easements, or licenses
required to carry on any material portion of its business;
(f) a final judgment for an amount of more than $__________
shall be entered against the Mortgagor and shall remain unsatisfied
or without a stay in respect thereof for a period of sixty (60)
days; or,
(g) any material representation or warranty made by the
Mortgagor herein, in the Loan Agreements or in any certificate or
financial statement delivered hereunder or thereunder shall prove to
be false or misleading in any material respect at the time made.
SECTION 4.02. Acceleration of Maturity; Rescission and
Annulment:
(a) If an Event of Default described in Section [4.01(a)] has
occurred and is continuing, any Mortgagee upon which such default
has occurred may declare the principal of all its Notes secured
hereunder to be due and payable immediately by a notice in writing
to the Mortgagor and to the other Mortgagees (failure to provide
said notice to any other Mortgagee shall not affect the validity of
any acceleration of the Note or Notes by such Mortgagee), and upon
such declaration, all unpaid principal (and premium, if any) and
accrued interest so declared shall become due and payable
immediately, anything contained herein or in any Note or Notes to
the contrary notwithstanding.
(b) If any other Event of Default shall have occurred and be
continuing, any Mortgagee may declare the principal of all its Notes
secured hereunder to be due and payable immediately by a notice in
writing to the Mortgagor and to the other Mortgagees (failure to
provide said notice to any other Mortgagee shall not affect the
validity of any acceleration of the Note or Notes by such
Mortgagee), and upon such declaration, all unpaid principal (and
premium, if any) and accrued interest so declared shall become due
and payable immediately, anything contained herein or in any Note or
Notes to the contrary notwithstanding.
(c) Upon receipt of actual knowledge of or any notice of
acceleration by any Mortgagee, any other Mortgagee may declare the
principal of all of its Notes to be due and payable immediately by a
notice in writing to the Mortgagor and upon such declaration, all
unpaid principal (and premium, if any) and accrued interest so
declared shall become due and payable immediately, anything
contained herein or in any Note or Notes or Loan Agreements to the
contrary notwithstanding.
(d) If after the unpaid principal of (and premium, if any) and
accrued interest on any of the Notes shall have been so declared to
be due and payable, all payments in respect of principal and
interest which shall have become due and payable by the terms of
such Note or Notes (other than amounts due as a result of the
acceleration of the Notes) shall be paid to the respective
Mortgagees, and (i) all other defaults under the Loan Agreements,
the Notes and this Mortgage shall have been made good or cured to
the satisfaction of the Mortgagees representing at least 80% of the
aggregate unpaid principal balance of all of the Notes then
Outstanding, (ii) proceedings to foreclose the lien of this Mortgage
have not been commenced, and (iii) all reasonable expenses paid or
incurred by the Mortgagees in connection with the acceleration shall
have been paid to the respective Mortgagees, then in every such case
such Mortgagees representing at least 80% of the aggregate unpaid
principal balance of all of the Notes then Outstanding may by
written notice to the Mortgagor, for purposes of this Mortgage,
annul such declaration and waive such default and the consequences
thereof, but no such waiver shall extend to or affect any subsequent
default or impair any right consequent thereon.
