-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
ABBd3E/xAzCTqSKPpTWsRoT0iqfAaFqwzhTnNY2iWthCyhdEXkzsC1YSpzSPkeuy
QF1o8VKTfkKu8R7wn9nI9w==
<SEC-DOCUMENT>0000950124-99-001483.txt : 19990226
<SEC-HEADER>0000950124-99-001483.hdr.sgml : 19990226
ACCESSION NUMBER: 0000950124-99-001483
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 19
CONFORMED PERIOD OF REPORT: 19981231
FILED AS OF DATE: 19990225
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DTE ENERGY CO
CENTRAL INDEX KEY: 0000936340
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911]
IRS NUMBER: 383217752
STATE OF INCORPORATION: MI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-11607
FILM NUMBER: 99550325
BUSINESS ADDRESS:
STREET 1: 2000 2ND AVENUE
STREET 2: ROOM 2412
CITY: DETRIOT
STATE: MI
ZIP: 48226-1279
BUSINESS PHONE: 3132354000
MAIL ADDRESS:
STREET 1: 2000 2ND AVENUE
STREET 2: ROOM 2412
CITY: DETRIOT
STATE: MI
ZIP: 48226
FORMER COMPANY:
FORMER CONFORMED NAME: DTE HOLDINGS INC
DATE OF NAME CHANGE: 19950127
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: DETROIT EDISON CO
CENTRAL INDEX KEY: 0000028385
STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911]
IRS NUMBER: 380478650
STATE OF INCORPORATION: MI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-02198
FILM NUMBER: 99550326
BUSINESS ADDRESS:
STREET 1: 2000 SECOND AVE - 2112 WCB
CITY: DETROIT
STATE: MI
ZIP: 48226
BUSINESS PHONE: 3132378000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION REGISTRANTS; STATE OF INCORPORATION; I.R.S. EMPLOYER
FILE NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
- ----------- ----------------------------- ------------------
1-11607 DTE Energy Company 38-3217752
(a Michigan corporation)
2000 2nd Avenue
Detroit, Michigan 48226-1279
313-235-4000
1-2198 The Detroit Edison Company 38-0478650
(a Michigan corporation)
2000 2nd Avenue
Detroit, Michigan 48226-1279
313-235-8000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
DTE ENERGY COMPANY
- ------------------
New York and Chicago Stock Exchanges
Common Stock, without par value, with contingent preferred stock purchase
rights
THE DETROIT EDISON COMPANY
- --------------------------
Quarterly Income Debt Securities (QUIDS)
(Junior Subordinated Deferrable Interest Debentures New York Stock Exchange
- 7.625%, 7.54% and 7.375% Series)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
-------------------
(TITLE OF CLASS)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At January 31, 1999, 145,060,367 shares of DTE Energy's Common Stock,
substantially all held by non-affiliates, were outstanding, with an aggregate
market value of approximately $5,884,011,136 based upon the closing price on the
New York Stock Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in DTE Energy Company's definitive Proxy Statement for its
1999 Annual Meeting of Common Shareholders to be held April 28, 1999, which will
be filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the end of the Registrants' fiscal year covered by
this report on Form 10-K, is incorporated herein by reference to Part III (Items
10, 11, 12 and 13) of this Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
DTE ENERGY COMPANY
AND
THE DETROIT EDISON COMPANY
FORM 10-K
YEAR ENDED DECEMBER 31, 1998
This document contains the Annual Reports on Form 10-K for the fiscal year
ended December 31, 1998 for each of DTE Energy Company and The Detroit Edison
Company. Information contained herein relating to an individual registrant is
filed by such registrant on its own behalf. Accordingly, except for its
subsidiaries, The Detroit Edison Company makes no representation as to
information relating to DTE Energy Company or any other companies affiliated
with DTE Energy Company.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions............................................................................................. 4
ANNUAL REPORT ON FORM 10-K FOR DTE ENERGY COMPANY:
Part I - Item 1 - Business..................................................................... 5
Item 2 - Properties................................................................... 13
Item 3 - Legal Proceedings............................................................ 14
Item 4 - Submission of Matters to a Vote of Security Holders.......................... 15
Part II - Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters..................................................... 15
Item 6 - Selected Financial Data...................................................... 16
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 17
Item 7A- Quantitative and Qualitative
Disclosure About Market Risk (Included in Item 7)....................... 17
Item 8 - Financial Statements and Supplementary Data.................................. 32
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................... 72
Part III - Items 10, 11, 12 and 13 - (Incorporated by reference from DTE Energy Company's
definitive Proxy Statement which will be filed with the
Securities and Exchange Commission, pursuant to Regulation 14A,
not later than 120 days after the end of the fiscal year)............... 72
ANNUAL REPORT ON FORM 10-K FOR THE DETROIT EDISON COMPANY:
Part I - Item 1 - Business..................................................................... 73
Item 2 - Properties................................................................... 74
Item 3 - Legal Proceedings............................................................ 74
Item 4 - Submission of Matters to a Vote of Security Holders.......................... 74
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Part II - Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters..................................................... 74
Item 6 - Selected Financial Data...................................................... 75
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 75
Item 8 - Financial Statements and Supplementary Data.................................. 75
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................... 78
Part III - Item 10 - Directors and Executive Officers of the Registrant.......................... 78
Item 11 - Executive Compensation...................................................... 78
Item 12 - Security Ownership of Certain Beneficial Owners and
Management.............................................................. 78
Item 13 - Certain Relationships and Related Transactions.............................. 78
ANNUAL REPORTS ON FORM 10-K FOR DTE ENERGY COMPANY AND
THE DETROIT EDISON COMPANY:
Part IV - Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K............................................................. 79
Signature Page to DTE Energy Company Annual Report on Form 10-K......................................... 92
Signature Page to The Detroit Edison Company Annual Report on Form 10-K................................. 93
</TABLE>
3
<PAGE> 4
DEFINITIONS
<TABLE>
<S> <C>
Company.......................... DTE Energy Company and Subsidiary Companies
Consumers........................ Consumers Energy Company (a wholly owned subsidiary of
CMS Energy Corporation)
Detroit Edison................... The Detroit Edison Company (a wholly owned subsidiary of
DTE Energy Company) and Subsidiary Companies
Direct Access.................... Gives all retail customers equal opportunity to utilize the transmission
system which results in access to competitive generation resources
EPA.............................. United States Environmental Protection Agency
FERC............................. Federal Energy Regulatory Commission
kWh.............................. Kilowatthour
Ludington........................ Ludington Hydroelectric Pumped Storage Plant (owned jointly
with Consumers)
MDEQ............................. Michigan Department of Environmental Quality
MPSC............................. Michigan Public Service Commission
MW............................... Megawatt
Note............................. Notes to Consolidated Financial Statements of the Company
and Detroit Edison
NRC.............................. Nuclear Regulatory Commission
PSCR............................. Power Supply Cost Recovery
Registrant....................... Company or Detroit Edison, as the case may be
SALP............................. Systematic Assessment of Licensee Performance
SEC.............................. Securities and Exchange Commission
SFAS............................. Statement of Financial Accounting Standards
</TABLE>
4
<PAGE> 5
ANNUAL REPORT ON FORM 10-K FOR DTE ENERGY COMPANY
PART I
ITEM 1 - BUSINESS.
GENERAL
The Company, a Michigan corporation incorporated in 1995, is an exempt
holding company under the Public Utility Holding Company Act. As a result of the
1996 corporate restructuring, the Company became the parent holding company of
Detroit Edison and certain previously wholly-owned Detroit Edison subsidiaries.
The Company has no operations of its own, holding instead directly or
indirectly, the stock of Detroit Edison and other subsidiaries engaged in
energy-related businesses. Detroit Edison is the Company's principal operating
subsidiary, representing approximately 91% and 94% of the Company's assets and
revenues, respectively, at December 31, 1998. The Company has no employees.
Detroit Edison has 8,482 employees and other Company affiliates have 299
employees.
NON-REGULATED OPERATIONS
Affiliates of the Company are engaged in non-regulated businesses,
including energy-related services and products. Such services and products
include the operation of a pulverized coal facility and coke oven batteries,
coal sourcing, blending and transportation, landfill gas-to-energy facilities,
providing expertise in the application of new energy technologies, real estate
development, power marketing, specialty engineering services and retail
marketing of energy and other convenience products. Another affiliate, DTE
Capital Corporation, provides financial services to the Company's non-regulated
affiliates.
Non-regulated operating revenues of $319 million for 1998 were earned
primarily from projects related to the steel industry.
UTILITY OPERATIONS
Detroit Edison, incorporated in Michigan since 1967, is a public utility
subject to regulation by the MPSC and FERC and is engaged in the generation,
purchase, transmission, distribution and sale of electric energy in a 7,600
square mile area in Southeastern Michigan. Detroit Edison's service area
includes about 13% of Michigan's total land area and about half of its
population (approximately five million people). Detroit Edison's residential
customers reside in urban and rural areas, including an extensive shoreline
along the Great Lakes and connecting waters. 3,733 of Detroit Edison's 8,482
employees are represented by unions under two collective bargaining agreements.
One agreement expires in June 1999 for 3,174 employees and the other agreement
expires in August 2000 for 559 employees.
5
<PAGE> 6
Operating revenues, sales and customer data by rate class are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
Operating Revenues (Millions)
<S> <C> <C> <C>
Electric
Residential $ 1,253 $ 1,179 $ 1,198
Commercial 1,553 1,501 1,506
Industrial 753 726 731
Other 343 251 207
---------------------------------------------------
Total $ 3,902 $ 3,657 $ 3,642
===================================================
<CAPTION>
Sales (Millions of kWh)
Electric
Residential 13,752 12,898 12,949
Commercial 18,897 17,997 17,706
Industrial 14,700 14,345 14,062
Other 2,357 1,855 1,690
---------------------------------------------------
Total System 49,706 47,095 46,407
Interconnection 5,207 3,547 2,046
---------------------------------------------------
Total 54,913 50,642 48,453
===================================================
<CAPTION>
Electric Customers at Year-End (Thousands)
Electric
Residential 1,884 1,870 1,847
Commercial 181 178 175
Industrial 1 1 1
Other 2 2 2
---------------------------------------------------
Total 2,068 2,051 2,025
===================================================
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Detroit Edison generally experiences its peak load and highest total system
sales during the third quarter of the year as a result of air conditioning and
cooling-related loads.
During 1998, sales to automotive and automotive-related customers accounted
for approximately 9% of total Detroit Edison operating revenues. Detroit
Edison's 30 largest industrial customers accounted for approximately 17% of
total operating revenues in 1998, 1997 and 1996, but no one customer accounted
for more than 3% of total operating revenues.
Detroit Edison's generating capability is primarily dependent upon coal.
Detroit Edison expects to obtain the majority of its coal requirements through
long-term contracts and the balance through short-term agreements and spot
purchases. Detroit Edison has contracts with four coal suppliers for a total
purchase of up to 54 million tons of low-sulfur western coal to be delivered
during the period from 1999 through 2005. It also has several contracts for the
purchase of approximately 1 million tons of Appalachian coal with varying
contract expiration dates through 1999. These existing long-term coal
6
<PAGE> 7
contracts include provisions for market price reopeners and price escalation as
well as de-escalation.
CERTAIN FACTORS AFFECTING PUBLIC UTILITIES
The electric utility industry is changing as the transition to competition
occurs. MPSC orders issued in 1997 and 1998 form the beginning of the
restructuring of the Michigan electric public utility industry. The
implementation of restructuring creates uncertainty as direct access and the
unbundling of utility products and services are introduced.
Restructuring legislation has not been adopted in Michigan although
restructuring is proceeding based upon guidelines set forth in various MPSC
orders. The MPSC, as a policy matter, has ruled that public utilities should
recover stranded costs, arising as a result of the transition to competition,
but many details concerning the orderly recovery of such costs, including the
operation of a true-up mechanism, are yet to be decided.
Restructuring presents other serious issues, such as planning for peak
sales and defining the scope of the public utility obligation. The introduction
of direct access has created uncertainty regarding the timing and level of
customer load that may move to other suppliers and the extent of back-up
capacity that Detroit Edison could be obligated to provide.
Companion FERC rulings are necessary for orderly transition in the
competitive bulk power supply markets, and procedures, as well as new equipment,
are necessary for the development of open access to transmission lines.
Detroit Edison is subject to extensive environmental regulation. Additional
costs may result as the effects of various chemicals on the environment
(including nuclear waste) are studied and governmental regulations are developed
and implemented. In addition, the impact of proposed EPA ozone transport
regulations and final new air quality standards relating to particulate air
pollution are unknown. The costs of future nuclear decommissioning activities
are the subject of increased regulatory attention, and recovery of environmental
costs through traditional ratemaking is the subject of considerable uncertainty.
REGULATION AND RATES
MICHIGAN PUBLIC SERVICE COMMISSION. Detroit Edison is subject to the
general regulatory jurisdiction of the MPSC, which, from time to time, issues
its orders pertaining to Detroit Edison's conditions of service, rates and
recovery of certain costs, accounting and various other matters.
As discussed in Notes 1 and 2, MPSC orders issued in 1997 and 1998 have provided
the beginning of the restructuring of the Michigan electric utility industry.
Other restructuring and regulatory matters are discussed below.
7
<PAGE> 8
In March 1998, Detroit Edison filed its 1997 PSCR Reconciliation Case with the
MPSC. PSCR costs were underrecovered by $2.7 million and when combined with
Fermi 2 performance standards, would result in a refund to customers of
approximately $21 million. An order is expected in the first quarter of 1999.
In September 1998, Detroit Edison filed its 1999 PSCR case. Fuel and purchased
power costs for 1999 are projected to increase by up to 25 percent, on average,
over the corresponding forecast for 1998. An order is expected by the third
quarter of 1999. Detroit Edison plans to file its 1998 PSCR Reconciliation Case
with the MPSC in March 1999.
In an order issued December 28, 1998 related to the 1988 Settlement Agreement
regarding Fermi 2, the MPSC requested parties to file briefs discussing whether
the past MPSC orders surrounding Fermi 2 (including the June 1995 order
regarding the retail wheeling experiment,the November 1997 order that reflected
the net effect of the $53 million reduction associated with the Fermi 2 phase in
for 1998 and a two-year amortization of incremental storm damage costs, and the
December 1998 order regarding the accelerated amortization of Fermi 2) have
fully accounted for the reductions in the Fermi 2 cost of service and, if not,
what additional actions should be taken, as well as what actions are needed to
revert to non-phase-in ratemaking in 2000. Detroit Edison indicated that the
MPSC does not need to take any further actions on this matter. Other parties
argue, among other things, that the MPSC should order that a general rate case
be filed by Detroit Edison.
In July 1998, Detroit Edison filed a required review of its current depreciation
expense with the MPSC. The application requested an effective increase in annual
depreciation expenses of $66 million; an adjustment in rates was not requested.
An order may be issued by the MPSC in the first quarter of 1999.
Detroit Edison filed an application with the MPSC in June 1998 requesting
approval of its direct access plan and accounting authority to defer costs that
would be incurred to implement direct access. In its filing, Detroit Edison
estimated that the cost to implement direct access would be approximately $168
million. Detroit Edison awaits further rulings by the MPSC.
Detroit Edison is under an obligation to solicit capacity from external
suppliers, whenever it determines that additional capacity is required. Detroit
Edison has issued two Requests for Proposal (RFP) in response to that
requirement. The first RFP was issued in May 1998 for capacity during 1998 and
1999, and the second RFP was issued in January 1999 for capacity from June 1999
through May 2002. There was minimal response to the May 1998 request, and
although there have been several responses to the January 1999 request, no
offers to provide Michigan generation by June 1999 have been received.
In February 1999, Detroit Edison filed a capacity plan with the MPSC outlining
its assessment and needs for capacity for the summer of 1999. Detroit Edison
indicated it will need to purchase approximately 2,000 MW of capacity to
supplement internal
8
<PAGE> 9
generation to reliably meet projected peak loads in 1999, and plans to add
approximately 550 MW of additional internal capacity.
Detroit Edison has contested the statutory authority of the MPSC to order a
direct access experiment. In October 1998 the Michigan Supreme court granted
Detroit Edison and other parties to the proceeding leave to appeal from a
January 1998 order of the Michigan Court of Appeals finding that the MPSC did
have statutory authority to authorize experimental direct access. Although
Detroit Edison expects to drop its appeal when a satisfactory clarifying order
is issued on the December 1998 order regarding the accelerated amortization of
Fermi 2, other parties may continue their appeals, and neither the Company nor
Detroit Edison is able to predict the final outcome or timing of these
proceedings. Oral arguments are scheduled for March 1999.
NUCLEAR REGULATORY COMMISSION. The NRC has regulatory jurisdiction over all
phases of the operation, construction (including plant modifications), licensing
and decommissioning of Fermi 2.
ENVIRONMENTAL MATTERS
DETROIT EDISON
Detroit Edison, in common with other electric utilities, is subject to
applicable permit and associated record keeping requirements, and to
increasingly stringent federal, state and local standards covering, among other
things, particulate and gaseous stack emission limitations, the discharge of
effluents (including heated cooling water) into lakes and streams and the
handling and disposal of waste material.
AIR. During 1997 and 1998, the EPA issued proposed ozone transport
regulations and final new air quality standards relating to ozone and
particulate air pollution. The proposed new rules will lead to additional
controls on fossil-fueled power plants to reduce nitrogen oxides, sulfur
dioxide, carbon dioxide and particulate emissions. See "Item 7 - Environmental
Matters" for further discussion.
WATER. Detroit Edison is required to demonstrate that the cooling water
intake structures at all of its facilities reflect the "best technology
available for minimizing adverse environmental impact." Detroit Edison filed
such demonstrations and the MDEQ Staff accepted all of them except those
relating to the St. Clair and Monroe Power Plants for which it requested further
information. Detroit Edison subsequently submitted the information. In the event
of a final adverse decision, Detroit Edison may be required to install
additional control technologies to further minimize the impact.
WASTES AND TOXIC SUBSTANCES. The Michigan Solid Waste and Hazardous Waste
Management Acts, the Michigan Environmental Response Act, the Federal Resource
Conservation and Recovery Act, Toxic Substances Control Act, and the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
regulate Detroit Edison's handling, storage and disposal of its waste materials.
9
<PAGE> 10
The EPA and the MDEQ have aggressive programs regarding the clean-up of
contaminated property. Detroit Edison has extensive land holdings and, from time
to time, must investigate claims of improperly disposed of contaminants. Detroit
Edison anticipates that it will be periodically included in these types of
environmental proceedings.
CONNERS CREEK. The Conners Creek Power Plant was in reserve status from
1988 to 1998. In April, 1998 the MPSC issued an order granting Detroit Edison's
request to waive competitive bidding for Conners Creek and restart the plant.
Although Detroit Edison believed that the plant complied with all applicable
environmental requirements, the Michigan Department of Natural Resources and the
Wayne County Air Quality Management Division issued notices of violation
contending that Detroit Edison was required to obtain a series of new permits
prior to plant operation. Subsequently the EPA issued a similar notice of
violation.
Detroit Edison conducted tests on the Conners Creek boilers and turbine during
June and July 1998. Following testing of the igniters, the boilers and turbine
were run for varying periods during the last week in June and the first week in
July to conduct a series of tests, including tests on the upgraded controls
systems and the turbine generator maximum load test. The only generation from
the plant was to allow the plant to complete these tests. The plant was never
dispatched by the Michigan Electric Coordinating System (MECS) in Ann Arbor to
meet power demands. In addition, the gas igniters were fired during the first
three days of September to dry out the boilers following draining of all water
from the equipment.
On August 5, 1998, Detroit Edison filed suit seeking a review of
determinations asserted by the state and local agencies that Detroit Edison's
activities in reactivating the Conners Creek power plant were in violation of
certain environmental regulations.
On January 11, 1999, the Department of Justice (DOJ) on behalf of the EPA sent
Detroit Edison a Demand Letter requiring the payment of $2.3 million in civil
penalties and an unconditional commitment to abandon the use of the facility as
a coal plant. Detroit Edison has rejected the DOJ/EPA demand and on January 15,
1999 the DOJ/EPA filed suit. Detroit Edison is presently trying to resolve the
issue through settlement discussions. It is impossible to predict what impact,
if any, the outcome of this will have upon Detroit Edison.
NON-REGULATED
The Company's non-regulated affiliates are subject to a number of
environmental laws and regulations dealing with the protection of the
environment from various pollutants. These non-regulated affiliates are in
substantial compliance with all environmental requirements.
10
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRESENT
POSITION
NAME AGE(a) PRESENT POSITION HELD SINCE (b)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Anthony F. Earley, Jr. 49 Chairman of the Board, Chief Executive Officer, 8-1-98
President, Chief Operating Officer, and
Member of the Office of the President
Larry G. Garberding 60 Executive Vice President, Chief Financial Officer, 1-26-95
Member of the Office of the President
since December 1998
Gerard M. Anderson 40 President and Chief Operating Officer - DTE Energy 8-1-98
Resources, and Member of the Office of
the President
Robert J. Buckler 49 President and Chief Operating Officer - DTE Energy 8-1-98
Distribution, and Member of the Office of
the President
Michael E. Champley 50 Senior Vice President 4-1-97
Susan M. Beale 50 Vice President and Corporate Secretary 12-11-95
Leslie L. Loomans 55 Vice President and Treasurer 1-26-95
David E. Meador 41 Vice President and Controller 3-29-97
Christopher C. Nern 54 Vice President and General Counsel 1-26-95
</TABLE>
(a) As of December 31, 1998
(b) The Company was incorporated in January 1995, and, at that time,
certain officers of Detroit Edison were appointed officers of the
Company.
- --------------------------------------------------------------------------------
Under the Company's By-Laws, the officers of the Company are elected
annually by the Board of Directors at a meeting held for such purpose, each to
serve until the next annual meeting of directors or until their respective
successors are chosen and qualified.
Pursuant to Article VI of the Company's Articles of Incorporation,
directors of the Company will not be personally liable to the Company or its
shareholders in the performance of their duties to the full extent permitted by
law.
Article VII of the Company's Articles of Incorporation provides that each
person who is or was or had agreed to become a director or officer of the
Company, or each such person who is or was serving or who had agreed to serve at
the request of the Board of Directors as an employee or agent of the Company or
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise (including the heirs, executors,
administrators or estate of such person), shall be indemnified by the Company to
the full extent permitted by the Michigan Business Corporation Act or any other
applicable laws as presently or hereafter in effect. In addition, the Company
has entered into indemnification agreements with all of its officers and
directors, which agreements set forth procedures for claims for indemnification
as well as contractually obligating the Company to provide indemnification to
the maximum extent permissible by law.
11
<PAGE> 12
The Company and its directors and officers in their capacities as such are
insured against liability for alleged wrongful acts (to the extent defined)
under three insurance policies providing aggregate coverage in the amount of
$100 million.
OTHER INFORMATION. Pursuant to the provisions of the Company's By-Laws, the
Board of Directors has by resolution set the number of directors comprising the
full Board at 13.
12
<PAGE> 13
ITEM 2 - PROPERTIES.
DETROIT EDISON
The summer net rated capability of Detroit Edison's generating units is as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Location By
Michigan Summer Net Year
Plant Name County Rated Capability (1) (2) (3) in Service
- -------------------------------------------------------------------------------------------------------------------
(MW)
<S> <C> <C> <C> <C>
Fossil-fueled Steam-Electric
Belle River (4) St. Clair 1,026 10.0% 1984 and 1985
Greenwood St. Clair 785 7.6 1979
Harbor Beach Huron 103 1.0 1968
Marysville St. Clair 167 1.6 1930, 1943 and 1947
Monroe (5) Monroe 3,000 29.2 1971, 1973 and 1974
River Rouge Wayne 510 5.0 1957 and 1958
St. Clair St. Clair 1,406 13.7 1953, 1954, 1961 and 1969
Trenton Channel Wayne 725 7.1 1949, 1950 and 1968
---------------------
7,722 75.2%
Oil or Gas-fueled Peaking
Units (6) Various 525 5.1 1966-1971 and 1981
Nuclear-fueled Steam-Electric
Fermi 2 (7) Monroe 1,098 10.7 1988
Hydroelectric Pumped Storage
Ludington (8) Mason 917 9.0 1973
-----------------------
10,262 100.0%
=======================
</TABLE>
(1) Summer net rated capabilities of generating units in service are based on
periodic load tests and are changed depending on operating experience, the
physical condition of units, environmental control limitations and customer
requirements for steam, which otherwise would be used for electric
generation.
(2) Excludes two oil-fueled units, River Rouge Unit No. 1 (206 MW) and St.
Clair Unit No. 5 (250 MW), in economy reserve status.
(3) Excludes Conners Creek (236 MW) which is the subject of litigation
discussed herein in "Environmental Matters, Conners Creek."
(4) The Belle River capability represents Detroit Edison's entitlement to
81.39% of the capacity and energy of the plant. See Note 4.
(5) The Monroe Power Plant provided approximately 35% of Detroit Edison's total
1998 power plant generation.
(6) Detroit Edison has made arrangements for the purchase of gas-fueled peakers
which are expected to contribute 550 MW of generation by the summer of
1999.
(7) Fermi 2 has a design electrical rating (net) of 1,150 MW.
(8) Represents Detroit Edison's 49% interest in Ludington with a total
capability of 1,872 MW. Detroit Edison is leasing 306 MW to First Energy
for the six-year period June 1, 1996 through May 31, 2002.
- --------------------------------------------------------------------------------
13
<PAGE> 14
Detroit Edison and Consumers are parties to an Electric Coordination
Agreement providing for emergency assistance, coordination of operations and
planning for bulk power supply, with energy interchanged at nine
interconnections. Detroit Edison and Consumers also have interchange agreements
to exchange electric energy through 12 interconnections with First Energy,
Indiana Michigan Power Company, Northern Indiana Public Service Company and
Ontario Hydro. In addition, Detroit Edison has interchange agreements for the
exchange of electric energy with Michigan South Central Power Agency, Rouge
Steel Company and the City of Wyandotte.
Detroit Edison also purchases energy from cogeneration facilities and other
small power producers. Energy purchased from cogeneration facilities and small
power producers amounted to $31 million, $31.3 million and $28.3 million for
1998, 1997 and 1996, respectively, and is currently estimated at $34.5 million
for 1999.
Detroit Edison's electric generating plants are interconnected by a
transmission system operating at up to 345 kilovolts through 35 transmission
stations. As of December 31, 1998, electric energy was being distributed in
Detroit Edison's service area through 610 substations over 3,658 distribution
circuits.
NON-REGULATED
Non-regulated property primarily consists of a coke oven battery facility
and a coal processing facility located in River Rouge, Michigan, and a coke oven
battery facility in Burns Harbor, Indiana, along with 22 landfill gas projects
located throughout the United States.
ITEM 3 - LEGAL PROCEEDINGS.
Detroit Edison, in the ordinary course of its business, is involved in
a number of suits and controversies including claims for personal injuries and
property damage and matters involving zoning ordinances and other regulatory
matters. As of December 31, 1998, Detroit Edison was named as defendant in 148
lawsuits involving claims for personal injuries and property damage and had been
advised of 34 other potential claims not evidenced by lawsuits.
From time to time, Detroit Edison has paid nominal penalties which were
administratively assessed by the United States Coast Guard, United States
Department of Transportation under the Federal Water Pollution Control Act, as
amended, with respect to minor accidental oil spills at Detroit Edison's power
plants into navigable waters of the United States. Payment of such penalties
represents full disposition of these matters.
See "Note 11 - Commitments and Contingencies" and "Environmental Matters,
Detroit Edison, Conners Creek" herein for additional information.
14
<PAGE> 15
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None during the fourth quarter of 1998.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange, which
is the principal market for such stock, and the Chicago Stock Exchange. The
following table indicates the reported high and low sales prices of the
Company's Common Stock on the Composite Tape of the New York Stock Exchange and
dividends paid per share for each quarterly period during the past two years:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DIVIDENDS
PRICE RANGE PAID
CALENDAR QUARTER HIGH LOW PER SHARE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 First 32-7/8 26-1/4 $0.515
Second 28-3/8 26-1/8 0.515
Third 32-7/8 27-1/2 0.515
Fourth 34-3/4 28-1/16 0.515
1998 First 39-5/8 33-1/2 $0.515
Second 42 37-11/16 0.515
Third 45-5/16 39-3/16 0.515
Fourth 49-1/4 41-7/16 0.515
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, there were 145,071,317 shares of the Company's Common
Stock outstanding. These shares were held by a total of 111,610 shareholders of
record.
The Company's By-Laws provide that Chapter 7B of the Michigan Business
Corporation Act ("Act") does not apply to the Company. The Act regulates
shareholder rights when an individual's stock ownership reaches at least 20
percent of a Michigan corporation's outstanding shares. A shareholder seeking
control of the Company cannot require the Company's Board of Directors to call a
meeting to vote on issues related to corporate control within 10 days, as
stipulated by the Act. See "Note 6 - Shareholders' Equity" for additional
information, including information concerning the Rights Agreement, dated as of
September 23, 1997.
The amount of future dividends will depend on the Company's earnings,
financial condition and other factors, including the effects of utility
restructuring and the transition to competition, each of which is periodically
reviewed by the Company's Board of Directors.
Pursuant to Article I, Section 8. (c) and Article II, Section 3.(c) of the
Company's By-laws, as amended through May 1, 1998, notice is given that the 2000
Annual Meeting of the Company's Common Shareholders will be held on Wednesday,
April 26, 2000.
15
<PAGE> 16
ITEM 6 - SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(Millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 4,221 $ 3,764 $ 3,645 $ 3,636 $ 3,519
Net Income $ 443 $ 417 $ 309 $ 406 $ 390
Earnings Per Common Share - Basic
and Diluted $ 3.05 $ 2.88 $ 2.13 $ 2.80 $ 2.67
Dividends Declared Per
Share of Common Stock $ 2.06 $ 2.06 $ 2.06 $ 2.06 $ 2.06
At year end:
Total Assets $12,088 $11,223 $11,015 $11,131 $10,993
Long-Term Debt Obligations
(including capital leases) and
Redeemable Preferred and
Preference Stock Outstanding $ 4,323 $ 4,058 $ 4,038 $ 4,004 $ 3,980
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 17
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and accompanying Notes thereto, contained herein.
The Detroit Edison Company (Detroit Edison) is the principal subsidiary of DTE
Energy Company (Company) and, as such, unless otherwise identified, this
discussion explains material changes in results of operations of both the
Company and Detroit Edison and identifies recent trends and events affecting
both the Company and Detroit Edison.
GROWTH
On January 1, 1996, Detroit Edison's common stock was exchanged on a
share-for-share basis for the common stock of the Company; and the Company
became the parent holding company of Detroit Edison. The Company has no
operations of its own, holding instead, directly or indirectly, the stock of
Detroit Edison, its principal operating subsidiary, and other subsidiaries
engaged in energy-related businesses. The holding company structure was adopted
to position the Company for changes in the energy markets, and the electric
utility industry in particular, by providing financial flexibility and
additional resources for the development of new energy-related businesses.
In order to sustain earnings growth, with an objective of 6% growth annually,
the Company and Detroit Edison have developed a business strategy focused on
core competencies, consisting of expertise in developing, managing and operating
energy assets, including coal sourcing, blending and transportation skills. In
addition, Detroit Edison has a program for developing work force training and
planning for the future.
Detroit Edison is preparing for the transition to competition in the electric
energy markets. Although Detroit Edison's electric power sales and system demand
have grown at compounded annual rates of about 3% for the last five years, the
transition to competition is expected to reduce Detroit Edison's system growth
in the long-term. Detroit Edison projects that its electric power sales will
increase at a compounded annual rate of approximately 2% over the next five
years, but the impact of the transition to competition on earnings and operating
conditions is uncertain.
The Company is building a portfolio of growth businesses that leverage its
skills and build upon key customer relationships. These growth businesses
include on-site energy projects and services, coal transportation and
processing, and energy marketing and trading. During the five-year period ending
2002, these businesses could contribute up to $150 million in earnings annually.
The Company's long-term growth strategy recognizes the fact that competition,
new technologies and environmental concerns will have a significant impact on
reshaping the electric utility industry. Therefore, the Company is investing in
new energy-related technologies such as fuel cells, distributed generation and
renewable sources of energy.
17
<PAGE> 18
The Company believes that its financial and technological resources, experience
in the energy field and strategic growth plan position it well to compete in the
changing energy markets, as competition is introduced in Michigan and across the
United States. While there can be no assurances that future performance will
equal or exceed past performance, for 1998, the Company's common stock provided
a total return of 29%, closing at $43.06 on December 31, 1998.
ELECTRIC INDUSTRY RESTRUCTURING
Detroit Edison is subject to regulation by the Michigan Public Service
Commission (MPSC) and the Federal Energy Regulatory Commission (FERC). In 1998,
Michigan legislators and regulators focused on competition and direct access in
the Michigan electric public utility industry. Direct access would give all
retail customers equal opportunity to utilize the transmission system which
results in access to competitive generation resources. The MPSC is committed to
opening the electric generation market in Michigan to competition and as a
result issued several Orders relating to restructuring and competition in 1998.
Although attempts to pass legislation in Michigan relating to restructuring were
unsuccessful in 1998, the MPSC Orders will enable Detroit Edison to begin
implementation of direct access in 1999. Issues remain to be resolved and
additional Orders are anticipated as Detroit Edison phases in the option for
customers to choose direct access service in 1999 and throughout the transition
to full competition, which is scheduled in 2002.
MICHIGAN PUBLIC SERVICE COMMISSION
Background
Details on restructuring the electric generation market began to emerge in 1996
with the issuance of a MPSC Staff Report on Electric Industry Restructuring.
MPSC Orders issued in 1997 and 1998 stated that Michigan utilities should
recover stranded costs and established December 31, 2007 as the last day for
recovery of such costs.
1997 Restructuring Orders
MPSC Orders issued in 1997 facilitated restructuring, but left several issues
unresolved. Due to the uncertainty regarding the future price of electricity,
the MPSC indicated a true-up mechanism should be established to ensure that
Detroit Edison did not over-recover its stranded costs. The MPSC also
established that during the transition period, affiliates of out-of-state
utilities could not be alternative suppliers without reciprocal arrangements,
but unaffiliated marketers could be an alternative supplier without providing
reciprocal service in another service territory.
1998 Restructuring Orders
MPSC Orders issued in 1998 identified a phased-in approach to restructuring,
whereby Detroit Edison would implement direct access in 225 megawatt (MW) blocks
of power through the transition period, with 1125 MW, or approximately 12.5% of
total load made
18
<PAGE> 19
available at the end of the transition period, with all remaining load available
for direct access on January 1, 2002. Detroit Edison requested approval of
accelerated amortization of the Fermi 2 nuclear plant. As discussed in Note 2,
the December 28, 1998 MPSC Order, while granting Detroit Edison's request,
imposed several conditions for the recovery of Fermi 2 costs. Detroit Edison has
requested a clarifying Order from the MPSC, and other parties have requested
rehearing on aspects of the MPSC Order.
Neither the Company nor Detroit Edison is able to predict the final outcome or
timing of these proceedings.
Direct Access Experiment
Detroit Edison has been involved in legal proceedings contesting the statutory
authority of the MPSC to order a direct access experiment. In October 1998 the
Michigan Supreme Court granted Detroit Edison and other parties to the
proceeding leave to appeal from a Michigan Court of Appeals finding that the
MPSC did have statutory authority to authorize experimental direct access. The
December 1998 MPSC Order provided that a 90 MW direct access experiment should
be immediately commenced, and was in addition to the 1125 MW previously
scheduled.
Market Conditions
Wholesale power prices rose significantly in 1998. Dramatic price increases
during the summer led to an investigation and report by the FERC Staff. The
report concluded that a combination of factors caused the price increase, and
although the increase was dramatic, it was narrow and short-lived. The report
concluded that the particular combination of events that led to the magnitude of
the price increases is not likely to recur, but indicated that wholesale power
prices can be expected to rise and fall as a result of the dynamics of supply
and demand.
Detroit Edison's planning and preparation limited its exposure during the summer
in the wholesale power markets. Detroit Edison made substantial use of options
and contracts with liquidated damages provisions, while spreading its purchases
over many buyers in different regions. Detroit Edison also continues to recover
approximately 80% of the charges for purchased power and generation through the
use of the Power Supply Cost Recovery (PSCR) clause.
Because Detroit Edison must currently import power to meet peak loads in the
summer, transmission capacity is a necessary requirement to serve customers
reliably during peak load periods. As a result of certain new transmission
procedures, there is uncertainty surrounding the ability of Detroit Edison to
import power reliably into Michigan. To relieve this uncertainty, additional
efforts to secure firm transmission rights will be necessary, as well as
additional in-state generating capability.
Detroit Edison has acquired significant additional commitments from other
utilities, and modified operating practices to provide flexibility to respond to
increasing uncertainties of load and market conditions. Detroit Edison has also
purchased new gas-fired
19
<PAGE> 20
combustion turbine peakers, which are expected to generate approximately 550 MW
of capacity for the summer of 1999.
Direct Access Implementation Issues
Several technical issues remain to be resolved before direct access can be
implemented. Detroit Edison formed a team, which is responsible for coordinating
activities surrounding direct access. Direct access will require new processes
and equipment. Some of these processes may be subject to modification by the
MPSC during the transition period. Detroit Edison estimates that expenditures of
up to $168 million may be required through 2001.
Detroit Edison believes that it may have an obligation to render service when a
direct access supplier cannot. The terms and conditions surrounding standby
service, whereby Detroit Edison may be required to supply generation services
for direct access customers when their suppliers cannot supply the necessary
generation, awaits further rulings by the MPSC.
The operation and parameters of the true-up mechanism needs further
clarification. It still is unknown how the MPSC will determine the actual price
of power to use in truing-up Detroit Edison's stranded cost recovery. The actual
methodology was deferred to future proceedings. Uncertainties exist regarding
the ultimate amount of stranded assets to be recovered including potential
disallowances for the recovery of recorded regulatory assets, recovery of costs
to be incurred to implement direct access, and other stranded costs.
Recoverability of these costs will be evaluated annually through the true-up
mechanism.
The FERC requires functional separation between the transmission
reliability/operation function of the utility and the wholesale merchant
function. The MPSC requires arm's-length transactions between Detroit Edison and
non-regulated affiliates. Efforts are ongoing to ensure that proper procedures
are developed and adhered to.
As a result of the December 28, 1998 MPSC Order, Detroit Edison discontinued the
application of Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation" for its generation
business. See Notes 1 and 2. While Detroit Edison is reviewing applicable
accounting guidance, uncertainty exists as to whether additional changes in
accounting policies will be required as a result of the discontinuation of SFAS
No. 71 for its generation business.
FEDERAL ENERGY REGULATORY COMMISSION
Detroit Edison is regulated at the federal level by the FERC with respect to
accounting, sales for resale in interstate commerce, certain transmission
services, issuances of securities, licensing of hydro and pumping stations and
other matters. The FERC as a policy matter, believes that transmission should be
made available on a non-discriminatory basis. A number of proceedings, as
discussed below, are in furtherance of this policy.
20
<PAGE> 21
In 1996, the FERC issued Order 888, which requires public utilities to file open
access transmission tariffs for wholesale transmission services in accordance
with non-discriminatory terms and conditions, and Order 889, which requires
public utilities and others to obtain transmission information for wholesale
transactions through a system on the Internet. In addition, Order 889 requires
public utilities to separate transmission operations from wholesale marketing
functions.
In July 1996, Detroit Edison filed its Pro Forma Open Access Transmission Tariff
in compliance with FERC Order 888. During 1997, Detroit Edison negotiated a
partial settlement regarding the price and terms and conditions of certain
services provided as part of the tariff. Several issues were litigated and
Detroit Edison awaits a decision. Rates currently being utilized for
transmission are consistent with the settlement and are subject to refund upon
the FERC's final decision.
Detroit Edison has a power pooling agreement with Consumers Energy Company
(Consumers Energy). In March 1997, a joint transmission tariff, filed by Detroit
Edison and Consumers Energy, became effective. In compliance with FERC Order
888, the tariff modified the pooling agreement to permit third-party access to
transmission facilities utilized for pooled operations under non-discriminatory
terms and conditions. As Detroit Edison and Consumers Energy were unable to
agree on other modifications to the pooling agreement, Detroit Edison has
requested that the FERC approve its termination. Consumers Energy has requested
that the pooling agreement be continued. The FERC has not ruled on either of
these requests.
As part of a broad look into its policies on Independent System Operators and
other Regional Transmission Organizations (RTO's), the FERC on November 24, 1998
announced plans to solicit the views of state commissions on the establishment
of regional electric transmission districts. At conferences to be held beginning
in the first quarter of 1999, the FERC will hear the state commissions' views on
the criteria that should be used to establish boundaries for RTO's and the role
of states in the formation and governance of RTO's. Additional consultations
with the states, industry representatives and others will follow to discuss
specific district boundaries. The FERC also plans to initiate a rulemaking or
other generic proceeding on RTO's to solicit further comment.
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATING ACTIVITIES
Net cash from operating activities, which is the Company's primary source of
liquidity, was $868 million in 1998, $952 million in 1997 and $1,079 million in
1996. Net cash from operating activities decreased in 1998 due primarily to
increased accounts receivable and other non-cash items. Net cash from operating
activities decreased in 1997 compared to 1996 due primarily to changes in
inventory levels.
21
<PAGE> 22
Cash flow from operations is expected to be sufficient to meet cash requirements
for Detroit Edison's capital expenditures as well as the Company's scheduled
long-term debt redemption requirements and dividends.
CASH USED FOR INVESTING ACTIVITIES
Net cash used for investing activities was higher in 1998 due to increased plant
and equipment expenditures and non-regulated investments in coke oven batteries.
Net cash used for investing activities was higher for the Company in 1997 due to
the acquisition of a coke oven battery, a non-regulated expenditure. For Detroit
Edison, net cash used for investing activities was lower in 1997 due primarily
to lower plant and equipment expenditures.
Cash requirements for 1998 Detroit Edison capital expenditures were $514
million. Detroit Edison's cash requirements for capital expenditures are
expected to be approximately $2.l billion for the period 1999 through 2003.
Cash requirements for 1998 non-regulated investments and capital expenditures
were $442 million. Cash requirements for non-regulated investments and capital
expenditures are expected to be approximately $1.4 billion for the period 1999
through 2003. Significant non-regulated investments are expected to be
externally financed.
CASH FROM (USED FOR) FINANCING ACTIVITIES
Net cash from Company financing activities was higher in 1998 due to increases
in long- and short-term borrowings, partially offset by redemptions of preferred
stock and long-term debt.
Net cash used for Company financing activities decreased in 1997 compared to
1996 due primarily to the redemption of preferred stock in 1996, partially
offset by higher redemptions of long-term debt.
22
<PAGE> 23
The following securities were issued and redeemed in 1998:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITIES ISSUED (Millions)
<S> <C>
Quarterly Income Debt Securities
7.5%-7.4% issued in May and November $ 200
Remarketed Notes
6.2%-7.1% issued in June and November 400
Non-Recourse Debt
6.6% issued in July 163
----------
TOTAL ISSUED $ 763
==========
SECURITIES REDEEMED
Mandatory Redemptions
1990 Series A, B, C Mortgage Bonds
7.9%-8.4% redeemed in March $ 19
Non-Recourse Debt
6.9%-7.8% redeemed in April, June, October and December 36
Early Redemptions
Series S Mortgage Bonds
6.4% redeemed in February 150
Cumulative Preferred Stock
7.75%-7.74% redeemed in May and December 150
Quarterly Income Debt Securities
8.5% redeemed in December 50
----------
TOTAL REDEEMED $ 405
==========
</TABLE>
- --------------------------------------------------------------------------------
The preceding totals do not include Detroit Edison's Series 1999 A, $118.36
Million, 5.55%, which was sold on a forward basis in 1998 and will be issued in
September 1999. The proceeds will be used to refund two tax-exempt securities of
the same principal amount.
23
<PAGE> 24
YEAR 2000
The Company and Detroit Edison have been involved in an enterprise-wide program
to address Year 2000 issues. A program office was established in mid-1997 to
implement a rigorous plan to address the impact of Year 2000 on hardware and
software systems, embedded systems (which include microprocessors used in the
production and control of electric power), and critical service providers. The
emphasis has been on mission critical systems that support core business
activities or processes. Core business activities/processes include safety,
environmental and regulatory compliance, product production and delivery,
revenue collection, employee and supplier payment and financial asset
management.
The plan for addressing Year 2000 is divided into several phases including
raising general awareness of Year 2000 throughout the Company and Detroit
Edison; maintaining an inventory of systems and devices; performing an
assessment of inventoried systems and devices; performing compliance testing of
suspect systems and devices; remediation of non-compliant systems and devices
through replacement, repair, retirement, or identifying an acceptable work
around; testing and remediation of systems and devices in an integrated
environment and preparing business continuity plans.
Inventory, assessment and compliance testing phases have been completed for
known systems and devices. The remediation phase is approximately 80% complete
and is expected to be fully complete by August 1999 for mission critical assets
and supporting assets. Integration planning, including the mapping of critical
business processes, is near completion for Detroit Edison. Integration testing
and remediation is expected to be complete by October 1999.