SECTION 4.03. Remedies of Mortgagees: If one or more of the
Events of Default shall occur and be continuing, any Mortgagee
personally or by attorney, in its or their discretion, may, in so
far as not prohibited by law:
(a) take immediate possession of the Mortgaged Property, collect
and receive all credits, outstanding accounts and bills receivable
of the Mortgagor and all rents, income, revenues, proceeds and
profits pertaining to or arising from the Mortgaged Property, or any
part thereof, whether then past due or accruing thereafter, and
issue binding receipts therefor; and manage, control and operate the
Mortgaged Property as fully as the Mortgagor might do if in
possession thereof, including, without limitation, the making of all
repairs or replacements deemed necessary or advisable by such
Mortgagee in possession;
(b) proceed to protect and enforce the rights of all of the
Mortgagees by suits or actions in equity or at law in any court or
courts of competent jurisdiction, whether for specific performance
of any covenant or any agreement contained herein or in aid of the
execution of any power herein granted or for the foreclosure hereof
or hereunder or for the sale of the Mortgaged Property, or any part
thereof, or to collect the debts hereby secured or for the
enforcement of such other or additional appropriate legal or
equitable remedies as may be deemed necessary or advisable to
protect and enforce the rights and remedies herein granted or
conferred, and in the event of the institution of any such action or
suit the Mortgagee instituting such action or suit shall have the
right to have appointed a receiver of the Mortgaged Property and of
all proceeds, rents, income, revenues and profits pertaining thereto
or arising therefrom, whether then past due or accruing after the
appointment of such receiver, derived, received or had from the time
of the commencement of such suit or action, and such receiver shall
have all the usual powers and duties of receivers in like and
similar cases, to the fullest extent permitted by law, and if
application shall be made for the appointment of a receiver the
Mortgagor hereby expressly consents that the court to which such
application shall be made may make said appointment; and
(c) sell or cause to be sold all and singular the Mortgaged
Property or any part thereof, and all right, title, interest, claim
and demand of the Mortgagor therein or thereto, at public auction at
such place in any county (or its equivalent locality) in which the
property to be sold, or any part thereof, is located, at such time
and upon such terms as may be specified in a notice of sale, which
shall state the time when and the place where the sale is to be
held, shall contain a brief general description of the property to
be sold, and shall be given by mailing a copy thereof to the
Mortgagor at least fifteen (15) days prior to the date fixed for
such sale and by publishing the same once in each week for two
successive calendar weeks prior to the date of such sale in a
newspaper of general circulation published in said locality or, if
no such newspaper is published in such locality, in a newspaper of
general circulation in such locality, the first such publication to
be not less than fifteen (15) days nor more than thirty (30) days
prior to the date fixed for such sale. Any sale to be made under
this subparagraph (c) of this Section [4.03] may be adjourned from
time to time by announcement at the time and place appointed for
such sale or for such adjourned sale or sales, and without further
notice or publication the sale may be had at the time and place to
which the same shall be adjourned; provided, however, that in the
event another or different notice of sale or another or different
manner of conducting the same shall be required by law the notice of
sale shall be given or the sale be conducted, as the case may be, in
accordance with the applicable provisions of law. The expense
incurred by any Mortgagee (including, but not limited to, receiver's
fees, counsel fees, cost of advertisement and agents' compensation)
in the exercise of any of the remedies provided in this Mortgage
shall be secured by this Mortgage.
(d) In the event that a Mortgagee proceeds to enforce remedies
under this Section, any other Mortgagee may join in such
proceedings. In the event that the Mortgagees are not in agreement
with the method or manner of enforcement chosen by any other
Mortgagee, the Mortgagees representing a majority of the aggregate
unpaid principal balance on the then Outstanding Notes may direct
the method and manner in which remedial action will proceed.
SECTION 4.04. Application of Proceeds from Remedial Actions: Any
proceeds or funds arising from the exercise of any rights or the
enforcement of any remedies herein provided after the payment or
provision for the payment of any and all costs and expenses in
connection with the exercise of such rights or the enforcement of
such remedies shall be applied first, to the ratable
[[Page 36899]]
payment of indebtedness hereby secured other than the principal of or
interest on the Notes; second, to the ratable payment of interest
which shall have accrued on the Notes and which shall be unpaid;
third, to the ratable payment of or on account of the unpaid
principal of the Notes; and the balance, if any, shall be paid to
whomsoever shall be entitled thereto.
SECTION 4.05. Remedies Cumulative; No Election: Every right or
remedy herein conferred upon or reserved to the Mortgagees or to the
Noteholders shall be cumulative and shall be in addition to every
other right and remedy given hereunder or now or hereafter existing
at law, or in equity, or by statute. The pursuit of any right or
remedy shall not be construed as an election.
SECTION 4.06. Waiver of Appraisement Rights; Marshaling of
Assets Not Required: The Mortgagor, for itself and all who may claim
through or under it, covenants that it will not at any time insist
upon or plead, or in any manner whatever claim, or take the benefit
or advantage of, any appraisement, valuation, stay, extension or
redemption laws now or hereafter in force in any locality where any
of the Mortgaged Property may be situated, in order to prevent,
delay or hinder the enforcement or foreclosure of this Mortgage, or
the absolute sale of the Mortgaged Property, or any part thereof, or
the final and absolute putting into possession thereof, immediately
after such sale, of the purchaser or purchasers thereat, and the
Mortgagor, for itself and all who may claim through or under it,
hereby waives the benefit of all such laws unless such waiver shall
be forbidden by law. Under no circumstances shall there be any
marshalling of assets upon any foreclosure or to other enforcement
of this Mortgage.