To support the program phases, the program office has been working with major
utility industry associations and organizations, customers and vendors to gather
and share information on Year 2000 issues. The program office has contacted
vendors critical to Company operations to determine their progress on Year 2000.
To further assist in identifying potential problems, tests of generating
facilities have been conducted by advancing control systems dates to the Year
2000. Results of these tests have shown that the generating facilities operated
successfully in this induced "millennium mode." Exercises were conducted on
December 31, 1998 and January 1, 1999 to assess the ability to reach employees
and the regional security centers of the East Central Area Reliability Group
through various communication channels. The exercised communication channels
operated properly. The business continuity program will provide opportunities to
conduct similar exercises on other systems in advance of the Year 2000. Similar
analysis has not been completed for other affiliates.
In the event that an unknown Year 2000 condition adversely affects service to
customers or an internal business process, contingency and business continuity
plans and procedures are being developed to provide rapid restoration to normal
conditions.
24
<PAGE> 25
The Company and Detroit Edison have always maintained a comprehensive
operational emergency response plan. The business continuity function of the
Year 2000 program will supplement the existing emergency plan to include Year
2000 specific events. A Year 2000 emergency response office will be fully
operational by November 1999 to manage and coordinate operations, including
mobilization of all employees as necessary, during the transition to the new
millennium.
The Company and Detroit Edison believe that with all Year 2000 modifications,
business continuity and emergency management plans in place, the Year 2000 will
not have a material effect on their financial position, liquidity and results of
operations. Despite all efforts, there can be no assurances that Year 2000
issues can be totally eliminated. Results of modifications and testing done
during the fourth quarter of 1998 have demonstrated that Detroit Edison should
be able to maintain normal operating conditions into the Year 2000, although
there may be isolated electric service interruptions. Detroit Edison's internal
business systems may be affected by a Year 2000 related failure that could
temporarily interrupt the ability to communicate with customers, collect
revenue, or complete cash transactions. In addition, no assurances can be given
that the systems of vendors, interconnected utilities and customers will not
result in Year 2000 problems.
The Company estimates that Year 2000 costs will approximate $80 million with $39
million expended between January 1, 1998 and December 31, 1998. Operating cash
flow is expected to be sufficient to pay Year 2000 modification costs with no
material impact on operating results or cash flows.
ENVIRONMENTAL MATTERS
Protecting the environment from damage, as well as correcting past environmental
damage, continues to be a focus of state and federal regulators. Legislation
and/or rulemaking could further impact the electric utility industry including
Detroit Edison. The U.S. Environmental Protection Agency (EPA) and the Michigan
Department of Environmental Quality have aggressive programs regarding the
clean-up of contaminated property. Detroit Edison anticipates that it will be
periodically included in these types of environmental proceedings.
During 1997 and 1998 the EPA issued ozone transport regulations and final new
air quality standards relating to ozone and particulate air pollution. In
September 1998, the EPA issued a State Implementation Plan (SIP) call, giving
states a year to develop new regulations to limit nitrogen oxide emissions
because of their contribution to ozone formation. The EPA draft proposal
suggests most emission reductions should come from utilities. If Michigan
follows the EPA's recommendations, it is estimated that it will cost Detroit
Edison more than $400 million to comply. Until the state issues its regulations,
it is impossible to predict the full impact of the SIP call. Detroit Edison is
unable to predict what effect, if any, restructuring of the electric utility
industry would have on recoverability of such environmental costs.
25
<PAGE> 26
MARKET RISK
Detroit Edison had investments valued at market of $309 million and $239 million
in three nuclear decommissioning trust funds at December 31, 1998 and 1997,
respectively. At December 31, 1998, these investments consisted of approximately
33% in fixed debt instruments, 63% in publicly traded equity securities and 4%
in cash equivalents. At December 31, 1997, these investments consisted of
approximately 40% in fixed debt instruments and 60% in publicly traded equity
securities. A hypothetical 10% increase in interest rates and a 10% decrease in
equity prices quoted by stock exchanges would result in a $9 million and $8
million reduction in the fair value of debt and a $20 million and $ 10 million
reduction in the fair value of equity securities held by the trusts at December
31, 1998 and 1997, respectively. Adjustments to market value would result in a
corresponding adjustment to other liabilities based on current regulatory
treatment.
A hypothetical 10% decrease in interest rates would increase the fair value of
long-term debt from $4.8 billion to $5.3 billion at December 31, 1998 and from
$4.2 billion to $4.6 billion at December 31, 1997.
DTE Energy Trading, Inc. (DTE ET), an indirect wholly owned subsidiary of the
Company, which provides price risk management services utilizing energy
commodity derivative instruments began operations in 1998. The Company measures
the risk inherent in DTE ET's portfolio utilizing Value at Risk (VaR) analysis
and other methodologies, which simulate forward price curves in electric power
markets to quantify estimates of the magnitude and probability of potential
future losses related to open contract positions. DTE ET's VaR expresses the
potential loss in fair value of its forward contract and option position over a
particular period of time, with a specified likelihood of occurrence, due to an
adverse market movement. The Company reports VaR as a percentage of its
earnings, based on a 95% confidence interval, utilizing 10 day holding periods.
At December 31, 1998, DTE ET's VaR from its power marketing and trading
activities was less than 1% of the Company's consolidated "Income Before Income
Taxes" for the year ending December 31, 1998. The VaR model uses the
variance-covariance statistical modeling technique, and implied and historical
volatilities and correlations over the past 20 day period. The estimated market
prices used to value these transactions for VaR purposes reflect the use of
established pricing models and various factors including quotations from
exchanges and over-the-counter markets, price volatility factors, the time value
of money, and location differentials. For further information, see Notes 1 and
10.
RESULTS OF OPERATIONS
Net income for 1998 was $443 million, or $3.05 per share, up $26 million over
1997 earnings. The increase in earnings was due to tax credits generated by
non-regulated businesses.
26
<PAGE> 27
Net income for 1997 was $417 million, or $2.88 per share, up $108 million over
1996 earnings. After adjusting 1996 earnings for the steam heating special
charges, 1997 earnings reflect a 2.7% increase over the prior year.
Net income for 1996 included a $149 million ($97 million after-tax), or $0.67
per share, special charge following completion of Detroit Edison's review of its
steam heating operations.
OPERATING REVENUES
Operating revenue was $4.2 billion, up 12.1% from 1997 operating revenue of $3.8
billion. Operating revenues increased (decreased) due to the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------
(Millions)
Detroit Edison
<S> <C> <C>
Rate change $ (8) $ (62)
System sales volume and mix 220 27
Sales between utilities 51 48
Fermi 2 performance disallowances (11) (3)
Other - net (7) 5
----------------------------
Total Detroit Edison 245 15
----------------------------
Non-regulated
DTE Energy Services 124 89
DTE Coal Services 39 14
DTE Energy Trading 43 -
Other - net 6 1
----------------------------
Total Non-regulated 212 104
----------------------------
Total $ 457 $ 119
============================
- -------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
Detroit Edison kilowatthour (kWh) sales for 1998 and the percentage change by
year were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Billions of kWh)
SALES
-------
<S> <C> <C> <C>
Residential 13.7 6.6% (0.4)%
Commercial 18.9 5.0 1.6
Industrial 14.7 2.5 2.0
Other (primarily sales for resale) 2.4 27.1 9.7
--------
Total System 49.7 5.5 1.5
Sales between utilities 5.2 46.8 73.4
--------
Total 54.9 8.4 4.5
========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1998, residential sales increased due to more cooling demand and growth in
the customer base. Commercial sales increased due to more cooling demand and
favorable economic conditions. Industrial sales increased due to higher usage.
Sales between utilities increased due to greater demand for energy and increased
availability of energy for sale.
In 1997, residential sales decreased due to less heating and cooling demand
which more than offset growth in the customer base. Commercial and industrial
sales increased for both periods reflecting a continuation of good economic
conditions. Sales to other customers increased in both periods due to a greater
demand for energy. Sales between utilities also increased in 1997 due to greater
demand for energy and increased availability of energy for sale.
OPERATING EXPENSES
Fuel and Purchased Power
Net system output and average fuel and purchased power unit costs per
megawatthour (MWh) for Detroit Edison were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------
(Thousands of MWh)
Power plant generation
<S> <C> <C> <C>
Fossil 44,091 42,162 41,829
Nuclear 7,130 5,523 4,750
Purchased power 7,216 6,146 5,149
----------------------------------------------
Net system output 58,437 53,831 51,728
==============================================
Average unit cost ($/MWh) $ 16.40 $ 14.54 $ 15.03
==============================================
- --------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 29
In 1998, fuel and purchased power expense increased for Detroit Edison due to
higher purchased power unit costs as a result of price volatility during periods
of unseasonably warm summer weather and an 8.6% increase in system output. These
increases were partially offset by lower unit costs as a result of increased
usage of low-cost nuclear fuel and higher third party revenues credited to
inventory.
In 1998, non-regulated purchased power expense increased due to the operations
of DTE ET.
In 1997, fuel expense decreased due to the termination of high cost long-term
coal contracts, reduction in coal contract buyout expense and a decrease in
nuclear fuel costs. Higher purchased power expense was due primarily to
increased purchases of power while Fermi 2 was shut down.
Operation and Maintenance
In 1998, Company operation and maintenance expenses increased $287 million.
Higher non-regulated subsidiary expenses of $184 million were due to the
increased level of non-regulated operations and the addition of new businesses.
Higher Detroit Edison expenses of $103 million were due to higher Year 2000
expenses ($32.4 million), the 1997 storm expense deferral ($29.8 million), 1998
emergency restoration and storm expense ($20.7 million), a 1997 insurance
receivable recovery ($15.3 million), 1997 storm amortization ($14.2 million),
the Conners Creek restart ($13.3 million), partially offset by cost reductions
of ($22.7 million).
In 1997, Company operation and maintenance expenses increased $67 million due
primarily to increased non-regulated subsidiary (mainly EES Coke Battery
Company, Inc. and PCI Enterprises Company) expenses of $95 million offset by
lower net Detroit Edison operation and maintenance expenses.
As a result of stringent cost controls, Detroit Edison operation and maintenance
expenses decreased in 1997 due primarily to lower post-retirement benefit ($18.8
million) and fossil generation ($15.1 million) expenses, lower minor storm and
trouble work ($13.6 million), the Fermi 2 outage accrual in 1996 ($13 million)
and the receipt of additional insurance proceeds related to the 1993 Fermi 2
turbine replacement ($9.8 million), partially offset by higher compensation
expense related to a shareholder value improvement plan ($25.7 million).
Depreciation and Amortization
In 1998, Company depreciation and amortization expense increased due primarily
to increases in property, plant and equipment. These increases were almost
entirely offset by lower Detroit Edison amortization of regulatory assets.
Depreciation and amortization expense increased in 1997 due primarily to
increases in property, plant and equipment.
29
<PAGE> 30
INTEREST EXPENSE AND OTHER
Interest Expense
Interest expense increased in 1998 due primarily to the issuance of debt to
finance asset acquisitions of non-regulated subsidiaries and the issuance of
debt to redeem Detroit Edison's preferred stock.
Interest expense increased in 1997 due primarily to the issuance of debt to
finance asset acquisitions of non-regulated subsidiaries, partially offset by
Detroit Edison's mandatory and optional redemption of debt.
Other - Net
Other-net expense decreased for the Company in 1998 due primarily to lower net
write downs of equity investments ($3 million).
Other-net increased in 1997 due primarily to higher accretion expense ($9.5
million), lower accretion income ($3 million) and the write down of an equity
investment ($5 million).
INCOME TAXES
The effective income tax rate for the Company was lower in 1998 and 1997 due
primarily to increased utilization of alternate fuels credits generated from
non-regulated businesses. Alternate fuels credits phase out beginning in 2003
through 2007.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This Statement
requires companies to record derivatives on the balance sheet as assets and
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company has
not yet determined the impact of this Statement on the consolidated financial
statements. This Statement is effective for fiscal years beginning after June
15, 1999, with earlier adoption encouraged. The Company will adopt this
accounting standard as required by January 1, 2000.
FORWARD-LOOKING STATEMENTS
Certain information presented herein is based on the expectations of the Company
and Detroit Edison, and, as such, is forward-looking. The Private Securities
Litigation Reform Act of 1995 encourages reporting companies to provide analyses
and estimates of future prospects and also permits reporting companies to point
out that actual results may differ from those anticipated.
30
<PAGE> 31
Actual results for the Company and Detroit Edison may differ from those expected
due to a number of variables including, but not limited to, weather, actual
sales, the effects of competition and the phased-in implementation of direct
access, the implementation of utility restructuring in Michigan (which involves
pending regulatory proceedings, possible legislative activity, and the recovery
of stranded costs), environmental (including proposed regulations to limit
nitrogen oxide emissions) and nuclear requirements, the impact of FERC
proceedings and regulations, the success of non-regulated lines of business and
the timely completion of Year 2000 modifications. While the Company and Detroit
Edison believe that estimates given accurately measure the expected outcome,
actual results could vary materially due to the variables mentioned as well as
others. This discussion contains a Year 2000 readiness disclosure.
31
<PAGE> 32
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements and schedules are included
herein.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................33
DTE Energy Company:
Consolidated Statement of Income.......................................34
Consolidated Statement of Cash Flows...................................35
Consolidated Balance Sheet ............................................36
Consolidated Statement of Changes in Shareholders' Equity..............38
The Detroit Edison Company:
Consolidated Statement of Income.......................................39
Consolidated Statement of Cash Flows...................................40
Consolidated Balance Sheet ............................................41
Consolidated Statement of Changes in Shareholders' Equity..............43
Notes to Consolidated Financial Statements...............................44
Schedule II - Valuation and Qualifying Accounts..........................91
</TABLE>
Note: Detroit Edison's financial statements are presented here for ease of
reference and are not considered to be part of Part II - Item 8 of the
Company's report.
32
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors and Shareholders of
DTE Energy Company and
The Detroit Edison Company
We have audited the consolidated balance sheets of DTE Energy Company and
subsidiaries and of The Detroit Edison Company and subsidiaries (together, the
"Companies") as of December 31, 1998 and 1997, and the related consolidated
statements of income, cash flows, and changes in shareholders' equity for each
of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 8. These
financial statements and financial statement schedule are the responsibility of
the Companies' management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DTE Energy Company
and subsidiaries and of The Detroit Edison Company and subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements of the Companies taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
January 27, 1999
33
<PAGE> 34
DTE ENERGY COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
- -----------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES $ 4,221 $ 3,764 $ 3,645
- -----------------------------------------------------------------------------------------
OPERATING EXPENSES
Fuel and purchased power 1,063 837 846
Operation and maintenance 1,288 1,001 934
Depreciation and amortization 661 660 625
Steam heating special charge - - 149
Taxes other than income 272 265 259
- -----------------------------------------------------------------------------------------
Total Operating Expenses 3,284 2,763 2,813
- -----------------------------------------------------------------------------------------
OPERATING INCOME 937 1,001 832
- -----------------------------------------------------------------------------------------
INTEREST EXPENSE AND OTHER
Interest expense 319 297 288
Preferred stock dividends of subsidiary 6 12 16
Other - net 15 18 (2)
- -----------------------------------------------------------------------------------------
Total Interest Expense and Other 340 327 302
- -----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 597 674 530
INCOME TAXES 154 257 221
- -----------------------------------------------------------------------------------------
NET INCOME $ 443 $ 417 $ 309
=========================================================================================
AVERAGE COMMON SHARES OUTSTANDING 145 145 145
- -----------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE - BASIC AND DILUTED $ 3.05 $ 2.88 $ 2.13
=========================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements.)
34
<PAGE> 35
DTE ENERGY COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions)
<TABLE>
<CAPTION>
Year Ended December 31
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $ 443 $ 417 $ 309
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 661 660 625
Steam heating special charge - - 149
Other (125) (29) (30)
Changes in current assets and liabilities:
Restricted cash (67) (54) -
Accounts receivable (84) (36) (32)
Inventories (40) (36) 42
Payables 15 16 2
Other 65 14 14
- --------------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 868 952 1,079
- --------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Plant and equipment expenditures (555) (456) (531)
Investment in coke oven battery businesses (401) (211) -
Nuclear decommissioning trust funds (70) (68) (52)
Other (11) (6) (34)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,037) (741) (617)
- --------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of long-term debt 763 250 224
Increase (Decrease) in short-term borrowings 189 32 (27)
Redemption of long-term debt (255) (196) (176)
Redemption of preferred stock (150) - (185)
Dividends on common stock (299) (299) (299)
Other 6 (6) (11)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash from (used for) financing activities 254 (219) (474)
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 85 (8) (12)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 45 53 65
- --------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 130 $ 45 $ 53
================================================================================================================================
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid (excluding interest capitalized) $ 309 $ 290 $ 277
Income taxes paid 160 243 207
New capital lease obligations 52 34 35
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Consolidated Financial Statements.)
35
<PAGE> 36
DTE ENERGY COMPANY
CONSOLIDATED BALANCE SHEET
(Millions, Except Per Share Amounts and Shares)
<TABLE>
<CAPTION>
December 31
- --------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 130 $ 45
Restricted cash 121 54
Accounts receivable
Customer (less allowance for doubtful
accounts of $20 for 1998 and 1997) 316 305
Accrued unbilled revenues 153 137
Other 135 78
Inventories (at average cost)
Fuel 171 130
Materials and supplies 167 173
Other 39 13
- --------------------------------------------------------------------------------------------------
1,232 935
- --------------------------------------------------------------------------------------------------
INVESTMENTS
Nuclear decommissioning trust funds 309 239
Other 261 57
- --------------------------------------------------------------------------------------------------
570 296
- --------------------------------------------------------------------------------------------------
PROPERTY
Property, plant and equipment 11,121 14,495
Property under capital leases 242 256
Nuclear fuel under capital lease 659 607
Construction work in progress 156 16
- --------------------------------------------------------------------------------------------------
12,178 15,374
- --------------------------------------------------------------------------------------------------
Less accumulated depreciation and amortization 5,235 6,440
- --------------------------------------------------------------------------------------------------
6,943 8,934
- --------------------------------------------------------------------------------------------------
REGULATORY ASSETS 3,091 856
- --------------------------------------------------------------------------------------------------
OTHER ASSETS 252 202
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 12,088 $ 11,223
==================================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements.)
36
<PAGE> 37
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 239 $ 161
Accrued interest 57 57
Dividends payable 75 78
Accrued payroll 101 81
Short-term borrowings 231 42
Deferred income taxes 60 64
Current portion long-term debt 294 205
Current portion capital leases 118 110
Other 217 219
- ---------------------------------------------------------------------------------------------------------
1,392 1,017
- ---------------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Deferred income taxes 1,888 1,983
Capital leases 126 137
Regulatory liabilities 294 400
Other 493 203
- ---------------------------------------------------------------------------------------------------------
2,801 2,723
- ---------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 4,197 3,777
- ---------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Detroit Edison Cumulative Preferred Stock, $100
par value, 6,747,484 shares authorized,
5,207,657 issued, 1,501,223 shares
outstanding in 1997 - 144
Common stock, without par value, 400,000,000 shares
authorized, 145,071,317 and 145,097,829 issued
and outstanding, respectively 1,951 1,951
Retained earnings 1,747 1,611
- ---------------------------------------------------------------------------------------------------------
3,698 3,706
- ---------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 2, 3, 9, 10, 11 AND 12)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,088 $ 11,223
=========================================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements.)
37
<PAGE> 38
DTE ENERGY COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Millions, Except Per Share Amounts; Shares in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
DETROIT EDISON CUMULATIVE PREFERRED STOCK
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 1,501 $ 144 1,501 $ 144 3,351 $ 327
Redemption of Cumulative Preferred Stock (1,501) (150) - - (1,850) (185)
Preferred stock expense - 6 - - - 2
- -----------------------------------------------------------------------------------------------------------------------------
Balance at end of year - $ - 1,501 $ 144 1,501 $ 144
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
Balance at beginning of year 145,098 $ 1,951 145,120 $ 1,951 145,120 $ 1,951
Repurchase and retirement of common stock (27) - (22) - - -
- -----------------------------------------------------------------------------------------------------------------------------
Balance at end of year 145,071 $ 1,951 145,098 $ 1,951 145,120 $ 1,951
- -----------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year $ 1,611 $ 1,493 $ 1,485
Net income 443 417 309
Dividends declared on common stock ($2.06
per share) (299) (299) (299)
Preferred stock expense (6) - (2)
Other (2) - -
- -----------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,747 $ 1,611 $ 1,493
- -----------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 3,698 $ 3,706 $ 3,588
=============================================================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements.)
38
<PAGE> 39
THE DETROIT EDISON COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Millions)
<TABLE>
<CAPTION>
Year Ended December 31
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES $ 3,902 $ 3,657 $ 3,642
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Fuel and purchased power 1,021 837 846
Operation and maintenance 998 895 923
Depreciation and amortization 643 658 624
Steam heating special charge - - 149
Taxes other than income 270 264 259
- -------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 2,932 2,654 2,801
- -------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 970 1,003 841
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE AND OTHER
Interest expense 277 282 288
Other - net 15 16 -
- -------------------------------------------------------------------------------------------------------------------
Total Interest Expense and Other 292 298 288
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 678 705 553
INCOME TAXES 260 288 225
- -------------------------------------------------------------------------------------------------------------------
NET INCOME 418 417 328
PREFERRED STOCK DIVIDENDS 6 12 16
- -------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON STOCK $ 412 $ 405 $ 312
===================================================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements.)
39
<PAGE> 40
THE DETROIT EDISON COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions)
<TABLE>
<CAPTION>
Year Ended December 31
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $ 418 $ 417 $ 328
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 643 658 624
Steam heating special charge - - 149
Other (154) (3) (30)
Changes in current assets and liabilities:
Accounts receivable (51) (18) (30)
Inventories (31) (14) 42
Payables (12) 12 1
Other 60 (1) 2
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 873 1,051 1,086
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Plant and equipment expenditures (514) (439) (479)
Nuclear decommissioning trust funds (70) (68) (52)
Other (29) (5) (18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (613) (512) (549)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of long-term debt 200 - 185
Increase (decrease) in short-term borrowings 231 (10) (27)
Redemption of long-term debt (219) (185) (176)
Redemption of preferred stock (150) - (185)
Dividends on common stock and preferred stock (326) (331) (332)
Cash portion of restructuring dividend to parent - - (56)
Other (6) - (9)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (270) (526) (600)
- ----------------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10) 13 (63)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 15 2 65
- ----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 5 $ 15 $ 2
==================================================================================================================================
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid (excluding interest capitalized) $ 269 $ 277 $ 277
Income taxes paid 292 277 209
New capital lease obligations 52 34 35
Non-cash portion of restructuring dividend to parent - - 27
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Consolidated Financial Statements.)
40
<PAGE> 41
THE DETROIT EDISON COMPANY
CONSOLIDATED BALANCE SHEET
(Millions, Except Per Share Amounts and Shares)
<TABLE>
<CAPTION>
December 31
- ---------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 5 $ 15
Accounts receivable
Customer (less allowance for doubtful
accounts of $20 for 1998 and 1997) 307 300
Accrued unbilled revenues 153 137
Other 90 63
Inventories (at average cost)
Fuel 171 130
Materials and supplies 138 150
Other 21 11
- ---------------------------------------------------------------------------------------------
885 806
- ---------------------------------------------------------------------------------------------
INVESTMENTS
Nuclear decommissioning trust funds 309 239
Other 74 38
- ---------------------------------------------------------------------------------------------
383 277
- ---------------------------------------------------------------------------------------------
PROPERTY
Property, plant and equipment 10,610 14,204
Property under capital leases 242 256
Nuclear fuel under capital lease 659 607
Construction work in progress 118 12
- ---------------------------------------------------------------------------------------------
11,629 15,079
- ---------------------------------------------------------------------------------------------
Less accumulated depreciation and amortization 5,201 6,431
- ---------------------------------------------------------------------------------------------
6,428 8,648
- ---------------------------------------------------------------------------------------------
REGULATORY ASSETS 3,091 856
- ---------------------------------------------------------------------------------------------
OTHER ASSETS 200 158
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $ 10,987 $ 10,745
=============================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements.)
41
<PAGE> 42
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 211 $ 150
Accrued interest 54 56
Dividends payable 80 83
Accrued payroll 86 80
Short-term borrowings 231 -
Deferred income taxes 60 64
Current portion long-term debt 219 169
Current portion capital leases 118 110
Other 203 218
- ------------------------------------------------------------------------------------------------------
1,262 930
- ------------------------------------------------------------------------------------------------------
OTHER LIABILITIES
Deferred income taxes 1,846 1,973
Capital leases 126 137
Regulatory liabilities 294 400
Other 484 201
- ------------------------------------------------------------------------------------------------------
2,750 2,711
- ------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 3,462 3,531
- ------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Cumulative Preferred Stock, $100 par value,
6,747,484 shares authorized, 5,207,657 issued,
1,501,223 shares outstanding in 1997 - 144
Common stock, $10 par value, 400,000,000 shares
authorized, 145,119,875 issued and outstanding 1,451 1,451
Premium on common stock 548 548
Common stock expense (48) (48)
Retained earnings 1,562 1,478
- ------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,513 3,573
- ------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 2, 3, 9, 10, 11 AND 12)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,987 $ 10,745
======================================================================================================
</TABLE>
(See Notes to Consolidated Financial Statements.)
42
<PAGE> 43
THE DETROIT EDISON COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Millions, Except Per Share Amounts; Shares in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE PREFERRED STOCK
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year 1,501 $ 144 1,501 $ 144 3,351 $ 327
Redemption of Cumulative Preferred Stock (1,501) (150) - - (1,850) (185)
Preferred stock expense - 6 - - - 2
- -----------------------------------------------------------------------------------------------------------------------------
Balance at end of year - $ - 1,501 $ 144 1,501 $ 144
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK 145,120 $ 1,451 145,120 $ 1,451 145,120 $ 1,451
- -----------------------------------------------------------------------------------------------------------------------------
PREMIUM ON COMMON STOCK $ 548 $ 548 $ 548
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK EXPENSE $ (48) $ (48) $ (48)
- -----------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year $ 1,478 $ 1,392 $ 1,485
Net income 418 417 328
Dividends declared
Common stock ($2.20 per share) (319) (319) (319)
Cumulative Preferred Stock* (6) (12) (16)
Preferred stock expense (6) - (2)
Restructuring dividend to parent - - (84)
Other (3) - -
- -----------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,562 $ 1,478 $ 1,392
- -----------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 3,513 $ 3,573 $ 3,487
=============================================================================================================================
</TABLE>
* At established rate for each series.
(See Notes to Consolidated Financial Statements.)
43
<PAGE> 44
DTE ENERGY COMPANY AND THE DETROIT EDISON COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
CORPORATE STRUCTURE AND PRINCIPLES OF CONSOLIDATION
DTE Energy Company (Company), a Michigan corporation incorporated in 1995, is an
exempt holding company under the Public Utility Holding Company Act. The Company
has no significant operations of its own, holding instead the stock of The
Detroit Edison Company (Detroit Edison), an electric public utility regulated by
the Michigan Public Service Commission (MPSC) and the Federal Energy Regulatory
Commission (FERC), and other energy-related businesses. On January 1, 1996, the
holders of Detroit Edison's common stock exchanged such stock on a
share-for-share basis for the common stock of the Company; and certain Detroit
Edison subsidiaries were transferred to the Company in the form of a dividend.
The Company and Detroit Edison consolidate all majority owned subsidiaries.
Investments in limited liability companies, partnerships and joint ventures are
accounted for using the equity method. All significant inter-company balances
and transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REGULATION AND REGULATORY ASSETS AND LIABILITIES
Detroit Edison's transmission and distribution business meets the criteria of
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation." This accounting standard recognizes the
cost based ratemaking process which results in differences in the application of
generally accepted accounting principles between regulated and non-regulated
businesses. SFAS No. 71 requires the recording of regulatory assets and
liabilities for transactions that would have been treated as revenue and expense
in non-regulated businesses. Detroit Edison's regulatory assets and liabilities
are being amortized to revenue and expense as they are included in rates.
Continued applicability of SFAS No. 71 requires that rates be designed to
recover specific costs of providing regulated services and products and that it
be reasonable to assume that rates are set at levels that will recover a
utility's costs and can be charged to and collected from customers.
44
<PAGE> 45
MPSC Orders issued in 1997 and 1998 have altered the regulatory process in
Michigan and provide a plan for transition to competition for the generation
business of Detroit Edison. In guidance issued in 1997, the Emerging Issues Task
Force (EITF) of the Financial Accounting Standards Board (FASB) concluded that
the application of SFAS No. 71 to a separable portion of a business which is
subject to a deregulation plan should cease when legislation is passed and/or a
rate order is issued that contains sufficient detail on a transition plan. Since
MPSC Orders issued through December 31, 1998 contain sufficient detail on a
transition plan, effective December 31, 1998 Detroit Edison's generation
business no longer met the criteria of SFAS No. 71. Detroit Edison did not write
off any regulatory assets as a result of the discontinuation of SFAS No. 71 for
its generation business, because EITF No. 97-4, "Deregulation of the Pricing of
Electricity - Issues Related to the Application of FASB Statement No. 71,
Accounting for the Effects of Certain Types of Regulation, and No. 101,
Regulated Enterprises - Accounting for the Discontinuation of Application of
FASB Statement No. 71," permits the recording of regulatory assets which are
expected to be recovered through regulated rates. A December 1998 MPSC Order
authorized the recovery of an additional regulatory asset equal to the net book
value of Fermi 2 at December 31, 1998. See the following table of regulatory
assets and liabilities and Note 2 for further details.
Detroit Edison has recorded the following regulatory assets and liabilities at
December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------
(Millions)
ASSETS
<S> <C> <C>
Unamortized nuclear costs $ 2,808 $ -
Unamortized loss on reacquired debt 94 101
Recoverable income taxes 107 562
Power supply cost recovery 49 -
Fermi 2 phase-in plan - 84
Fermi 2 deferred amortization - 66
1997 storm damage costs 15 30
Other 18 13
----------------------------
Total Assets $ 3,091 $ 856
============================
LIABILITIES
Unamortized deferred investment tax
credits $ 188 $ 301
Fermi 2 capacity factor performance
standard 86 74
Other 20 25
----------------------------
Total Liabilities $ 294 $ 400
============================
- ----------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 46
UNAMORTIZED NUCLEAR COSTS - See Note 2.
UNAMORTIZED LOSS ON REACQUIRED DEBT
In accordance with MPSC regulations applicable to Detroit Edison, the discount,
premium and expense related to debt redeemed with refunding are amortized over
the life of the replacement issue or if related to the generation business
amortized through 2007. Discount, premium and expense on future early
redemptions of debt will be charged to earnings if they relate to the generation
business of Detroit Edison or the non-regulated businesses of the Company.
RECOVERABLE INCOME TAXES
Recoverable income taxes, a regulatory asset, represent future revenue recovery
from customers for deferred income taxes recorded upon the adoption of SFAS No.
109, "Accounting for Income Taxes," in 1993. At that time, an increase in
accumulated deferred income tax liabilities was recorded representing the tax
effect of temporary differences not previously recognized and the recomputation
of the tax liability at the current tax rate. The MPSC issued an Order providing
assurance that the effects of previously flowed-through tax benefits will
continue to be allowed rate recovery.
POWER SUPPLY COST RECOVERY (PSCR)
State legislation provides Detroit Edison a mechanism, subject to MPSC approval,
for recovery of changes in power supply costs for purchased power and generation
based on a reconciliation of actual costs and usage.
FERMI 2 PHASE-IN PLAN
SFAS No. 92, "Regulated Enterprises - Accounting for Phase-in Plans," permits
the capitalization of costs deferred for future recovery under a phase-in plan.
Based on a MPSC authorized phase-in plan, Detroit Edison recorded a receivable
totaling $506.5 million from 1988 through 1992. Beginning in 1993 and ending in
1998, these amounts were amortized to operating expense as they were included in
rates. Amortization of these amounts totaled $84 million, $112 million, and $102
million in, 1998, 1997 and 1996, respectively.
FERMI 2 DEFERRED AMORTIZATION
Effective December 31, 1998 deferred amounts are included in unamortized nuclear
costs.
1997 STORM DAMAGE COSTS
The costs of major storms in 1997, as authorized by the MPSC, were deferred and
are amortized into expense in 1998 and 1999 as they are recovered through rates.
46
<PAGE> 47
UNAMORTIZED DEFERRED INVESTMENT TAX CREDITS
Investment tax credits utilized, which relate to utility property, were deferred
and are amortized over the estimated composite service life of the related
property.
FERMI 2 CAPACITY FACTOR PERFORMANCE STANDARD
The MPSC has established a capacity factor performance standard which provides
for the disallowance of net incremental replacement power cost if Fermi 2 does
not perform to certain operating criteria. A disallowance is imposed for the
amount by which the Fermi 2 three-year rolling average capacity factor is less
than the greater of either the average of the top 50% of U.S. boiling water
reactors or 50%. An estimate of the incremental cost of replacement power is
required in computing the reserve for amounts due customers under this
performance standard.
CASH EQUIVALENTS
For purposes of the Consolidated Statement of Cash Flows, the Company considers
investments purchased with a maturity of three months or less to be cash
equivalents.
RESTRICTED CASH
Cash maintained for debt service requirements and other contractual obligations
is classified as restricted cash.
REVENUES
Detroit Edison records unbilled revenues for electric and steam heating services
provided after cycle billings through month-end.
47
<PAGE> 48
PROPERTY, RETIREMENT AND MAINTENANCE, DEPRECIATION AND AMORTIZATION
A summary of property by classification at December 31 is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
(Millions)
Transmission and distribution
<S> <C> <C>
Property $ 5,354 $ 5,074
Construction work in progress 3 1
Property under capital leases 5 6
Less accumulated depreciation (2,063) (1,912)
----------------------------
3,299 3,169
----------------------------
Generation
Property 5,256 9,130
Construction work in progress 115 11
Property under capital leases 237 250
Less accumulated depreciation (2,587) (4,011)
----------------------------
3,021 5,380
----------------------------
Nuclear fuel under capital lease 659 607
Less accumulated amortization (551) (508)
----------------------------
108 99
----------------------------
Non-utility
Property 511 291
Construction work in progress 38 4
Less accumulated depreciation (34) (9)
-----------------------------
515 286
----------------------------
Total property $ 6,943 $ 8,934
============================
- -------------------------------------------------------------------------------
</TABLE>
Utility properties are stated at original cost less regulatory disallowances and
impairment losses. In general, the cost of properties retired in the normal
course of business is charged to accumulated depreciation. Expenditures for
maintenance and repairs are charged to expense, and the cost of new property
installed, which replaces property retired, is charged to property accounts. The
annual provision for utility property depreciation is calculated on the
straight-line remaining life method by applying annual rates approved by the
MPSC to the average of year-beginning and year-ending balances of depreciable
property by primary plant accounts. Provision for depreciation of Fermi 2,
excluding decommissioning expense, was 3.25% of average depreciable property for
1998, 1997 and 1996. Provision for depreciation of all other utility plant, as a
percent of average depreciable property, was 3.29% for 1998, 1997 and 1996.
48
<PAGE> 49
Non-utility property is stated at original cost. Depreciation is computed over
the estimated useful lives using straight-line and declining-balance methods.
LONG-LIVED ASSETS
Long-lived assets held and used by the Company are reviewed based on market
factors and operational considerations for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
SOFTWARE COSTS
The Company capitalizes the cost of software developed for internal use. These
costs are amortized on a straight-line basis over a five-year period beginning
with the project's completion.
CAPITALIZATION - DISCOUNT AND COST
The discount and cost related to the issuance of long-term debt are amortized
over the life of each issue.
FERMI 2 REFUELING OUTAGES
Detroit Edison recognizes the cost of Fermi 2 refueling outages over periods in
which related revenues are recognized. Under this procedure, a provision is
recorded for incremental costs anticipated to be incurred during the next
scheduled Fermi 2 refueling outage.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method. Compensation expense is not recorded for stock options granted with an
exercise price equal to the fair market value at the date of grant. For grants
of restricted stock, compensation equal to the market value of the shares at the
date of grant is deferred and amortized to expense over the vesting period.
ACCOUNTING FOR RISK MANAGEMENT ACTIVITIES
Trading activities of DTE Energy Trading, Inc. (DTE ET), an indirect wholly
owned subsidiary of the Company, are accounted for using the mark-to-market
method of accounting. Under such method, DTE ET's energy trading contracts,
including both transactions for physical delivery and financial instruments, are
recorded at market value. The resulting unrealized gains and losses from changes
in market value of open positions are recorded as assets or liabilities on the
Consolidated Balance Sheet. Current period changes in the assets or liabilities
are recognized as net gains or losses in "Operating Revenues" on the
Consolidated Statement of Income. Realized gains and losses are also recognized
in "Operating Revenues." The market prices used to value these transactions
reflect management's best estimate considering various
49
<PAGE> 50
factors, including closing exchange and over-the-counter quotations, time value
and volatility factors underlying the commitments.
Detroit Edison continues to account for its forward purchase and sale
commitments and over-the-counter options on a settlement basis.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1998
presentation.
NOTE 2 - REGULATORY MATTERS
- --------------------------------------------------------------------------------
Detroit Edison is subject to the primary regulatory jurisdiction of the MPSC,
which, from time to time, issues its Orders pertaining to Detroit Edison's
conditions of service, rates and recovery of certain costs including the costs
of generating facilities. MPSC Orders issued December 1988, January 1994,
November 1997 and December 1998 are currently in effect with respect to Detroit
Edison's rates and certain other revenue, accounting, and operating-related
matters.
ELECTRIC INDUSTRY RESTRUCTURING
There are ongoing proceedings for the restructuring of the Michigan electric
public utility industry and the implementation of a direct access program. In
1997 and 1998, the MPSC issued several Orders relating to direct access and
competition.
In July 1998, Detroit Edison filed an application with the MPSC, indicating that
accelerated amortization of Detroit Edison's Fermi 2 assets was necessary to
provide a reasonable opportunity for Detroit Edison to recover its investment in
those assets. In a December 28, 1998 Order, the MPSC authorized the accelerated
amortization of the remaining net book balances (as of December 31, 1998) of
Fermi 2 and its associated regulatory assets in a manner that will provide an
opportunity for full recovery under current base rates, taking into account the
related tax consequences, of those assets by December 31, 2007.
The December 28, 1998 Order imposed six conditions for the recovery by Detroit
Edison of accelerated amortization of Fermi 2 and required a signed acceptance.
In a January 15, 1999 response, Detroit Edison requested a clarifying Order from
the MPSC. Subject to receipt of the requested clarifying Order, Detroit Edison
has;
- - reduced its rates by application of a credit equal to 2.787% ($93.8
million annually) of base rates, effective January 1, 1999;
- - indicated it will reduce its jurisdictional retail rates by removing the
Fermi 2 regulatory asset, referred to in Note 1 as unamortized nuclear
costs, from rate base on a pro rata jurisdictional rate basis when such
asset reaches zero, which is currently anticipated to occur January 1,
2008;
- - indicated that while it has no plans to sell Fermi 2, should such a sale
occur, it will return to customers the difference between Fermi 2's net
book value at the time of
50
<PAGE> 51
sale and the actual sale price; and the MPSC will
be advised of a purchase of Detroit Edison during the accelerated
amortization period so that the MPSC may determine whether the proposed
transaction is in the public interest and properly balances the interests
of investors and customers;
- - agreed that should Detroit Edison seek to abandon Fermi 2 (which Detroit
Edison has no plans to do) during the accelerated amortization period, and
only if electric generation has not been deregulated by either Michigan
state or federal action, Detroit Edison will initiate a contested case
proceeding before the MPSC seeking approval of the abandonment;
- - agreed to fully abide by the direct access program (and schedule)
established by the MPSC in previous restructuring orders; and
- - indicated that if its earned rate of return exceeds its authorized rate of
return during the period of time that amortization of Fermi 2 is being
accelerated, it will apply 50% of the excess earnings to reduce its
stranded investment.
Petitions for rehearing on the December 28, 1998 MPSC Order have been filed by
several parties.
ACCOUNTING IMPLICATIONS
Detroit Edison accounts for its transmission and distribution business in
accordance with SFAS No. 71 which requires recognition of the effects of rate
regulation in the financial statements. Continued application of SFAS No. 71 by
Detroit Edison requires: 1) third party regulation of rates, 2) cost-based
rates and 3) a reasonable assumption that all costs will be recoverable from
customers through rates.
In 1997, the FASB issued EITF No. 97-4. The EITF indicated that: 1) an entity
should cease to apply SFAS No. 71 no later than the date the specific
deregulation plan is ordered by legislation or by a regulatory authority and the
details of the plan are known, and 2) both stranded costs and regulated assets
and liabilities should continue to be recognized to the extent that the
transition plan provides for their recovery through a separate regulated
business.
Detroit Edison believes that the restructuring orders provide sufficient details
regarding the transition to competition for its electric generation business and
therefore SFAS No. 71 should no longer be applied to that business. Accordingly,
effective December 31, 1998, Detroit Edison adopted the provisions of SFAS No.
101, "Regulated Enterprises-Accounting for the Discontinuation of Application of
FASB Statement No. 71," for its electric generation business. SFAS No. 101
requires an evaluation to be performed to determine whether or not indications
of impairment exist for plant assets under SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and the elimination of certain effects of rate regulation that have been
recognized as assets or liabilities pursuant to SFAS No. 71.
At December 31, 1998 Detroit Edison performed an impairment test of its Fermi 2
nuclear generation plant and related regulatory assets pursuant to SFAS No. 121.
The impairment test for Fermi 2 indicated that it was fully impaired. Therefore,
the Fermi 2
51
<PAGE> 52
plant asset and its related regulatory assets were written off. At December 31,
1998, the accumulation of future regulatory recovery for Fermi 2 assets from
bundled customers and transition surcharges from unbundled customers was
calculated. Since the December 28, 1998 MPSC Order provides for full recovery of
Fermi 2, a regulatory asset was established which will be amortized through
December 31, 2007. There was no impact on income from the write off of the Fermi
2 plant assets and subsequent recording of the regulatory asset for unamortized
nuclear costs.
A summary of the regulatory asset established at December 31, 1998 is shown in
the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
(Millions)
<S> <C> <C>
Net book value of Fermi 2 before write down $ 2,508
Fermi 2 future income tax regulatory asset 331
Fermi 2 deferred amortization 66
Deferred investment tax credit (97)
-----------
Unamortized nuclear costs $ 2,808
===========
- -------------------------------------------------------------------------------------
</TABLE>
1988 SETTLEMENT AGREEMENT
The December 1988 MPSC Order established for the period January 1989 through
December 2003: 1) a cap on Fermi 2 capital additions of $25 million per year, in
1988 dollars adjusted by the Consumers Price Index (CPI), cumulative, 2) a cap
on Fermi 2 non-fuel operation and maintenance expenses adjusted by the CPI and
3) a capacity factor performance standard based on a three-year rolling average
commencing in 1991. For a capital investment of $200 million or more (in 1988
dollars adjusted by the CPI), Detroit Edison must obtain prior MPSC approval to
include the investment in rate base. Under the cap on Fermi 2 capital
expenditures, the cumulative amount available totals $72 million (in 1998
dollars) at December 31, 1998. Under the cap on Fermi 2 non-fuel operation and
maintenance expenses, the cumulative amount available totals $105 million (in
1998 dollars) at December 31, 1998.
Under the December 1988 Order, if nuclear operations at Fermi 2 permanently
cease, amortization in rates of a $513 million investment in Fermi 2 would
continue and the remaining net rate base investment amount would be removed from
rate base and amortized in rates, without return, over 10 years with such
amortization not to exceed $290 million per year. The December 1988 and January
1994 Orders do not address the costs of decommissioning if the operations at
Fermi 2 prematurely cease.
In accordance with a November 1997 MPSC Order, Detroit Edison reduced revenues
by $53 million to reflect the scheduled reduction in the revenue requirement for
Fermi 2, in accordance with the 1988 settlement agreement. The $53 million
decrease is included in the $93.8 million decrease effective January 1, 1999. In
addition, the November 1997 MPSC Order authorized the deferral of $30 million of
1997 storm
52
<PAGE> 53
damage costs and amortization and recovery of the costs over a 24-month
period commencing January 1998. In December 1997, the Association of Businesses
Advocating Tariff Equity in Michigan and the Residential Ratepayer Consortium
filed a lawsuit in Ingham County Circuit Court contending that Detroit Edison
and the MPSC breached the December 1988 MPSC Order by offsetting the stipulated
revenue reduction with the amortization of the storm costs. The Michigan
Attorney General has filed an appeal of the November 1997 Order in the Michigan
Court of Appeals.
NOTE 3 - FERMI 2
- --------------------------------------------------------------------------------
GENERAL
Fermi 2, a nuclear generating unit, began commercial operation in January 1988.