SECTION 4.07. Notice of Default: The Mortgagor covenants that it
will give immediate written notice to each Mortgagee of the
occurrence of any Event of Default or in the event that any right or
remedy described in Sections [4.02] and [4.03] hereof is exercised
or enforced or any action is taken to exercise or enforce any such
right or remedy.
ARTICLE V--POSSESSION UNTIL DEFAULT-DEFEASANCE CLAUSE
SECTION 5.01. Possession Until Default: Until some one or more
of the Events of Default shall have happened, the Mortgagor shall be
suffered and permitted to retain actual possession of the Mortgaged
Property, and to manage, operate and use the same and any part
thereof, with the rights and franchises appertaining thereto, and to
collect, receive, take, use and enjoy the rents, revenues, issues,
earnings, income, proceeds, products and profits thereof or
therefrom, subject to the provisions of this Mortgage.
SECTION 5.02. Defeasance: If the Mortgagor shall pay or cause to
be paid the whole amount of the principal of (and premium, if any)
and interest on the Notes at the times and in the manner therein
provided, and shall also pay or cause to be paid all other sums
payable by the Mortgagor hereunder or under any Loan Agreement and
shall keep and perform, all covenants herein required to be kept and
performed by it, then and in that case, all property, rights and
interest hereby conveyed or assigned or pledged shall revert to the
Mortgagor and the estate, right, title and interest of the Mortgagee
so paid shall thereupon cease, determine and become void and such
Mortgagee, in such case, on written demand of the Mortgagor but at
the Mortgagor's cost and expense, shall enter satisfaction of the
Mortgage upon the record. In any event, each Mortgagee, upon payment
in full to such Mortgagee by the Mortgagor of all principal of (and
premium, if any) and interest on any Note held by such Mortgagee and
the payment and discharge by the Mortgagor of all charges due to
such Mortgagee hereunder or under any Loan Agreement, shall execute
and deliver to the Mortgagor such instrument of satisfaction,
discharge or release as shall be required by law in the
circumstances.
SECTION 5.03. Special Defeasance: Other than any Notes excluded
by the foregoing Sections 5.01 and 5.02 and Notes which have become
due and payable, the Mortgagor may cause the Lien of this Mortgage
to be defeased with respect to any Note for which it has deposited
or caused to be deposited in trust solely for the purpose an amount
sufficient to pay and discharge the entire indebtedness on such Note
for principal (and premium, if any) and interest to the date of
maturity thereof; PROVIDED, HOWEVER, that depository serving as
trustee for such trust must first be accepted as such by the
Mortgagee whose Notes are being defeased under this section. In such
event, such a Note will no longer be considered to be an Outstanding
Note for purposes of this Mortgage and the Mortgagee shall execute
and deliver to the Mortgagor such instrument of satisfaction,
discharge or release as shall be required by law in the
circumstances.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Property Deemed Real Property: It is hereby
declared to be the intention of the Mortgagor that any electric
generating plant or plants and facilities and all electric
transmission and distribution lines, or other Electric System or
Utility System facilities, embraced in the Mortgaged Property,
including (without limitation) all rights of way and easements
granted or given to the Mortgagor or obtained by it to use real
property in connection with the construction, operation or
maintenance of such plant, lines, facilities or systems, and all
other property physically attached to any of the foregoing, shall be
deemed to be real property.
SECTION 6.02. Mortgage to Bind and Benefit Successors and
Assigns: All of the covenants, stipulations, promises, undertakings
and agreements herein contained by or on behalf of the Mortgagor
shall bind its successors and assigns, whether so specified or not,
and all titles, rights and remedies hereby granted to or conferred
upon the Mortgagees shall pass to and inure to the benefit of the
successors and assigns of the Mortgagees and shall be deemed to be
granted or conferred for the ratable benefit and security of all who
shall from time to time be a Mortgagee. The Mortgagor hereby agrees
to execute such consents, acknowledgements and other instruments as
may be reasonably requested by any Mortgagee in connection with the
assignment, transfer, mortgage, hypothecation or pledge of the
rights or interests of such Mortgagee hereunder or under the Notes
or in and to any of the Mortgaged Property.