The Nuclear Regulatory Commission (NRC) maintains jurisdiction over the
licensing and operation of Fermi 2. Fermi 2 has a design electrical rating (net)
of 1,150 megawatts (MW). This unit represents approximately 12% of total
operation and maintenance expenses and 11% of summer net rated capability. The
net book balance of the Fermi 2 plant was written off at December 31, 1998 and
an equivalent regulatory asset was established.
Ownership of an operating nuclear generating unit subjects Detroit Edison to
significant additional risks. Fermi 2 is regulated by a number of different
governmental agencies concerned with public health, safety and environmental
protection. Consequently, Fermi 2 is subjected to greater scrutiny than a
conventional fossil-fueled plant. See Note 2.
INSURANCE
Detroit Edison insures Fermi 2 with property damage insurance provided by
Nuclear Electric Insurance Limited (NEIL). The NEIL insurance policies provide
$500 million of composite primary coverage (with a $1 million deductible) and
$2.25 billion of excess coverage, respectively, for stabilization,
decontamination and debris removal costs, repair and/or replacement of property
and decommissioning. Accordingly, the combined limits provide total property
damage insurance of $2.75 billion.
Detroit Edison maintains insurance policies with NEIL providing for extra
expenses, including certain replacement power costs necessitated by Fermi 2's
unavailability due to an insured event. These policies have a 17-week waiting
period and provide for three years of coverage.
Under the NEIL policies, Detroit Edison could be liable for maximum
retrospective assessments of up to approximately $20 million per loss if any one
loss should exceed the accumulated funds available to NEIL.
As required by federal law, Detroit Edison maintains $200 million of public
liability insurance for a nuclear incident. Further, under the Price-Anderson
Amendments Act of 1988, deferred premium charges of $83.9 million could be
levied against each licensed nuclear facility, but not more than $10 million per
year per facility. On December 31,
53
<PAGE> 54
1998, there were 109 licensed nuclear facilities in the United States. Thus,
deferred premium charges in the aggregate amount of approximately $9.1 billion
could be levied against all owners of licensed nuclear facilities in the event
of a nuclear incident at any of these facilities.
DECOMMISSIONING
The NRC has jurisdiction over the decommissioning of nuclear power plants and
requires decommissioning funding based upon a formula. The MPSC and FERC
regulate the recovery of costs of decommissioning nuclear power plants and both
require the use of external trust funds to finance the decommissioning of Fermi
2. Base rates approved by the MPSC provide for the decommissioning costs of
Fermi 2. Detroit Edison is continuing to fund FERC jurisdictional amounts for
decommissioning even though explicit provisions are not included in FERC rates.
Detroit Edison believes that the MPSC and FERC collections will be adequate to
fund the estimated cost of decommissioning using the NRC formula.
Detroit Edison has established external trust funds to hold decommissioning and
low-level radioactive waste disposal funds collected from customers. During
1998, 1997 and 1996 Detroit Edison collected $36.2 million, $35.5 million and
$37.7 million, respectively, from customers for decommissioning and low-level
radioactive waste disposal. Such amounts were recorded as components of
depreciation and amortization expense in the Consolidated Statement of Income
and in other liabilities in the Consolidated Balance Sheet at December 31, 1998
and in accumulated depreciation and amortization at December 31, 1997. Net
unrealized gains of $36.8 million and $31.5 million in 1998 and 1997,
respectively, were recorded as increases to the nuclear decommissioning trust
funds and other liabilities in the Consolidated Balance Sheet at December 31,
1998 and in accumulated depreciation and amortization at December 31, 1997.
At December 31, 1998, Detroit Edison had a reserve of $265.6 million for the
future decommissioning of Fermi 2 and $11.1 million for low-level radioactive
waste disposal costs. These reserves are included in other liabilities in the
Consolidated Balance Sheet at December 31, 1998 and in accumulated depreciation
and amortization at December 31, 1997, with a like amount deposited in external
trust funds. It is estimated that the cost of decommissioning Fermi 2 when its
license expires in the year 2025 will be $649 million in 1998 dollars and $3
billion in 2025 dollars using a 6% inflation rate.
Detroit Edison also had a reserve of $32.1 million at December 31, 1998 for the
future decommissioning of Fermi 1, an experimental nuclear unit on the Fermi 2
site that has been shut down since 1972. This reserve is included in other
liabilities in the Consolidated Balance Sheet with a like amount deposited in an
external trust fund. Detroit Edison estimates that the cost of decommissioning
Fermi 1 in the year 2025 is between $29 million and $32 million in 1998 dollars
and between $146 million and $161 million in 2025 dollars using a 6% inflation
rate.
The FASB is reviewing the accounting for obligations associated with the
retirement of long-lived assets, including decommissioning of nuclear power
plants.
54
<PAGE> 55
CAPACITY FACTOR PERFORMANCE STANDARD
The capacity factor disallowance for 1997 has not yet been determined by the
MPSC. At December 31, 1998 and 1997, Detroit Edison had accruals of $85.6
million and $74 million, respectively, for the Fermi 2 capacity factor
performance standard disallowances that are expected to be imposed by the MPSC
during the period 1997-2003.
NUCLEAR FUEL DISPOSAL COSTS
In accordance with the Federal Nuclear Waste Policy Act of 1982, Detroit Edison
has a contract with the United States Department of Energy (DOE) for the future
storage and disposal of spent nuclear fuel from Fermi 2. Detroit Edison is
obligated to pay DOE a fee of one mill per net kilowatthour of Fermi 2
electricity generated and sold. The fee is a component of nuclear fuel expense.
Delays have occurred in the DOE's program for the acceptance and disposal of
spent nuclear fuel at a permanent repository. Until the DOE is able to fulfill
its obligation under the contract, Detroit Edison is responsible for the spent
nuclear fuel storage and estimates that existing storage capacity will be
sufficient until the year 2001, or until 2015 with expansion of such storage
capacity.
NOTE 4 - JOINTLY-OWNED UTILITY PLANT
- ------------------------------------
Detroit Edison's portion of jointly-owned utility plant is as follows:
- --------------------------------------------------------------------------------
Belle River Ludington Pumped Storage
- --------------------------------------------------------------------------------
In-service date 1984-1985 1973
Ownership interest * 49%
Investment (millions) $ 1,031 $ 192
Accumulated depreciation (millions) $ 393 $ 88
* Detroit Edison's ownership interest is 62.78% in Unit No. 1, 81.39% of
the portion of the facilities applicable to Belle River used jointly by
the Belle River and St. Clair Power Plants, 49.59% in certain
transmission lines and, at December 31, 1998, 75% in facilities used in
common with Unit No. 2.
- --------------------------------------------------------------------------------
BELLE RIVER
The Michigan Public Power Agency (MPPA) has an ownership interest in Belle River
Unit No. 1 and certain other related facilities. MPPA is entitled to 18.61% of
the capacity and energy of the entire plant and is responsible for the same
percentage of the plant's operation and maintenance expenses and capital
improvements.
55
<PAGE> 56
LUDINGTON PUMPED STORAGE
Operation, maintenance and other expenses of the Ludington Pumped Storage Plant
are shared by Detroit Edison and Consumers Energy in proportion to their
respective ownership interests in the plant.
NOTE 5 - INCOME TAXES
- --------------------------------------------------------------------------------
Total income tax expense as a percent of income before tax varied from the
statutory federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 35.0%
Deferred Fermi 2 depreciation
and return 3.9 4.6 5.3
Investment tax credit (2.5) (2.1) (2.8)
Depreciation 5.1 4.6 6.0
Removal costs (1.9) (1.5) (2.2)
Alternate fuels credit (13.1) (3.5) (0.4)
Other-net (1.0) 0.4 (0.4)
------------------------------------
Effective income tax rate 25.5% 37.5% 40.5%
====================================
- --------------------------------------------------------------------------
</TABLE>
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------
(Millions)
<S> <C> <C> <C>
Current federal income tax expense $ 143 $ 267 $ 219
Deferred federal income tax expense - net 26 5 17
Investment tax credit (15) (15) (15)
----------------------------
Total $ 154 $ 257 $ 221
============================
- --------------------------------------------------------------------------
</TABLE>
Internal Revenue Code Section 29 provides a tax credit (alternate fuels credit)
for qualified fuels produced and sold by a taxpayer to an unrelated person
during the taxable year. The alternate fuels credit reduced current federal
income tax expense $79 million, $24.2 million and $1.9 million for 1998, 1997
and 1996 respectively.
56
<PAGE> 57
Deferred income tax assets (liabilities) were comprised of the following at
December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------
(Millions)
<S> <C> <C>
Property $ (1,139) $ (2,233)
Unamortized nuclear costs (983) -
Property taxes (66) (62)
Investment tax credit 154 162
Reacquired debt losses (32) (35)
Contributions in aid of construction 63 55
Other 55 66
-------------------------------
$ (1,948) $ (2,047)
===============================
Deferred income tax liabilities $ (2,447) $ (2,572)
Deferred income tax assets 499 525
-------------------------------
$ (1,948) $ (2,047)
===============================
- ---------------------------------------------------------------------------------
</TABLE>
The federal income tax returns of the Company are settled through the year 1991.
The Company believes that adequate provisions for federal income taxes have been
made through December 31, 1998.
NOTE 6 - SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
At December 31, 1998, the Company had Cumulative Preferred Stock, without par
value, 5 million shares authorized with no shares issued. At December 31, 1998,
1.5 million shares of preferred stock are reserved for issuance in accordance
with the Shareholders Rights Agreement.
At December 31, 1998, Detroit Edison had Cumulative Preference Stock of $1 par
value, 30 million shares authorized with no shares issued.
Detroit Edison's 7.75% Series of Cumulative Preferred Stock was redeemed in May
1998, while its 7.74% Series was redeemed in December 1998. There was no
Cumulative Preferred Stock outstanding at December 31, 1998. Detroit Edison had
the following Cumulative Preferred Stock outstanding at December 31, 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Shares Outstanding Amount
- ---------------------------------------------------------------------
(Thousands) (millions)
<S> <C> <C>
7.75% Series 1,001 $ 100
7.74% Series 500 50
Preferred stock expense - (6)
---------------------------
1,501 $ 144
===========================
- ---------------------------------------------------------------------
</TABLE>
57
<PAGE> 58
In September 1997, the Board of Directors of the Company declared a dividend
distribution of one right (Right) for each share of Company common stock
outstanding. Under certain circumstances, each Right entitles the shareholder to
purchase one one-hundredth of a share of Company Series A Junior Participating
Preferred Stock at a price of $90. The Right is transferable apart from the
Company common stock until 10 days following a public announcement that a person
or group has acquired beneficial ownership of 10% or more of outstanding Company
common shares, or the commencement or announcement of a reclassification, merger
or consolidation which would result in a 10% plus shareholder increasing its
ownership of the Company more than 1%. If the acquiring person or group acquires
10% or more of the Company common stock, and the Company survives, each Right
(other than those held by the acquirer) will entitle its holder to buy Company
common stock having a value of $180 for $90. If the acquiring person or group
acquires 10% or more of the Company common stock, and the Company does not
survive, each Right (other than those held by the surviving or acquiring
company) will entitle its holder to buy shares of common stock of the surviving
or acquiring company having a value of $180 for $90. The Rights will expire on
October 6, 2007 unless redeemed by the Company at $0.01 per Right at any time
prior to an event which would permit the Rights to be exercised. The Company may
amend the Rights agreement without the approval of the holders of the Rights
Certificates, except that the redemption price may not be less than $0.01 per
Right.
Apart from MPSC or FERC approval and the requirement that common, preferred and
preference stock be sold for at least par value, there are no legal restrictions
on the issuance of additional authorized shares of stock by Detroit Edison.
There are no legal restrictions on the issuance of additional authorized shares
of the Company's common and preferred stock.
NOTE 7 - LONG-TERM DEBT
- --------------------------------------------------------------------------------
Detroit Edison's 1924 Mortgage and Deed of Trust (Mortgage), the lien of which
covers substantially all of Detroit Edison's properties, provides for the
issuance of additional General and Refunding Mortgage Bonds (Mortgage Bonds). At
December 31, 1998, approximately $3.8 billion principal amount of Mortgage Bonds
could have been issued on the basis of property additions, combined with an
earnings test provision, assuming an interest rate of 6.25% on any such
additional Mortgage Bonds. An additional $1.6 billion principal amount of
Mortgage Bonds could have been issued on the basis of bond retirements.
Unless an event of default has occurred, and is continuing, each series of
Quarterly Income Debt Securities (QUIDS) provides that interest will be paid
quarterly. However, Detroit Edison also has the right to extend the interest
payment period on the QUIDS for up to 20 consecutive interest payment periods.
Interest would continue to accrue during the deferral period. If this right is
exercised, Detroit Edison may not declare or pay dividends on, or redeem,
purchase or acquire, any of its capital stock during the deferral
58
<PAGE> 59
period. Detroit Edison may redeem any series of capital stock pursuant to the
terms of any sinking fund provisions during the deferral period. Additionally,
during any deferral period, Detroit Edison may not enter into any inter-company
transactions with any affiliate of Detroit Edison, including the Company, to
enable the payment of dividends on any equity securities of the Company.
At December 31, 1998, $113 million of tax exempt revenue bonds were subject to
periodic remarketings within one year. Remarketing agents remarket the bonds at
the lowest interest rate necessary to produce a par bid. In the event that a tax
exempt revenue bond remarketing fails, Standby Note Purchase Agreements and/or
Letters of Credit provide that banks will purchase the bonds and, after the
conclusion of all necessary proceedings, remarket the bonds. In the event the
banks' obligations under the Standby Note Purchase Agreements and/or Letters of
Credit are not honored, then, Detroit Edison would be required to purchase any
bonds subject to a failed remarketing.
The Company's long-term debt outstanding at December 31 was:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------
(Millions)
<S> <C> <C>
MORTGAGE BONDS
6.5% to 8.4% due 1999 to 2023 $ 1,742 $ 1,911
REMARKETED NOTES
5.4% to 6.4% due 2028 to 2034 (a) 410 410
6.2% and 7.1% due 2038 400 -
TAX EXEMPT REVENUE BONDS
SECURED BY MORTGAGE BONDS
Installment Sales Contracts
7.1% due 2004 to 2024 (b) 282 282
Loan Agreements
6.7% due 2008 to 2025 (b) 607 607
UNSECURED
Installment Sales Contracts
7.5% due 2004 to 2019 (b) 142 142
Loan Agreements
3.2% due 2024 to 2030 (a) 113 113
QUIDS
7.4% to 7.6% due 2026 to 2028 385 235
NON-RECOURSE DEBT
7.3% due 1999 to 2009 (b) 410 282
Less amount due within one year (294) (205)
----------------------------
TOTAL LONG-TERM DEBT $ 4,197 $ 3,777
============================
</TABLE>
(a) Variable rate at December 31, 1998.
(b) Weighted average interest rate at December 31, 1998.
- --------------------------------------------------------------------------------
59
<PAGE> 60
In the years 1999 - 2003, the Company's long-term debt maturities are $294,
$270, $194, $275 and $238 million, respectively.
NOTE 8 - SHORT-TERM CREDIT ARRANGEMENTS AND BORROWINGS
- --------------------------------------------------------------------------------
At December 31, 1998, Detroit Edison had total short-term credit arrangements of
approximately $685 million, under which $231 million was outstanding. At
December 31, 1997 there were no amounts outstanding. The weighted average
interest rates for short-term borrowings during 1998, 1997 and 1996 were 5.7%,
5.7% and 5.6%, respectively.
Detroit Edison had bank lines of credit of $201 million, all of which had
commitment fees in lieu of compensating balances. Detroit Edison uses bank lines
of credit and other credit facilities to support the issuance of commercial
paper and bank loans. Detroit Edison had $231 million of commercial paper
outstanding at December 31, 1998. Detroit Edison had no commercial paper
outstanding at December 31, 1997.
Detroit Edison had a nuclear fuel financing arrangement (heat purchase contract)
with Renaissance Energy Company (Renaissance), an unaffiliated company.
Renaissance may issue commercial paper or borrow from participating banks on the
basis of promissory notes. To the extent the maximum amount of funds available
to Renaissance (currently $400 million) is not needed by Renaissance to purchase
nuclear fuel, such funds may be loaned to Detroit Edison for general corporate
purposes pursuant to a separate Loan Agreement. At December 31, 1998,
approximately $284 million was available to Detroit Edison under such Loan
Agreement. See Note 9 for a discussion of Detroit Edison's heat purchase
contract with Renaissance.
Detroit Edison had a $200 million short-term financing agreement secured by its
customer accounts receivable and unbilled revenues portfolio. Borrowings are at
prevailing money market rates. At December 31, 1998 and December 31, 1997 there
were no amounts outstanding.
At December 31, 1998, DTE Capital Corporation (DTE Capital), a Company
subsidiary, had short-term credit arrangements of $400 million backed by a
Support Agreement from the Company. The credit agreement provides support for
DTE Capital's commercial paper. At December 31, 1998 there was no commercial
paper outstanding. At December 31, 1997 DTE Capital had short-term credit
arrangements of $200 million, backed by a Support Agreement from the Company
under which $42 million was outstanding. Also in January 1998, the Company
entered into a $60 million Support Agreement with DTE Capital for the purpose of
DTE Capital's credit enhancing activities on behalf of DTE Energy affiliates.
NOTE 9 - LEASES
- --------------------------------------------------------------------------------
Future minimum lease payments under long-term non-cancelable leases, consisting
of nuclear fuel ($120 million computed on a projected units of production
basis), lake
60
<PAGE> 61
vessels ($25 million), locomotives and coal cars ($172 million), office space
($12 million), and computers, vehicles and other equipment ($1 million) at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(Millions)
Remaining
1999 2000 2001 2002 2003 Years Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 69 $ 52 $ 44 $ 35 $ 20 $ 110 $ 330
======
- ---------------------------------------------------------------------------------------
</TABLE>
Rental expenses for both capital and operating leases were $96 million
(including $49 million for nuclear fuel), $72 million (including $42 million for
nuclear fuel) and $78 million (including $53 million for nuclear fuel) for 1998,
1997 and 1996, respectively.
Detroit Edison has a heat purchase contract with Renaissance which provides for
the purchase by Renaissance for Detroit Edison of up to $400 million of nuclear
fuel, subject to the continued availability of funds to Renaissance to purchase
such fuel. Title to the nuclear fuel is held by Renaissance. Detroit Edison
makes quarterly payments under the heat purchase contract based on the
consumption of nuclear fuel for the generation of electricity.
Under SFAS No. 71, amortization of Detroit Edison's leased assets is modified so
that the total of interest on the obligation and amortization of the leased
asset is equal to the rental expense allowed for ratemaking purposes. For
ratemaking purposes, the MPSC has treated all leases as operating leases. Net
income was not affected by capitalization of leases. Due to the discontinuation
of the application of SFAS No. 71 for the generation business effective December
31, 1998, prospectively, the costs of these assets will be amortized based on
their economic useful lives.
NOTE 10 - FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
TRADING ACTIVITIES
DTE ET markets and trades electricity and natural gas physical products and
financial instruments, and provides risk management services utilizing energy
commodity derivative instruments which include futures, exchange traded and
over-the-counter options, and forward purchase and sale commitments. The
notional amounts and terms of DTE ET's outstanding energy trading financial
instruments and the fair values of DTE ET's energy commodity derivative
instruments were not material at December 31, 1998.
MARKET RISK
DTE ET manages, on a portfolio basis, the market risks inherent in its
activities subject to parameters established by the Company's Risk Management
Committee (RMC), which is authorized by its Board of Directors. Market risks are
monitored by the RMC to
61
<PAGE> 62
ensure compliance with the Company's stated risk management policies. DTE ET
marks its portfolio to market and measures its risk on a daily basis in
accordance with Value at Risk (VaR) and other risk methodologies. The
quantification of market risk using VaR provides a consistent measure of risk
across diverse energy markets and products.
CREDIT RISK
DTE ET is exposed to credit risk in the event of nonperformance by customers or
counterparties of its contractual obligations. The concentration of customers
and/or counterparties may impact overall exposure to credit risk, either
positively or negatively, in that the counterparties may be similarly affected
by changes in economic, regulatory or other conditions. However, DTE ET
maintains credit policies with regard to its customers and counterparties that
management believes significantly minimize overall credit risk. These policies
include an evaluation of potential customers' and counterparties' financial
condition and credit rating, collateral requirements or other credit
enhancements such as letters of credit or guarantees, and the use of
standardized agreements which allow for the netting or offsetting of positive
and negative exposures associated with a single counterparty. Based on these
policies, the Company does not anticipate a materially adverse effect on
financial position or results of operations as a result of customer or
counterparty nonperformance. Those futures and option contracts which are traded
on the New York Mercantile Exchange are financially guaranteed by the Exchange
and have nominal credit risk.
NON-TRADING ACTIVITIES
INTEREST RATE SWAPS
In October 1996, Detroit Edison entered into a three-year interest rate swap
agreement based on a notional amount of $25 million, which is nominally linked
to the Detroit Edison 1993 Series B Remarketed Notes. Detroit Edison receives a
rate equal to the London Interbank Offered Rate (LIBOR) and pays a rate equal to
the quarterly weighted average Public Securities Association Municipal Swap
Index divided by 67.3%. The intent of the swap is to shift floating rate
exposure from taxable to tax-exempt markets. In 1998 and 1997 the average rate
received was 5.68% and 5.7% and the average rate paid was 5.02% and 5.36%,
respectively. The net of interest received and interest paid on the swap is
accrued as a component of interest expense in the current period. The swap is
subject to market risk of changes in both interest rates and tax rates.
PCI Enterprises Company (PCI), a coal pulverizing subsidiary, entered into a
seven-year interest rate swap agreement beginning June 30, 1997, with the intent
of reducing the impact of changes in interest rates on its variable rate
non-recourse debt. The initial notional amount was $30 million which was based
on 60% of its term loan of $50 million. The notional amount outstanding at
December 31, 1998 and 1997, was $27 million and $29.2 million, respectively and
will decline throughout the term of the loan based on amortization of principal
amounts. PCI pays a fixed interest rate of 6.96% on the notional amount and
receives a variable interest rate based on LIBOR. In 1998, and 1997, the
62
<PAGE> 63
average rate received was 5.65% and 5.69%, respectively. The net of interest
received and interest paid on the swap is accrued as a component of interest
expense in the current period. The swap is subject to market risk of changes in
interest rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. The carrying amount
of financial instruments, except for long-term debt, approximates fair value.
The estimated fair value of total long-term debt at December 31, 1998 and 1997
was $4.8 billion and $4.2 billion, respectively, compared to the carrying amount
of $4.5 billion and $4 billion, respectively. Investments in debt and equity
securities are classified as "available for sale."
NOTE 11 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
COMMITMENTS
Detroit Edison has entered into purchase commitments of approximately $1.1
billion at December 31, 1998, which includes, among other things, line
construction and clearance costs and other equipment purchases. The Company and
Detroit Edison have also entered into long-term fuel supply commitments of
approximately $1.1 billion.
Detroit Edison has an Energy Purchase Agreement (Agreement) for the purchase of
steam and electricity from the Detroit Resource Recovery Facility. Under the
Agreement, Detroit Edison will purchase steam through the year 2008 and
electricity through June 30, 2024. Purchases of steam and electricity were $31.1
million, $34.3 million and $30.2 million for 1998, 1997 and 1996, respectively.
Annual purchase commitments are approximately $37 million, $39 million, $40
million, $41 million and $43 million for 1999, 2000, 2001, 2002 and 2003,
respectively. See Note 14 relating to steam heating special charge.
In October 1995, the MPSC issued an Order approving Detroit Edison's six-year
capacity and energy purchase agreement with Ontario Hydro. Ontario Hydro agreed
to sell Detroit Edison 300 MW of capacity from mid-May through mid-September.
This purchase will offset a concurrent agreement to lease approximately a third
of Detroit Edison's Ludington 917 MW capacity to First Energy for the same time
period. The net economic effect of Ludington lease and the Ontario Hydro
purchase is an estimated reduction in PSCR expense of $74 million which will be
refunded to Detroit Edison customers.
CONTINGENCIES
LEGAL PROCEEDINGS
Detroit Edison and plaintiffs in a class action pending in the Circuit Court for
Wayne County, Michigan (Gilford, et al v. Detroit Edison), as well as plaintiffs
in two other pending actions which make class claims (Sanchez, et al v. Detroit
Edison, Circuit
63
<PAGE> 64
Court for Wayne County, Michigan; and Frazier v. Detroit Edison, United States
District Court, Eastern District of Michigan), are preparing for binding
arbitration to settle these matters. A July 1998 Consent Judgement has received
preliminary Court approval. A Fairness Hearing with respect to the terms of the
settlement was held in August 1998, and no objections to the settlement were
raised. A second Fairness Hearing is contemplated following the results of the
arbitration. The settlement agreement provides that Detroit Edison's monetary
liability is to be no less than $17.5 million and no greater than $65 million
after the conclusion of all related proceedings. Detroit Edison has accrued an
amount considered to be probable.
OTHER
In addition to the matters reported herein, the Company and its subsidiaries are
involved in litigation and environmental matters dealing with the numerous
aspects of their business operations. The Company believes that such litigation
and the matters discussed above will not have a material effect on its financial
position, results of operations and cash flows.
See Notes 2 and 3 for a discussion of contingencies related to Regulatory
Matters and Fermi 2.
NOTE 12 - EMPLOYEE BENEFITS
- --------------------------------------------------------------------------------
RETIREMENT PLAN
Detroit Edison has a trusteed and non-contributory defined benefit retirement
plan (Plan) covering all eligible employees who have completed six months of
service. The Plan provides retirement benefits based on the employees' years of
benefit service, average final compensation and age at retirement. Detroit
Edison's policy is to fund pension cost calculated under the projected unit
credit actuarial cost method. Net pension cost included the following
components:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------
(Millions)
<S> <C> <C> <C>
Service cost - benefits earned during period $ 31 $ 27 $ 25
Interest cost on projected benefit obligation 88 86 82
Expected return on Plan assets (118) (104) (101)
Amortization of unrecognized prior service cost 5 5 4
Amortization of unrecognized net asset resulting
from initial application (4) (4) (4)
------------------------------------------
Net pension cost $ 2 $ 10 $ 6
==========================================
- -------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE> 65
The following reconciles the funded status of the Plan to the amount recorded in
the Consolidated Balance Sheet at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------
(Millions)
<S> <C> <C>
Projected benefit obligation at beginning of year $ 1,294 $ 1,176
Service cost - benefits earned during period 31 27
Interest cost on projected benefit obligation 88 86
Net loss 61 77
Benefits paid to participants (74) (72)
------------------------
Projected benefit obligation at end of year 1,400 1,294
------------------------
Fair value of Plan assets (primarily equity and
debt securities) at beginning of year 1,347 1,232
Actual return on Plan assets 143 187
Benefits paid to participants (74) (72)
------------------------
Fair value of Plan assets at end of year 1,416 1,347
------------------------
Plan assets in excess of projected benefit
obligation 16 53
Unrecognized net (asset) resulting from initial
application (15) (20)
Unrecognized net loss (gain) 31 (4)
Unrecognized prior service cost 47 52
------------------------
Asset recorded in the Consolidated Balance Sheet $ 79 $ 81
========================
- -------------------------------------------------------------------------------
</TABLE>
Assumptions used in determining the projected benefit obligation at December 31
were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 6.5 % 7.0%
Annual increase in future compensation levels 4.0 4.5
Expected long-term rate of return on Plan assets 9.0 9.0
- --------------------------------------------------------------------------------
</TABLE>
The unrecognized net asset at date of initial application is being amortized
over approximately 15.4 years, which was the average remaining service period of
employees at January 1, 1987.
In addition to the Plan, there are several supplemental non-qualified,
non-contributory, retirement benefit plans for certain management employees.
65
<PAGE> 66
SAVINGS AND INVESTMENT PLANS
Detroit Edison has voluntary defined contribution plans qualified under Section
401 (a) and (k) of the Internal Revenue Code for all eligible employees. Detroit
Edison contributes up to 6% of base compensation for non-represented employees
and up to 4% for represented employees. Matching contributions were $21 million,
$20 million and $17 million for 1998, 1997 and 1996, respectively.
OTHER POSTRETIREMENT BENEFITS
Detroit Edison provides certain postretirement health care and life insurance
benefits for retired employees. Substantially all of Detroit Edison's employees
will become eligible for such benefits if they reach retirement age while
working for Detroit Edison. These benefits are provided principally through
insurance companies and other organizations.
Net other postretirement benefits cost included the following components:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------
(Millions)
<S> <C> <C> <C>
Service cost - benefits earned during period $ 19 $ 19 $ 20
Interest cost on accumulated
benefit obligation 38 39 40
Expected return on assets (30) (20) (14)
Amortization of unrecognized transition obligation 21 21 21
--------------------------------
Net other postretirement benefits cost $ 48 $ 59 $ 67
================================
- --------------------------------------------------------------------------------------------
</TABLE>
The following reconciles the funded status to the amount recorded in the
Consolidated Balance Sheet at December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------
(Millions)
<S> <C> <C>
Postretirement benefit obligation at beginning of year $ 580 $ 583
Service cost - benefits earned during period 19 19
Interest cost on accumulated benefit obligation 38 39
Benefit payments (27) (27)
Net loss (gain) 15 (34)
-------------------------------
Postretirement benefit obligation at end of year 625 580
-------------------------------
</TABLE>
66
<PAGE> 67
<TABLE>
<CAPTION>
<S> <C> <C>
Fair value of assets (primarily equity and debt
securities) at beginning of year 309 213
Detroit Edison contributions 57 57
Actual return on assets 56 39
-------------------------------
Fair value of assets at end of year 422 309
-------------------------------
Postretirement benefit obligation in (excess) of assets (203) (271)
Unrecognized transition obligation 287 308
Unrecognized net (gain) (28) (16)
-------------------------------
Asset recorded in the Consolidated
Balance Sheet $ 56 $ 21
===============================
- ----------------------------------------------------------------------------------------------
</TABLE>
Assumptions used in determining the postretirement benefit obligation at
December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Discount rate 6.5 % 7.0 %
Annual increase in future compensation levels 4.0 4.5
Expected long-term rate of return on assets 8.5 8.5
- --------------------------------------------------------------------------
</TABLE>
Benefit costs were calculated assuming health care cost trend rates beginning at
8.5% for 1999 and decreasing to 5% in 2008 and thereafter for persons under age
65 and decreasing from 5.9% to 5% for persons age 65 and over. A
one-percentage-point increase in health care cost trend rates would increase the
aggregate of the service cost and interest cost components of benefit costs by
$10 million for 1998 and increase the accumulated benefit obligation by $85
million at December 31, 1998. A one-percentage point decrease in the health care
cost trend rates would decrease the aggregate of the service cost and interest
cost components of benefit costs by $8 million for 1998 and decrease the
accumulated benefit obligation by $70 million at December 31, 1998.
NOTE 13 - STOCK-BASED COMPENSATION
- --------------------------------------------------------------------------------
The Company adopted a Long-Term Incentive Plan (LTIP) in 1995. Under the LTIP,
certain key employees may be granted restricted common stock, stock options,
stock appreciation rights, performance shares and performance units. Common
stock granted under the LTIP may not exceed 7.2 million shares. Performance
units (which have a face amount of $1) granted under the LTIP may not exceed 25
million in the aggregate. As of December 31, 1998, no stock appreciation rights,
performance shares or performance units have been granted under the LTIP.
Under the LTIP, shares of restricted common stock were awarded and are
restricted for a period not exceeding four years. All shares are subject to
forfeiture if specified performance measures are not met. There are no exercise
prices related to these shares. During the applicable restriction period, the
recipient has all the voting, dividend
67
<PAGE> 68
and other rights of a record holder except that the shares are nontransferable,
and non-cash distributions paid upon the shares would be subject to transfer
restrictions and risk of forfeiture to the same extent as the shares themselves.
The shares were recorded at the market value on the date of grant and amortized
to expense based on the award that was expected to vest and the period to which
the related employee services were to be rendered. Restricted common stock
activity for the year ended December 31 was:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Restricted common shares awarded 74,000 68,500 56,000
Weighted average market price of
shares awarded $ 38.77 $ 28.38 $ 34.28
Compensation cost charged against
income (thousands) $ 976 $ 222 $ 1,165
- -----------------------------------------------------------------------------
</TABLE>
Stock options were also issued under the LTIP. Options are exercisable at a rate
of 25% per year during the four years following the date of grant. The options
will expire 10 years after the date of the grant. The option exercise price
equals the fair market value of the stock on the date that the option was
granted. Stock option activity was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Weighted
Number Average
of Options Exercise Price
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 - -
Granted 310,500 $ 28.38
-------
Outstanding at December 31, 1997
(none exercisable) 310,500 28.38
Granted 319,500 38.38
Exercised (22,625) 28.50
-------
Outstanding at December 31, 1998
(58,750 exercisable) 607,375 33.70
=======
- ---------------------------------------------------------------------------
</TABLE>
The Company continues to apply APB Opinion 25 "Accounting for Stock Issued to
Employees." Accordingly, no compensation expense has been recorded for options
granted. As required by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company has determined the pro forma information as if the Company had
accounted for
68
<PAGE> 69
its employee stock options under the fair value method. The fair value for these
options was estimated at the date of grant using a modified Black/Scholes option
pricing model - American style and the following weighted average assumptions:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 5.84% 6.83%
Dividend yield 5.39% 7.26%
Expected volatility 17.48% 18.31%
Expected life 10 years 10 years
Fair value per option $6.43 $4.15
- -------------------------------------------------------------------------
</TABLE>
The pro forma effect of these options would be to reduce net income by $695,000
and $244,000, for the years ending December 31, 1998 and 1997, respectively.
There was no pro forma effect on earnings per share (EPS).
NOTE 14 - STEAM HEATING SPECIAL CHARGE
- --------------------------------------------------------------------------------
In 1996, a special charge to net income of $149 million ($97 million after-tax)
or $0.67 cents per share was recorded. The special charge included a reserve for
steam purchase commitments during the period from 1997 through 2008 under the
agreement with the Detroit Resource Recovery Facility, expenditures for closure
of a portion of the steam heating system and improvements in service to
remaining customers. The reserve for steam purchase commitments was recorded at
its present value, therefore Detroit Edison will record non-cash accretion
expense during the period 1997 through 2008. In addition, beginning in 1997,
amortization of the reserve for steam purchase commitments is netted against
losses on steam heating purchases recorded in fuel and purchased power expense.
NOTE 15 - SEGMENT AND RELATED INFORMATION
- --------------------------------------------------------------------------------
Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The Company's reportable
business segment is its regulated electric utility, Detroit Edison, which is
engaged in the generation, purchase, transmission, distribution and sale of
electric energy in a 7,600 square mile area in Southeastern Michigan. All other
includes non-regulated energy-related businesses and services, which develop and
manage electricity and other
69
<PAGE> 70
energy-related projects, and engage in domestic energy trading and marketing.
Inter-segment revenues are not material. Financial data for business segments
are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Regulated Reconciliations
Electric All and
Utility Other Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------
1998 (Millions)
<S> <C> <C> <C> <C>
Operating revenues $ 3,902 $ 319 $ - $ 4,221
Depreciation and amortization 643 18 - 661
Interest expense net 277 34 8 319
Income tax expense (benefit) 260 (100) (6) 154
Net income 412 42 (11) 443
Total assets 10,987 937 164 12,088
Capital expenditures 514 251 - 765
- ---------------------------------------------------------------------------------------------------------
1997 (Millions)
Operating revenues $ 3,657 $ 107 $ - $ 3,764
Depreciation and amortization 658 2 - 660
Interest expense net 282 16 (1) 297
Income tax expense (benefit) 288 (30) (1) 257
Net income 405 14 (2) 417
Total assets 10,745 448 30 11,223
Capital expenditures 439 228 - 667
- ---------------------------------------------------------------------------------------------------------
1996 (Millions)
Operating revenues $ 3,642 $ 3 $ - 3,645
Depreciation and amortization 624 1 - 625
Interest expense net 288 - - 288
Income tax expense (benefit) 225 (4) - 221
Net income 312 (2) (1) 309
Total assets 10,874 106 35 11,015
Capital expenditures 479 52 - 531
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 16 - SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1998 Quarter Ended
Mar. 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------
(Millions, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues $ 945 $ 1,064 $ 1,199 $ 1,013
Operating Income 233 248 266 190
Net Income 104 101 132 106
Earnings Per Common Share 0.72 0.69 0.91 0.73
- ------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE> 71
<TABLE>
<CAPTION>
1997 Quarter Ended
Mar. 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------------------------------
(Millions, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues $ 868 $ 892 $ 1,030 $ 974
Operating Income 202 225 285 289
Net Income 71 85 132 129
Earnings Per Common Share 0.49 0.59 0.91 0.89
- -----------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE> 72
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10, 11, 12 AND 13
Information required by Part III (Items 10, 11, 12 and 13) of this Form
10-K is incorporated by reference from DTE Energy Company's definitive Proxy
Statement for its 1999 Annual Meeting of Common Shareholders to be held April
28, 1999, which will be filed with the Securities and Exchange Commission,
pursuant to Regulation 14A, not later than 120 days after the end of the
Company's fiscal year covered by this report on Form 10-K, all of which
information is hereby incorporated by reference in, and made part of, this Form
10-K, except that the information required by Item 10 with respect to executive
officers of the Registrant is included in Part I of this report.
72
<PAGE> 73
ANNUAL REPORT ON FORM 10-K FOR THE DETROIT EDISON COMPANY
PART I
ITEM 1 - BUSINESS.
See the Company's "Item 1 - Business" which is incorporated herein by this
reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRESENT
POSITION
NAME AGE(a) PRESENT POSITION HELD SINCE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Anthony F. Earley, Jr. 49 Chairman of the Board, Chief Executive Officer, 8-1-98
President, Chief Operating Officer, and Member
of the Office of the President
Larry G. Garberding 60 Executive Vice President, Chief Financial Officer, 8-1-90
Member of the Office of the President since
December 1998
Gerard M. Anderson 40 President and Chief Operating Officer - DTE Energy 8-1-98
Resources, and Member of the Office of the
President
Robert J. Buckler 49 President and Chief Operating Officer - DTE Energy 8-1-98
Distribution, and Member of the Office of the
President
Michael E. Champley 50 Senior Vice President 4-1-97
Douglas R. Gipson 51 Senior Vice President 4-1-93
Susan M. Beale 50 Vice President and Corporate Secretary 3-27-95
Lynne E. Halpin 47 Vice President and Chief Information Officer 5-25-98
Leslie L. Loomans 55 Vice President and Treasurer 10-1-89
Ron A. May 47 Vice President 8-1-98
David E. Meador 41 Vice President and Controller 3-29-97
Sandra J. Miller 55 Vice President 3-30-98
Christopher C. Nern 54 Vice President and General Counsel 6-1-93
Michael C. Porter 45 Vice President 9-22-97
William R. Roller 53 Vice President 4-22-96
S. Martin Taylor 58 Vice President 11-28-94
(a) As of December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Under Detroit Edison By-Laws, the officers of Detroit Edison are elected
annually by the Board of Directors at a meeting held for such purpose, each to
serve until the next annual meeting of directors or until their respective
successors are chosen and qualified. With the exception of Messrs. Earley,
Meador and Porter, and Ms. Halpin, all of the above officers have been employed
by Detroit Edison in one or more management capacities during the past five
years.
Anthony F. Earley, Jr., was President and Chief Operating Officer of Long
Island Lighting Company, formerly an electric and gas utility company serving
Long Island, New York, from 1989 to 1994. Effective March 1, 1994, he was
elected President and
73
<PAGE> 74
Chief Operating Officer and a member of the Board of Directors of Detroit
Edison, and effective August 1, 1998, he was elected to the additional position
of Chairman and Chief Executive Officer and Member of the Office of the
President.
David E. Meador was Controller, Mopar Parts Division, at Chrysler
Corporation, an international automotive manufacturer, from November 1996 until
February 1997. From 1986 to 1996, he held a variety of executive financial
positions at Chrysler. Effective February 28, 1997, he was elected Vice
President and effective March 29, 1997, he assumed the duties of Controller.
Michael C. Porter was Senior Vice President and Managing Director at
McCann-Erickson in Detroit from 1994 to September 1997 and Vice President of
Marketing for The Stroh Brewery Company in Detroit from 1990 to 1994. Effective
September 22, 1997, he was elected Vice President - Corporate Communications.
Lynne E. Halpin was Vice President of Business Applications for Netscape
Communications Corp. from July 1996 to May 1998 and Acting Vice President of
Global Systems Development and Director of Business Systems Development for
Xerox Corporation from November 1993 to June 1996. Effective May 25, 1998, she
was elected Vice President and Chief Information Officer of Detroit Edison.
ITEM 2 - PROPERTIES.
See the Company's "Item 2 - Properties - Detroit Edison," which is
incorporated herein by this reference.
ITEM 3 - LEGAL PROCEEDINGS.
See the Company's "Item 3 - Legal Proceedings," which is incorporated
herein by this reference.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
See the Company's "Item 5 - Market for Registrant's Common Equity and
Related Stockholder Matters," the third paragraph of which is incorporated
herein by this reference. Detroit Edison's By-Laws contain this same provision
with respect to the Michigan Business Corporation Act. All of Detroit Edison's
Common Stock is held by the Company.
74
<PAGE> 75
The amount of future dividends paid by Detroit Edison to the Company will
depend on Detroit Edison's earnings, financial condition and other factors,
including the effects of utility restructuring and a transition to competition,
each of which is periodically reviewed by Detroit Edison's Board of Directors.
ITEM 6 - SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Year Ended December 31
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
(Millions)
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 3,902 $ 3,657 $ 3,642 $ 3,636 $ 3,519
Net Income $ 418 $ 417 $ 328 $ 434 $ 420
Net Income Available
for Common Stock $ 412 $ 405 $ 312 $ 406 $ 390
At year end:
Total Assets $ 10,987 $ 10,745 $ 10,874 $ 11,131 $ 10,993
Long-Term Debt
Obligations (including capital
leases) and Redeemable
Preferred and Preference
Stock Outstanding $ 3,588 $ 3,812 $ 4,000 $ 4,004 $ 3,980
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See the Company's and Detroit Edison's "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations," which is
incorporated herein by this reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages 32 through 72 (except for Notes 5, 7 and 16 below).
NOTE 5 - INCOME TAXES
- --------------------------------------------------------------------------------
Total income tax expense as a percent of income before tax varies from the
statutory federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35.0 % 35.0 % 35.0 %
Deferred Fermi 2 depreciation and return 3.5 4.5 5.2
Investment tax credit (2.1) (2.0) (2.7)
Depreciation 4.5 4.5 5.9
Removal costs (1.7) (1.5) (2.2)
Other-net (0.9) 0.4 (0.5)
---------------------------------------------------
Effective income tax rate 38.3 % 40.9 % 40.7 %
===================================================
- -------------------------------------------------------------------------------------------------------
</TABLE>
75
<PAGE> 76
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
(Millions)
<S> <C> <C> <C>
Current federal tax expense $ 280 $ 308 $ 224
Deferred federal tax expense - net (5) (6) 16
Investment tax credits (15) (14) (15)
-----------------------------------
Total $ 260 $ 288 $ 225
===================================
- -----------------------------------------------------------------------------------
</TABLE>
Deferred income tax assets (liabilities) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
(Millions)
<S> <C> <C>
Property $ (1,139) $ (2,233)
Unamortized nuclear costs (983) -
Property taxes (65) (62)
Investment tax credit 154 162
Reacquired debt losses (32) (35)
Contributions in aid of construction 63 55
Other 96 77
--------------------------------
$ (1,906) $ (2,036)
================================
Deferred income tax liabilities $ (2,403) $ (2,560)
Deferred income tax assets 497 524
--------------------------------
$ (1,906) $ (2,036)
================================
- --------------------------------------------------------------------------------
</TABLE>
NOTE 7 - LONG-TERM DEBT
- --------------------------------------------------------------------------------
Detroit Edison's 1924 Mortgage and Deed of Trust (Mortgage), the lien of which
covers substantially all of Detroit Edison's properties, provides for the
issuance of additional General and Refunding Mortgage Bonds (Mortgage Bonds). At
December 31, 1998, approximately $3.8 billion principal amount of Mortgage Bonds
could have been issued on the basis of property additions, combined with an
earnings test provision, assuming an interest rate of 6.25% on any such
additional Mortgage Bonds. An additional $1.6 billion principal amount of
Mortgage Bonds could have been issued on the basis of bond retirements.
Unless an event of default has occurred, and is continuing, each series of
Quarterly Income Debt Securities (QUIDS) provides that interest will be paid
quarterly. However,
76
<PAGE> 77
Detroit Edison also has the right to extend the interest payment period on the
QUIDS for up to 20 consecutive interest payment periods. Interest would continue
to accrue during the deferral period. If this right is exercised, Detroit Edison
may not declare or pay dividends on, or redeem, purchase or acquire, any of its
capital stock during the deferral period. Detroit Edison may redeem any series
of capital stock pursuant to the terms of any sinking fund provisions during the
deferral period. Additionally, during any deferral period, Detroit Edison may
not enter into any inter-company transactions with any affiliate of Detroit
Edison, including the Company, to enable the payment of dividends on any equity
securities of the Company.