SECTION 6.03. Headings: The descriptive headings of the various
articles and sections of this Mortgage and also the table of
contents were formulated and inserted for convenience only and shall
not be deemed to affect the meaning or construction of any of the
provisions hereof.
SECTION 6.04. Severability Cause: In case any provision of this
Mortgage or in the Notes or in the Loan Agreements shall be invalid
or unenforceable, the validity, legality and enforceability of the
remaining provisions thereof shall not in any way be affected or
impaired, nor shall any invalidity or unenforceability as to any
Mortgagee hereunder affect or impair the rights hereunder of any
other Mortgagee.
SECTION 6.05. Mortgage Deemed Security Agreement: To the extent
that any of the property described or referred to in this Mortgage
is governed by the provisions of the UCC this Mortgage is hereby
deemed a ``security agreement'' under the UCC, and, if so elected by
any Mortgagee, a ``financing statement'' under the UCC for said
security agreement. The mailing addresses of the Mortgagor as
debtor, and the Mortgagees as secured parties are as set forth in
Section [1.05] hereof. If any Mortgagee so directs the Mortgagor to
do so, the Mortgagor shall file as a financing statement under the
UCC for said security agreement and for the benefit of all of the
Mortgagees, an instrument other than this Mortgage. In such case,
the instrument to be filed shall be in a form customarily accepted
by the filing office as a financing statement. PROCEEDS OF
COLLATERAL ARE COVERED HEREBY.
SECTION 6.06. Indemnification by Mortgagor of Mortgagees: The
Mortgagor agrees to indemnify and save harmless each Mortgagee
against any liability or damages which any of them may incur or
sustain in the exercise and performance of their rightful powers and
duties hereunder. For such reimbursement and indemnity, each
Mortgagee shall be secured under this Mortgage in the same manner as
the Notes and all such reimbursements for expense or damage shall be
paid to the Mortgagee incurring or suffering the same with interest
at the rate specified in Section [3.14] hereof. The Mortgagor's
obligation to indemnify the Mortgagees under this section and under
Section [3.04] shall survive the satisfaction of the Notes, the
reconveyance or foreclosure of this Mortgage, the acceptance of a
deed in lieu of foreclosure, or any transfer or abandonment of the
Mortgaged Property.
IN WITNESS WHEREOF, __________ as Mortgagor, has caused this
Restated Mortgage and Security Agreement to be signed in its name
and its corporate seal to be hereunto affixed and attested by its
officers thereunto duly authorized, and UNITED STATES OF AMERICA, as
Mortgagee, and as Mortgagee, has caused this Restated Mortgage and
Security Agreement to be signed in its name by duly authorized
persons, all as of the day and year first above written.
[[Page 36900]]
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(SEAL)
By:--------------------------------------------------------------------
President
Attest:----------------------------------------------------------------
Title:-----------------------------------------------------------------
Executed by the Mortgagor in the presence of:
----------------------------------------------------------------------
----------------------------------------------------------------------
Witnesses
UNITED STATES OF AMERICA
By: Director, of the __________ Rural Utilities Service
Executed by the United States of America, Mortgagee, in the
presence of:
----------------------------------------------------------------------
----------------------------------------------------------------------
Witnesses
By:
(SEAL)
Attest:----------------------------------------------------------------
Title:-----------------------------------------------------------------
Executed by the above-named Mortgagee in the presence of:
----------------------------------------------------------------------
----------------------------------------------------------------------
Witnesses
Schedule A
1. The Maximum Debt Limit is __________.
2. The Original Mortgage as described in the [first] WHEREAS
clause above is __________.
3. The outstanding secured indebtedness described in the
[fourth] WHEREAS clause above as evidenced by the Original Notes is
as follows:
[Note this requires computation of principal balances, not
merely a toting up of the original face amounts of the notes.
Alternative approaches may be used by the parties where legally
effective and mutually agreeable.]
Schedule B--Property Schedule
The fee and leasehold interests in real property referred to in
Section Subclause (a) of Granting Clause One are __________.