At December 31, 1998, $113 million of tax exempt revenue bonds were subject to
periodic remarketings within one year. Remarketing agents remarket the bonds at
the lowest interest rate necessary to produce a par bid. In the event that a tax
exempt revenue bond remarketing fails, Standby Note Purchase Agreements and/or
Letters of Credit provide that banks will purchase the bonds and, after the
conclusion of all necessary proceedings, remarket the bonds. In the event the
banks' obligations under the Standby Note Purchase Agreements and/or Letters of
Credit are not honored, then, Detroit Edison would be required to purchase any
bonds subject to a failed remarketing.
Long-term debt outstanding at December 31 was:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------
(Millions)
<S> <C> <C>
MORTGAGE BONDS
6.5% to 8.4% due 1999 to 2023 $ 1,742 $ 1,911
REMARKETED NOTES
5.4% to 6.4% due 2028 to 2034 (a) 410 410
TAX EXEMPT REVENUE BONDS
SECURED BY MORTGAGE BONDS
Installment Sales Contracts
7.1% due 2004 to 2024 (b) 282 282
Loan Agreements
6.7% due 2008 to 2025 (b) 607 607
UNSECURED
Installment Sales Contracts
7.5% due 2004 to 2019 (b) 142 142
Loan Agreements
3.2% due 2024 to 2030 (a) 113 113
QUIDS
7.4% to 7.6% due 2026 to 2028 385 235
Less amount due within one year (219) (169)
---------------------------
TOTAL LONG-TERM DEBT $ 3,462 $ 3,531
===========================
</TABLE>
(a) Variable rate at December 31, 1998.
(c) Weighted average interest rate at December 31, 1998.
- --------------------------------------------------------------------------------
77
<PAGE> 78
In the years 1999 - 2003, Detroit Edison's long-term debt maturities are $219,
$194, $119, $198 and $199 million, respectively.
NOTE 16 - SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 Quarter Ended
Mar. 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------------------------------
(Millions, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues $ 901 $ 992 $ 1,105 $ 904
Operating Income 237 248 284 201
Net Income 98 95 125 100
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 Quarter Ended
Mar. 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------------------------------------------
(Millions, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues $ 864 $ 878 $ 985 $ 930
Operating Income 203 225 285 290
Net Income 74 86 128 129
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10, 11, 12 AND 13
See the Company's "Items 10, 11, 12 and 13" which is incorporated herein by
this reference, except for the information required by Item 10 with respect to
executive officers of the Registrant which is included in Part 1 of this report.
All of Detroit Edison's directors are the same as the Company's directors.
78
<PAGE> 79
ANNUAL REPORTS ON FORM 10-K FOR DTE ENERGY COMPANY
AND THE DETROIT EDISON COMPANY
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Annual Report on
Form 10-K.
(1) Consolidated financial statements. See "Item 8 - Financial
Statements and Supplementary Data" on page 32.
(2) Financial statement schedules. See "Item 8 - Financial Statements
and Supplementary Data" on page 32.
(3) Exhibits (*Denotes management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report
pursuant to Item 14 (c) of this report).
(i) Exhibits filed herewith.
Exhibit
Number
------
4-198 Seventh Supplemental Note Indenture, dated as of
October 15, 1998, between Detroit Edison and
Bankers Trust Company, as Trustee, creating the
7.375% QUIDS, including form of QUIDS.
4-199 $300,000,000 Support Agreement, dated as of
November 18, 1998, between DTE Energy and DTE
Capital Corporation.
4-200 Second Supplemental Indenture, dated as of
November 1, 1998, between DTE Capital Corporation
and The Bank of New York, as Trustee, creating the
$300,000,000 Remarketed Notes, 1998 Series B,
including form of Note.
4-201 $400,000,000 Support Agreement, dated as of
January 19, 1999, between DTE Energy Company and
DTE Capital Corporation.
10-27* Sixth Restatement of The Detroit Edison Company
Management Supplemental Benefit Plan (1998).
10-28* Amendment No. 1 to The Detroit Edison Company
Long-Term Incentive Plan, effective December 31,
1998.
10-29* DTE Energy Company Plan for Deferring the Payment
of Directors' Fees (As Amended and Restated
Effective As Of January 1, 1999).
79
<PAGE> 80
10-30* - DTE Energy Company Deferred stock Compensation
Plan for Non-Employee Directors, effective as of
January 1, 1999.
10-31* - DTE Energy Company Retirement Plan for
Non-Employee Directors (As Amended and Restated
Effective As Of December 31, 1998).
11-14 - DTE Energy Company Basic and Diluted Earnings Per
Share of Common Stock.
12-14 - DTE Energy Company Computation of Ratio of
Earnings to Fixed Charges.
12-15 - The Detroit Edison Company Computation of Ratio of
Earnings to Fixed Charges.
12-16 - The Detroit Edison Company Computation of Ratio of
Earnings to Fixed Charges and Preferred Stock
Dividends.
21-3 - Subsidiaries of the Company and Detroit Edison.
23-12 - Consent of Deloitte & Touche LLP.
27-25 - Financial Data Schedule for the period ended
December 31, 1998 for DTE Energy Company.
27-26 - Financial Data Schedule for the period ended
December 31, 1998 for The Detroit Edison Company.
99-28- Second Amended and Restated Credit Agreement,
Dated as of January 19, 1999 among DTE Capital
Corporation, the Initial Lenders, Citibank, N.A.,
as Agent, and ABN AMRO Bank N.V., Barclays Bank
PLC, Bayerische Landesbank Giruzertrale, Cayman
Islands Branch, Comerica Bank, Den Daske Bank
Aktieselskab and The First National Bank of
Chicago, as Co-Agents, and Salomon Smith Barney
Inc., as Arranger.
(ii) Exhibits incorporated herein by reference.
3(a) - Amended and Restated Articles of Incorporation of DTE Energy
Company, dated December 13, 1995. (Exhibit 3-5 to Form 10-Q for
quarter ended September 30, 1997)
3(b) - Certificate of Designation of Series A Junior Participating
Preferred Stock of DTE Energy Company. Exhibit 3-6 to Form 10-Q
for quarter ended September 30, 1997.)
80
<PAGE> 81
3(c) - Restated Articles of Incorporation of Detroit Edison, as
filed December 10, 1991 with the State of Michigan, Department of
Commerce - Corporation and Securities Bureau (Exhibit 4-117 to
Form 10-Q for quarter ended March 31, 1993).
3(d) - Certificate containing resolution of the Detroit Edison Board
of as filed February 22, 1993 with the State of Michigan,
Department of Commerce - Corporation and Securities Bureau
(Exhibit 4-134 to Form 10-Q for quarter ended March 31, 1993).
3(e) - Certificate containing resolution of the Detroit Edison
Board of Directors establishing the Cumulative Preferred Stock,
7.74% Series, as filed April 21, 1993 with the State of Michigan,
Department of Commerce - Corporation and Securities Bureau
(Exhibit 4-140 to Form 10-Q for quarter ended March 31, 1993).
3(f) - Rights Agreement, dated as of September 23, 1997, by and between
DTE Energy Company and The Detroit Edison Company, as Rights
Agent (Exhibit 4-1 to DTE Energy Company Current Report on Form
8-K, dated September 23, 1997).
3(g) - Agreement and Plan of Exchange (Exhibit 1(2) to DTE Energy Form
8-B filed January 2, 1996, File No. 1-11607).
3(h) - Bylaws of DTE Energy Company, as amended through May 1, 1998.
(Exhibit 3-10 to Registration No. 333-65765).
3(i) - Bylaws of The Detroit Edison Company, as amended through May
1, 1998. (Exhibit 3-9 to Registration No. 333-65765.)
4(a) - Mortgage and Deed of Trust, dated as of October 1, 1924,
between Detroit Edison (File No. 1-2198) and Bankers Trust
Company as Trustee (Exhibit B-1 to Registration No. 2-1630) and
indentures supplemental thereto, dated as of dates indicated
below, and filed as exhibits to the filings as set forth below:
September 1, 1947 Exhibit B-20 to Registration No. 2-7136
October 1, 1968 Exhibit 2-B-33 to Registration No. 2-30096
November 15, 1971 Exhibit 2-B-38 to Registration No. 2-42160
January 15, 1973 Exhibit 2-B-39 to Registration No. 2-46595
June 1, 1978 Exhibit 2-B-51 to Registration No. 2-61643
June 30, 1982 Exhibit 4-30 to Registration No. 2-78941
August 15, 1982 Exhibit 4-32 to Registration No. 2-79674
October 15, 1985 Exhibit 4-170 to Form 10-K for
year ended December 31, 1994
November 30, 1987 Exhibit 4-139 to Form 10-K for
year ended December 31, 1992
July 15, 1989 Exhibit 4-171 to Form 10-K for
year ended December 31, 1994
81
<PAGE> 82
December 1, 1989 Exhibit 4-172 to Form 10-K for
year ended December 31, 1994
February 15, 1990 Exhibit 4-173 to Form 10-K for
year ended December 31, 1994
April 1, 1991 Exhibit 4-15 to Form 10-K for year ended
December 31, 1996
May 1, 1991 Exhibit 4-178 to Form 10-K for year ended
December 31, 1996
May 15, 1991 Exhibit 4-179 to Form 10-K for year ended
December 31, 1996
September 1, 1991 Exhibit 4-180 to Form 10-K for year ended
December 31, 1996
November 1, 1991 Exhibit 4-181 to Form 10-K for year ended
December 31, 1996
January 15, 1992 Exhibit 4-182 to Form 10-K for year ended
December 31, 1996
February 29, 1992 Exhibit 4-187 to Form 10-Q for quarter ended
March 31, 1998
April 15, 1992 Exhibit 4-188 to Form 10-Q for quarter ended
March 31, 1998
July 15, 1992 Exhibit 4-189 to Form 10-Q for quarter ended
March 31, 1998
July 31, 1992 Exhibit 4-190 to Form 10-Q for quarter ended
March 31, 1998
November 30, 1992 Exhibit 4-130 to Registration No. 33-56496
January 1, 1993 Exhibit 4-131 to Registration No. 33-56496
March 1, 1993 Exhibit 4-191 to Form 10-Q for quarter ended
March 31, 1998
March 15, 1993 Exhibit 4-192 to Form 10-Q for quarter ended
March 31, 1998
April 1, 1993 Exhibit 4-143 to Form 10-Q for quarter ended
March 31, 1993
April 26, 1993 Exhibit 4-144 to Form 10-Q for quarter ended
March 31, 1993
May 31, 1993 Exhibit 4-148 to Registration No. 33-64296
June 30, 1993 Exhibit 4-149 to Form 10-Q for quarter ended
June 30, 1993 (1993 Series AP)
June 30, 1993 Exhibit 4-150 to Form 10-Q for quarter ended
June 30, 1993 (1993 Series H)
September 15, 1993 Exhibit 4-158 to Form 10-Q for quarter ended
September 30, 1993
March 1, 1994 Exhibit 4-163 to Registration No. 33-53207
June 15, 1994 Exhibit 4-166 to Form 10-Q for quarter ended
June 30, 1994
August 15, 1994 Exhibit 4-168 to Form 10-Q for quarter ended
September 30, 1994
December 1, 1994 Exhibit 4-169 to Form 10-K for
year ended December 31, 1994
August 1, 1995 Exhibit 4-174 to Form 10-Q for quarter ended
September 30, 1995
82
<PAGE> 83
4(b) - Collateral Trust Indenture (notes), dated as of June 30, 1993
(Exhibit 4-152 to Registration No. 33-50325).
4(c) - First Supplemental Note Indenture, dated as of June 30, 1993
(Exhibit 4-153 to Registration No. 33-50325).
4(d) - Second Supplemental Note Indenture, dated as of September 15,
1993 (Exhibit 4-159 to Form 10-Q for quarter ended September 30,
1993).
4(e) - First Amendment, dated as of August 15, 1996, to Second
Supplemental Note Indenture (Exhibit 4-17 to Form 10-Q for
quarter ended September 30, 1996).
4(f) - Third Supplemental Note Indenture, dated as of August 15, 1994
(Exhibit 4-169 to Form 10-Q for quarter ended September 30,
1994).
4(g) - First Amendment, dated as of December 12, 1995, to Third
Supplemental Note Indenture, dated as of August 15, 1994 (Exhibit
4-12 to Registration No. 333-00023).
4(h) - Fourth Supplemental Note Indenture, dated as of August 15, 1995
(Exhibit 4-175 to Detroit Edison Form 10-Q for quarter ended
September 30, 1995).
4(i) - Fifth Supplemental Note Indenture, dated as of February 1, 1996
(Exhibit 4-14 to Form 10-K for year ended December 31, 1996).
4(j) - Sixth Supplemental Note Indenture, dated as of May 1, 1998,
between Detroit Edison and Bankers Trust Company, as Trustee,
creating the 7.54% Quarterly Income Debt Securities ("QUIDS"),
including form of QUIDS. (Exhibit 4-193 to form 10-Q for quarter
ended June 30, 1998.)
4(k) - Standby Note Purchase Credit Facility, dated as of August 17,
1994, among The Detroit Edison Company, Barclays Bank PLC, as
Bank and Administrative Agent, Bank of America, The Bank of New
York, The Fuji Bank Limited, The Long-Term Credit Bank of Japan,
LTD, Union Bank and Citicorp Securities, Inc. and First Chicago
Capital Markets, Inc. as Remarketing Agents (Exhibit 99-18 to
Form 10-Q for quarter ended September 30, 1994).
4-(l) - $60,000,000 Support Agreement dated as of January 21, 1998
between DTE Energy Company and DTE Capital Corporation. (Exhibit
4-183 to Form 10-K for year ended December 31, 1997.)
4-(m) - $100,000,000 Support Agreement, dated as of June 16, 1998,
between DTE Energy Company and DTE Capital Corporation. (Exhibit
4-194 to Form 10-Q for quarter ended June 30, 1998.)
83
<PAGE> 84
4-(n)- Indenture, dated as of June 15, 1998, between DTE Capital
Corporation and The Bank of New York, as Trustee. (Exhibit 4-196
to Form 10-Q for quarter ended June 30, 1998.)
4-(o)- First Supplemental Indenture, dated as of June 15, 1998,
between DTE Capital Corporation and The Bank of New York, as
Trustee, creating the $100,000,000 Remarketed Notes, Series A due
2038, including form of Note. (Exhibit 4-197 to Form 10-Q for
quarter ended June 30, 1998.)
*10(a) Certain arrangements pertaining to the employment of Michael C.
Porter. (Exhibit 10-8* to Form 10-Q for Quarter ended September
30, 1997.)
*10(b) Form of Change-in-Control Severance Agreement, dated as of
October 1, 1997, between DTE Energy Company and Gerard M.
Anderson, Susan M. Beale, Robert J. Buckler, Michael C.
Champley, Haven C. Cockerham, Anthony F. Earley, Jr., Larry G.
Garberding, Douglas R. Gipson, John E. Lobbia, Leslie L.
Loomans, David E. Meador, Christopher C. Nern, Michael C.
Porter, William R. Roller and S. Martin Taylor. (Exhibit 10-9*
to Form 10-Q for quarter ended September 30, 1997.)
*10(c)- Form of 1995 Indemnification Agreement between the Company and
its directors and officers (Exhibit 3L (10-1) to DTE Energy
Company Form 8-B dated January 2, 1996).
*10(d)- Form of Indemnification Agreement between Detroit Edison and
its officers other than those identified in *10(l) (Exhibit 10-41
to Detroit Edison's Form 10-Q for quarter ended June 30, 1993).
*10(e)- Certain arrangements pertaining to the employment of S. Martin
Taylor (Exhibit 10-22*) to Form 10-K for quarter ended March 31,
1998).
*10(f)- Amended and Restated Post-Employment Income Agreement, dated
March 23, 1998, between Detroit Edison and Anthony F. Earley,
Jr. (Exhibit 10-20* to Form 10-Q for quarter ended March 31,
1998).
*10(g) Restricted Stock Agreement, dated March 23, 1998, between
Detroit Edison and Anthony F. Earley, Jr. (Exhibit 10-20* to Form
10-Q for quarter ended March 31, 1998)
*10(h) Amended and Restated Detroit Edison Savings Reparation Plan
(February 23, 1998) (Exhibit 10-19* to Form 10-Q for quarter
ended March 31, 1998).
*10(i) Certain arrangements pertaining to the employment of Larry G.
Garberding (Exhibit 10-23* to Form 10-Q for quarter ended March
31, 1998).
84
<PAGE> 85
*10(j)- Form of Indemnification Agreement, between Detroit Edison and
(1) John E. Lobbia, (2) Larry G. Garberding and (3) Anthony F.
Earley, Jr. (Exhibit 10-24* to Form 10-Q for quarter ended March
31, 1998).
*10(k)- Employment Agreement, dated April 16, 1998, between Detroit
Edison and Lynn Halpin. (Exhibit 10-26* to Form 10-Q, for quarter
ended June 30, 1998.)
*10(l)- Form of Indemnification Agreement between Detroit Edison and
its directors (Exhibit 10-25* to Form 10-Q for quarter ended
March 31, 1998).
*10(m)- Executive Vehicle Program, dated October 1, 1993 (Exhibit
10-47 to Detroit Edison's Form 10-Q for quarter ended September
30, 1993).
*10(n)- Amendment No. 1 to Executive Vehicle Plan, November 1993
(Exhibit 10-58 to Detroit Edison's Form 10-K for year ended
December 31, 1993).
*10(o)- Certain arrangements pertaining to the employment of Gerard M.
Anderson (Exhibit 10-40 to Detroit Edison's Form 10-K for year
ended December 31, 1993).
*10(p)- Long-Term Incentive Plan (Exhibit 10-3 to Form 10-K for year
ended December 31, 1996).
*10(q)- 1997 Executive Incentive Plan Measures (Exhibit *10-7 to
Form 10 Q for quarter ended March 31, 1997).
*10(r)- 1998 Executive Incentive Plan Measures (Exhibit 10-18* to Form
10-Q for quarter ended March 31, 1998.)
*10(s)- 1998 Shareholder Value Improvement Plan Measures (Exhibit
11-17* to Form 10-Q for quarter ended March 31, 1998.)
*10(t)- Fourth Restatement of The Benefit Equalization Plan for
Certain Employees of The Detroit Edison Company (October 1997).
(Exhibit 10-11* to Form 10-K for year ended December 31, 1997.)
*10(u)- The Detroit Edison Company Key Employee Deferred Compensation
Plan (October 1997). (Exhibit 10-12* to Form 10-K for year ended
December 31, 1997.)
*10(v)- The Detroit Edison Company Executive Incentive Plan (October
1997). (Exhibit 10-13* to Form 10-K for the year ended December
31, 1997.)
*10(w)- Detroit Edison Company Shareholder Value Improvement Plan
(October 1997). (Exhibit 10 15* to Form 10-K for year ended
December 31, 1997.)
85
<PAGE> 86
*10(x)- Trust Agreement for DTE Energy Company Change-In-Control
Severance Agreements between DTE Energy Company and Wachovia
Bank, N.A. (Exhibit 10-16* to Form 10-K for year ended
December 31, 1997.)
*10(y)- Certain arrangements pertaining to the employment of David E.
Meador (Exhibit 10-5 to Form 10-K for year ended December 31,
1997.)
*10(z)- Amended and Restated Supplemental Long-Term Disability Plan,
dated January 27, 1997. (Exhibit *10-4 to Form 10-K for year
ended December 31, 1996.)
*10(aa)-Fourth Restatement of The Retirement Reparation Plan for
Certain Employees of The Detroit Edison Company (October 1997).
(Exhibit *10-10 to Form 10-K for year ended December 31, 1997.)
99(a)- Belle River Participation Agreement between Detroit Edison
and Michigan Public Power Agency, dated as of December 1, 1982
(Exhibit 28-5 to Registration No. 2-81501).
99(b)- Belle River Transmission Ownership and Operating Agreement
between Detroit Edison and Michigan Public Power Agency, dated as
of December 1, 1982 (Exhibit 28-6 to Registration No. 2-81501).
99(c)- 1988 Amended and Restated Loan Agreement, dated as of October 4,
1988, between Renaissance Energy Company (an unaffiliated
company) ("Renaissance") and Detroit Edison (Exhibit 99-6 to
Registration No. 33-50325).
99(d)- First Amendment to 1988 Amended and Restated Loan Agreement,
dated as of February 1, 1990, between Detroit Edison and
Renaissance (Exhibit 99-7 to Registration No. 33-50325).
99(e)- Second Amendment to 1988 Amended and Restated Loan Agreement,
dated as of September 1, 1993, between Detroit Edison and
Renaissance (Exhibit 99-8 to Registration No. 33-50325).
99(f)- Third Amendment, dated as of August 28, 1997, to 1988 Amended
and Restated Loan Agreement between Detroit Edison and
Renaissance. (Exhibit 99-22 to Form 10-Q for quarter ended
September 30, 1997.)
99(g)- $200,000,000 364-Day Credit Agreement, dated as of September 1,
1993, among Detroit Edison, Renaissance and Barclays Bank PLC,
New York Branch, as Agent (Exhibit 99-12 to Registration No.
33-50325).
99(h)- First Amendment, dated as of August 31, 1994, to $200,000,000
364-Day Credit Agreement, dated September 1, 1993, among The
Detroit
86
<PAGE> 87
Edison Company, Renaissance Energy Company, the Banks party
thereto and Barclays Bank, PLC, New York Branch, as Agent
(Exhibit 99-19 to Form 10-Q for quarter ended September 30,
1994).
99(i)- Third Amendment, dated as of March 8, 1996, to $200,000,000
364-Day Credit Agreement, dated September 1, 1993, as amended,
among Detroit Edison, Renaissance, the Banks party thereto and
Barclays Bank, PLC, New York Branch, as Agent (Exhibit 99-11 to
Form 10-Q for quarter ended March 31, 1996).
99(j)- Fourth Amendment, dated as of August 29, 1996, to $200,000,000
364-Day Credit Agreement as of September 1, 1990, as amended,
among Detroit Edison, Renaissance, the Banks party thereto and
Barclays Bank, PLC, New York Branch, as Agent (Exhibit 99-13 to
Form 10-Q for quarter ended September 30, 1996).
99(k)- Fifth Amendment, dated as of September 1, 1997, to $200,000,000
Multi-Year Credit Agreement, dated as of September 1, 1993, as
amended, among Detroit Edison, Renaissance, the Banks Party
thereto and Barclays Bank PLC, New York Branch, as Agent.