The counties referred to in Subclause (B) of Granting Clause One
are __________.
Schedule C--Excepted Property
STATE OF __________
COUNTY OF __________
On this ______ day of __________, 19 ____, before me appeared
__________ and __________ personally known, by me and having been
duly sworn by me, did say that they are the President and Secretary,
respectively, of ________________, a __________ corporation, and
that the seal affixed to the foregoing instrument is the corporate
seal of said corporation, and that said instrument was signed and
sealed in behalf of said corporation by authority of its Board, and
said __________ and __________ acknowledged that the execution of
said instrument was a free act and deed of said corporation.
IN WITNESS whereof, I have hereunto set my hand and official
seal the day and year last above written.
----------------------------------------------------------------------
Notary Public
(Notarial Seal)
My commission expires:
DISTRICT OF COLUMBIA ) SS
The foregoing instrument was acknowledged before me
this__________ day of 19______, by __________ Director, __________
Regional Division of the Rural Utilities Service, acknowledging an
agency of the United States of America, on behalf of the Rural
Utilities Service, United States of America.
----------------------------------------------------------------------
Notary Public
(Notarial Seal)
My Commission expires:
COMMONWEALTH OF VIRGINIA ) SS
BEFORE ME, a Notary Public, in and for the Commonwealth of
Virginia, appeared in person __________, signing for the Governor of
the National Rural Utilities cooperative Finance Corporation, to me
personally known, and known to be the identical person who
subscribed the name of said corporation to the foregoing instrument,
being by me duly sworn, and who stated that she/he is duly
authorized to execute the foregoing instrument on behalf of said
corporation, and further stated and acknowledged that she/he
executed the foregoing instrument as a free and voluntary act and
deed of said corporation for the consideration therein mentioned and
set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official
seal this ______day of __________, 19______.
----------------------------------------------------------------------
Notary Public
(Notarial Seal)
My commission expires:
Exhibit A--Manager's Certificate
Manager's Certificate Required Under Mortgage Section 2.01 for
Additional Notes
On behalf on __________[Name of Borrower] (the ``Borrower''), I
__________ hereby certify as follows:
1. I am the Manager of the Borrower and have been duly
authorized to deliver this certificate in connection with the
Additional Note or Notes to be issued on or about __________ [Date
Note or Notes are to be Signed] pursuant to Section [2.01] of the
Mortgage dated __________.
2. No Event of Default has occurred and is continuing under the
Mortgage, or any event which with the giving of notice or lapse of
time or both would become an Event of Default has occurred and is
continuing.
3. The Additional Notes described in paragraph 1 are for the
purpose of funding Property Additions being constructed, acquired,
procured or replaced that are or will become part of the Borrower's
Utility System.
4. The Property Additions referred to in paragraph 3 are
Eligible Property Additions, i.e. Property Additions acquired or
whose construction was completed not more than 5 years prior to the
issuance of additional Notes and Property Additions acquired or
whose construction is started and/or completed not more than 4 years
after issuance of the additional Notes, but shall exclude any
Property Additions financed by any other debt secured under the
Mortgage at the time additional Notes are issued.
5. I have reviewed the certificate of the Independent certified
public accountant also being delivered to each of the Mortgagees
pursuant to Section [2.01] in connection with the aforesaid
Additional Note or Notes and concur with the conclusions expressed
therein.
6. Capitalized terms that are used in this certificate but are
not defined herein have the meanings defined in the Mortgage.
[Signed]---------------------------------------------------------------
[Dated]----------------------------------------------------------------
[Name]-----------------------------------------------------------------
[Title]----------------------------------------------------------------
[Name and Address of Borrower]-----------------------------------------
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----------------------------------------------------------------------
Exhibit B--Form of Supplemental Mortgage
----------------------------------------------------------------------
Supplemental Mortgage and Security Agreement, dated as of
__________, ______, ________, (hereinafter sometimes called this
``Supplemental Mortgage'') is made by and between __________
(hereinafter called the ``Mortgagor''), a corporation existing under
the laws of the State of __________, and the UNITED STATES OF
AMERICA acting by and through the Administrator of the Rural
Utilities Service (hereinafter called the ``Government''),
__________
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