(Exhibit 99-24 to Form 10-Q for quarter ended September 30,
1997.)
99(l)- $200,000,000 Three-Year Credit Agreement, dated September 1,
1993, among Detroit Edison, Renaissance and Barclays Bank, PLC,
New York Branch, as Agent (Exhibit 99-13 to Registration No.
33-50325).
99(m)- First Amendment, dated as of September 1, 1994, to $200,000,000
Three-Year Credit Agreement, dated as of September 1, 1993, among
The Detroit Edison Company, Renaissance Energy Company, the Banks
party thereto and Barclays Bank, PLC, New York Branch, as Agent
(Exhibit 99-20 to Form 10-Q for quarter ended September 30,
1994).
99(n)- Third Amendment, dated as of March 8, 1996, to $200,000,000
Three-Year Credit Agreement, dated September 1, 1993, as amended
among Detroit Edison, Renaissance, the Banks party thereto and
Barclays Bank, PLC, New York Branch, as Agent (Exhibit 99-12 to
Form 10-Q for quarter ended March 31, 1996).
99(o)- Fourth Amendment, dated as of September 1, 1996, to $200,000,000
Multi-Year (formerly Three-Year) Credit Agreement, dated as of
September 1, 1993, as amended among Detroit Edison, Renaissance,
the Banks party thereto and Barclays Bank, PLC, New York Branch,
as Agent (Exhibit 99-14 to Form 10-Q for quarter ended September
30, 1996).
99(p)- Fifth Amendment, dated as of August 28, 1997, to $200,000,000
364-Day Credit Agreement, dated as of September 1, 1990, as
amended, among Detroit Edison, Renaissance, the Banks Party
thereto
87
<PAGE> 88
and Barclays Bank PLC, New York Branch, as Agent. (Exhibit 99-25
to Form 10-Q for quarter ended September 30, 1997.)
99(q)- Sixth Amendment, dated as of August 27, 1998, to $200,000,000
364-Day Credit Agreement dated as of September 1, 1990, as
amended, among Detroit Edison, Renaissance, the Banks party
thereto and Barclays Bank PLC, New York Branch, as agent.
(Exhibit 99-32 to Registration No. 333-65765.)
99(r)- 1988 Amended and Restated Nuclear Fuel Heat Purchase Contract,
dated October 4, 1988, between Detroit Edison and Renaissance
(Exhibit 99-9 to Registration No. 33-50325).
99(s)- First Amendment to 1988 Amended and Restated Nuclear Fuel Heat
Purchase Contract, dated as of February 1, 1990, between Detroit
Edison and Renaissance (Exhibit 99-10 to Registration No.
33-50325).
99(t)- Second Amendment, dated as of September 1, 1993, to 1988
Amended and Restated Nuclear Fuel Heat Purchase Contract
between Detroit Edison and Renaissance (Exhibit 99-11 to
Registration No. 33-50325).
99(u)- Third Amendment, dated as of August 31, 1994, to 1988 Amended and
Restated Nuclear Fuel Heat Purchase Contract, dated October 4,
1988, between The Detroit Edison Company and Renaissance Energy
Company (Exhibit 99-21 to Form 10-Q for quarter ended September
30, 1994).
99(v)- Fourth Amendment, dated as of March 8, 1996, to 1988 Amended
and Restated Nuclear Fuel Heat Purchase Contract Agreement, dated
as of October 4, 1988, between Detroit Edison and Renaissance
(Exhibit 99-10 to Form 10-Q for quarter ended March 31, 1996).
99(w)- Sixth Amendment, dated as of August 28, 1997, to 1988 Amended and
Restated Nuclear Fuel Heat Purchase Contract between Detroit
Edison and Renaissance. (Exhibit 99-23 to Form 10-Q for quarter
ended September 30, 1997.)
99(x)- Standby Note Purchase Credit Facility, dated as of September 12,
1997, among The Detroit Edison Company and the Bank's Signatory
thereto and The Chase Manhattan Bank, as Administrative Agent,
and Citicorp Securities, Inc., Lehman Brokers, Inc., as
Remarketing Agents and Chase Securities, Inc. as Arranger.
(Exhibit 999-26 to Form 10-Q for quarter ended September 30,
1997.)
99(y)- Master Trust Agreement ("Master Trust"), dated as of June 30,
1994, between Detroit Edison and Fidelity Management Trust
Company relating to the Savings & Investment Plans (Exhibit 4-167
to Form 10- Q for quarter ended June 30, 1994).
99(z)- First Amendment, effective as of February 1, 1995, to Master
88
<PAGE> 89
Trust (Exhibit 4-10 to Registration No. 333-00023).
99(aa)- Second Amendment, effective as of February 1, 1995 to Master
Trust (Exhibit 4-11 to Registration No. 333-00023).
99(bb)- Third Amendment, effective January 1, 1996, to Master Trust
(Exhibit 4-12 to Registration No. 333-00023).
99(cc)- Fourth Amendment to Trust Agreement Between Fidelity Management
Trust Company and The Detroit Edison Company (July 1996).
(Exhibit 4-186 to Form 10-K for year ended December 31, 1997.)
99(dd)- Fifth Amendment to Trust Agreement Between Fidelity Management
Trust Company and The Detroit Edison Company (December 1997).
(Exhibit 4-186 to Form 10-K for the year ended December 31,
1997.)
99(ee)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Savings Reparation Plan (Exhibit 99-1 to
Form 10-K for year ended December 31, 1996).
99(ff)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Retirement Reparation Plan (Exhibit 99-2
to Form 10-K for year ended December 31, 1996).
99(gg)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Management Supplemental Benefit Plan
(Exhibit 99-3 to Form 10-K for year ended December 31, 1996).
99(hh)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Benefit Equalization Plan (Exhibit 99-4 to
Form 10-K for year ended December 31, 1996).
99(ii)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Plan for Deferring the Payment of
Directors' Fees (Exhibit 99-5 to Form 10-K for year ended
December 31, 1996).
99(jj)- The Detroit Edison Company Irrevocable Grantor Trust for The
DTE Energy Company Retirement Plan for Non-Employee Directors
(Exhibit 99-6 to Form 10-K for year ended December 31, 1996).
99(kk)- DTE Energy Company Irrevocable Grantor Trust for The DTE
Energy Company Plan for Deferring the Payment of Directors' Fees
(Exhibit 99-7 to Form 10-K for year ended December 31, 1996).
99(ll)- DTE Energy Company Irrevocable Grantor Trust for The DTE
Energy Company Retirement Plan for Non-Employee Directors
(Exhibit 99-8 to Form 10-K for year ended December 31, 1996).
89
<PAGE> 90
(b) Registrants filed a report on Form 8-K, dated January 22, 1999,
discussing a series of MPSC Orders issued December 28, 1998.
(c) *Denotes management contract or compensatory plan or arrangement
required to be entered as an exhibit to this report.
90
<PAGE> 91
DTE ENERGY COMPANY AND
THE DETROIT EDISON COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance --------------------------- Balance
at Beginning Charged to Charged to at End
of Costs and Other of
Description Period Expenses Accounts(a) Deductions(b) Period
- --------------------------------------------- ------------- ---------- ----------- ------------- -------
(Thousands)
<S> <C> <C> <C> <C> <C>
YEAR 1998
Allowance for
uncollectible accounts
(shown as deduction
from accounts receivable
in balance sheet)........................ $ 20,000 $ 23,216 $ 2,789 $ (26,005) $ 20,000
YEAR 1997
Allowance for
uncollectible accounts
(shown as deduction
from accounts receivable
in balance sheet)........................ $ 20,000 $ 18,738 $ 2,657 $ (21,395) $ 20,000
YEAR 1996
Allowance for
uncollectible accounts
(shown as deduction
from accounts receivable
in balance sheet)........................ $ 22,000 $ 12,756 $ 2,763 $ (17,519) $ 20,000
</TABLE>
- -------------------------------------------
(a) Collection of accounts previously written off.
(b) Uncollectible accounts written off.
91
<PAGE> 92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
<S><C>
DTE ENERGY COMPANY
-------------------------------------
(Registrant)
By /s/ ANTHONY F. EARLEY, JR. By /s/ LARRY G. GARBERDING
------------------------------------ -------------------------------------
Anthony F. Earley, Jr. Larry G. Garberding
Chairman of the Board, Executive Vice President,
Chief Executive Officer, President Chief Financial Officer and Director
and Chief Operating Officer
By /s/ DAVID E. MEADOR By /s/ TERENCE E. ADDERLEY
------------------------------------ -------------------------------------
David E. Meador Terence E. Adderley, Director
Vice President and Controller
By /s/ LILLIAN BAUDER By /s/ DAVID BING
------------------------------------ -------------------------------------
Lillian Bauder, Director David Bing, Director
By /s/ WILLIAM C. BROOKS By /s/ ALLAN D. GILMOUR
------------------------------------ -------------------------------------
William C. Brooks, Director Allan D. Gilmour, Director
By /s/ THEODORE S. LEIPPRANDT By
------------------------------------ -------------------------------------
Theodore S. Leipprandt, Director John E. Lobbia, Director
By /s/ EUGENE A. MILLER By /s/ DEAN E. RICHARDSON
------------------------------------ -------------------------------------
Eugene A. Miller, Director Dean E. Richardson, Director
By /s/ ALAN E. SCHWARTZ By /s/ WILLIAM WEGNER
------------------------------------ -------------------------------------
Alan E. Schwartz, Director William Wegner, Director
</TABLE>
Date: February 24, 1999
92
<PAGE> 93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
<S><C>
THE DETROIT EDISON COMPANY
-------------------------------------
(Registrant)
By /s/ ANTHONY F. EARLEY, JR. By /s/ LARRY G. GARBERDING
------------------------------------ -------------------------------------
Anthony F. Earley, Jr. Larry G. Garberding
Chairman of the Board, Executive Vice President,
Chief Executive Officer, President Chief Financial Officer and Director
and Chief Operating Officer
By /s/ DAVID E. MEADOR By /s/ TERENCE E. ADDERLEY
------------------------------------ -------------------------------------
David E. Meador Terence E. Adderley, Director
Vice President and Controller
By /s/ LILLIAN BAUDER By /s/ DAVID BING
------------------------------------ -------------------------------------
Lillian Bauder, Director David Bing, Director
By /s/ WILLIAM C. BROOKS By /s/ ALLAN D. GILMOUR
------------------------------------ -------------------------------------
William C. Brooks, Director Allan D. Gilmour, Director
By /s/ THEODORE S. LEIPPRANDT By
------------------------------------ -------------------------------------
Theodore S. Leipprandt, Director John E. Lobbia, Director
By /s/ EUGENE A. MILLER By /s/ DEAN E. RICHARDSON
------------------------------------ -------------------------------------
Eugene A. Miller, Director Dean E. Richardson, Director
By /s/ ALAN E. SCHWARTZ By /s/ WILLIAM WEGNER
------------------------------------ -------------------------------------
Alan E. Schwartz, Director William Wegner, Director
</TABLE>
Date: February 24, 1999
93
<PAGE> 94
ANNUAL REPORTS ON FORM
10-K FOR THE YEAR
ENDED DECEMBER 31, 1998
DTE ENERGY COMPANY FILE NO. 1-11607
DETROIT EDISON COMPANY FILE NO. 1-2198
EXHIBIT INDEX
Exhibits filed herewith.
Exhibit
Number
------
4-198 Seventh Supplemental Note Indenture, dated as of October 15,
1998, between Detroit Edison and Bankers Trust Company, as
Trustee, creating the 7.375% QUIDS, including form of QUIDS.
4-199 $300,000,000 Support Agreement, dated as of November 18,
1998, between DTE Energy and DTE Capital Corporation.
4-200 Second Supplemental Indenture, dated as of November 1, 1998,
between DTE Capital Corporation and The Bank of New York, as
Trustee, creating the $300,000,000 Remarketed Notes, 1998
Series B, including form of Note.
4-201 $400,000,000 Support Agreement, dated as of January 19,
1999, between DTE Energy Company and DTE Capital
Corporation.
10-27* Sixth Restatement of The Detroit Edison Company Management
Supplemental Benefit Plan (1998).
10-28* Amendment No. 1 to The Detroit Edison Company Long-Term
Incentive Plan, effective December 31, 1998.
10-29* DTE Energy Company Plan for Deferring the Payment of
Directors' Fees (As Amended and Restated Effective As Of
January 1, 1999).
10-30* DTE Energy Company Deferred Stock Compensation Plan for
Non-Employee Directors, effective as of January 1, 1999.
10-31* DTE Energy Company Retirement Plan for Non-Employee
Directors (As Amended and Restated Effective As Of December
31, 1998).
<PAGE> 95
11-14- DTE Energy Company Basic and Diluted Earnings Per Share of
Common Stock.
12-14- DTE Energy Company Computation of Ratio of Earnings to Fixed
Charges.
12-15- The Detroit Edison Company Computation of Ratio of Earnings
to Fixed Charges.
- - 12-16- The Detroit Edison Company Computation of Ratio of Earnings
to Fixed Charges and Preferred Stock Dividends.
21-3- Subsidiaries of the Company and Detroit Edison.
23-12- Consent of Deloitte & Touche LLP.
27-25- Financial Data Schedule for the period ended December 31,
1998 for DTE Energy Company.
27-26- Financial Data Schedule for the period ended December 31,
1998 for The Detroit Edison Company.
99-28- Second Amended and Restated Credit Agreement, Dated as of
January 19, 1999 among DTE Capital Corporation, the Initial
Lenders, Citibank, N.A., as Agent, and ABN AMRO Bank N.V.,
Barclays Bank PLC, Bayerische Landesbank Giruzertrale,
Cayman Islands Branch, Comerica Bank, Den Daske Bank
Aktieselskab and The First National Bank of Chicago, as
Co-Agents, and Salomon Smith Barney Inc., as Arranger.
(ii) Exhibits incorporated herein by reference. See Page Nos. __ through
___ for location of exhibits
incorporated by reference
3(a)- Amended and Restated Articles of Incorporation of DTE Energy
Company, dated December 13, 1995.
3(b)- Certificate of Designation of Series A Junior
Participating Preferred Stock of DTE Energy Company.
3(c)- Restated Articles of Incorporation of Detroit Edison, as
filed December 10, 1991 with the State of Michigan,
Department of Commerce - Corporation and Securities Bureau
3(d)- Certificate containing resolution of the Detroit Edison
Board of as filed February 22, 1993 with the State of
Michigan, Department of Commerce - Corporation and
Securities Bureau
<PAGE> 96
3(e)- Certificate containing resolution of the Detroit Edison
Board of Directors establishing the Cumulative Preferred
Stock, 7.74% Series, as filed April 21, 1993 with the State
of Michigan, Department of Commerce - Corporation and
Securities Bureau.
3(f)- Rights Agreement, dated as of September 23, 1997, by and
between DTE Energy Company and The Detroit Edison Company,
as Rights Agent.
3(g)- Agreement and Plan of Exchange.
3(h)- Bylaws of DTE Energy Company, as amended through May 1,
1998.
3(i)- Bylaws of The Detroit Edison Company, as amended through May
1, 1998.
4(a)- Mortgage and Deed of Trust, dated as of October 1, 1924,
between Detroit Edison and Bankers Trust Company as Trustee
and indentures supplemental thereto, dated as of dates
indicated below, and filed as exhibits to the filings as set
forth below:
September 1, 1947
October 1, 1968
November 15, 1971
January 15, 1973
June 1, 1978
June 30, 1982
August 15, 1982
October 15, 1985
November 30, 1987
July 15, 1989
December 1, 1989
February 15, 1990
April 1, 1991
May 1, 1991
May 15, 1991
September 1, 1991
November 1, 1991
January 15, 1992
February 29, 1992
April 15, 1992
July 15, 1992
July 31, 1992
November 30, 1992
January 1, 1993
March 1, 1993
March 15, 1993
April 1, 1993
April 26, 1993
May 31, 1993
June 30, 1993
June 30, 1993
September 15, 1993
March 1, 1994
June 15, 1994
August 15, 1994
December 1, 1994
August 1, 1995
<PAGE> 97
4(b)- Collateral Trust Indenture (notes), dated as of June 30,
1993.
4(c)- First Supplemental Note Indenture, dated as of June 30,
1993.
4(d)- Second Supplemental Note Indenture, dated as of September
15, 1993.
4(e)- First Amendment, dated as of August 15, 1996, to Second
Supplemental Note Indenture.
4(f)- Third Supplemental Note Indenture, dated as of August 15,
1994.
4(g)- First Amendment, dated as of December 12, 1995, to Third
Supplemental Note Indenture, dated as of August 15, 1994.
4(h)- Fourth Supplemental Note Indenture, dated as of August 15,
1995.
4(i)- Fifth Supplemental Note Indenture, dated as of February 1,
1996.
4(j)- Sixth Supplemental Note Indenture, dated as of May 1, 1998,
between Detroit Edison and Bankers Trust Company, as
Trustee, creating the 7.54% Quarterly Income Debt Securities
("QUIDS"), including form of QUIDS.
4(k)- Standby Note Purchase Credit Facility, dated as of August
17, 1994, among The Detroit Edison Company, Barclays Bank
PLC, as Bank and Administrative Agent, Bank of America, The
Bank of New York, The Fuji Bank Limited, The Long-Term
Credit Bank of Japan, LTD, Union Bank and Citicorp
Securities, Inc. and First Chicago Capital Markets, Inc. as
Remarketing Agents.
4-(l)- $60,000,000 Support Agreement dated as of January 21, 1998
between DTE Energy Company and DTE Capital Corporation.
4-(m)- $100,000,000 Support Agreement, dated as of June 16, 1998,
between DTE Energy Company and DTE Capital Corporation.
4-(n)- Indenture, dated as of June 15, 1998, between DTE Capital
Corporation and The Bank of New York, as Trustee.
<PAGE> 98
4-(o)- First Supplemental Indenture, dated as of June 15, 1998,
between DTE Capital Corporation and The Bank of New York, as
Trustee, creating the $100,000,000 Remarketed Notes, Series
A due 2038, including form of Note.
*10(a) Certain arrangements pertaining to the employment of Michael
C. Porter.
*10(b) Form of Change-in-Control Severance Agreement, dated as of
October 1, 1997, between DTE Energy Company and Gerard M.
Anderson, Susan M. Beale, Robert J. Buckler, Michael C.
Champley, Haven C. Cockerham, Anthony F. Earley, Jr., Larry
G. Garberding, Douglas R. Gipson, John E. Lobbia, Leslie L.
Loomans, David E. Meador, Christopher C. Nern, Michael C.
Porter, William R. Roller and S. Martin Taylor.
*10(c)- Form of 1995 Indemnification Agreement between the Company
and its directors and officers.
*10(d)- Form of Indemnification Agreement between Detroit Edison and
its officers other than those identified in *10(l).
*10(e)- Certain arrangements pertaining to the employment of S.
Martin Taylor.
*10(f)- Amended and Restated Post-Employment Income Agreement, dated
March 23, 1998, between Detroit Edison and Anthony F.
Earley, Jr.
*10(g) Restricted Stock Agreement, dated March 23, 1998, between
Detroit Edison and Anthony F. Earley, Jr.
*10(h) Amended and Restated Detroit Edison Savings Reparation Plan
(February 23, 1998).
*10(i) Certain arrangements pertaining to the employment of Larry
G. Garberding.
*10(j)- Form of Indemnification Agreement, between Detroit Edison
and (1) John E. Lobbia, (2) Larry G. Garberding and (3)
Anthony F. Earley, Jr.
*10(k)- Employment Agreement, dated April 16, 1998, between Detroit
Edison and Lynn Halpin.
*10(l)- Form of Indemnification Agreement between Detroit Edison and
its directors.
*10(m)- Executive Vehicle Program, dated October 1, 1993
<PAGE> 99
*10(n)- Amendment No. 1 to Executive Vehicle Plan, November 1993.
*10(o)- Certain arrangements pertaining to the employment of Gerard
M. Anderson.
*10(p)- Long-Term Incentive.
*10(q)- 1997 Executive Incentive Plan Measures.
*10(r)- 1998 Executive Incentive Plan Measures.
*10(s)- 1998 Shareholder Value Improvement Plan Measures.
*10-(t) Fourth Restatement of The Benefit Equalization Plan for
Certain Employees of The Detroit Edison Company (October
1997).
*10-(u) The Detroit Edison Company Key Employee Deferred
Compensation Plan (October 1997).
*10-(v) The Detroit Edison Company Executive Incentive Plan (October
1997).
*10-(w) Detroit Edison Company Shareholder Value Improvement Plan-A.
*10-(x) Trust Agreement for DTE Energy Company Change-In-Control
Severance Agreements between DTE Energy Company and Wachovia
Bank, N.A.
*10(y)- Certain arrangements pertaining to the employment of David
E. Meador.
*10(z)- Amended and Restated Supplemental Long-Term Disability Plan,
dated January 27, 1997
*10(aa)- Fourth Restatement of The Retirement Reparation Plan for
Certain Employees of The Detroit Edison Company (October
1997).
99(a)- Belle River Participation Agreement between Detroit Edison
and Michigan Public Power Agency, dated as of December 1,
1982.
99(b)- Belle River Transmission Ownership and Operating Agreement
between Detroit Edison and Michigan Public Power Agency,
dated as of December 1, 1982.
99(c)- 1988 Amended and Restated Loan Agreement, dated as of
October 4, 1988, between Renaissance Energy Company (an
unaffiliated company) ("Renaissance") and Detroit Edison.
99(d)- First Amendment to 1988 Amended and Restated Loan Agreement,
dated as of February 1, 1990, between Detroit Edison and
Renaissance.
<PAGE> 100
99(e)- Second Amendment to 1988 Amended and Restated Loan
Agreement, dated as of September 1, 1993, between Detroit
Edison and Renaissance.
99(f)- Third Amendment, dated as of August 28, 1997, to 1988
Amended and Restated Loan Agreement between Detroit Edison
and Renaissance.
99(g)- $200,000,000 364-Day Credit Agreement, dated as of September
1, 1993, among Detroit Edison, Renaissance and Barclays Bank
PLC, New York Branch, as Agent.
99(h)- First Amendment, dated as of August 31, 1994, to
$200,000,000 364-Day Credit Agreement, dated September 1,
1993, among The Detroit Edison Company, Renaissance Energy
Company, the Banks party thereto and Barclays Bank, PLC, New
York Branch, as Agent.
99(i)- Third Amendment, dated as of March 8, 1996, to $200,000,000
364-Day Credit Agreement, dated September 1, 1993, as
amended, among Detroit Edison, Renaissance, the Banks party
thereto and Barclays Bank, PLC, New York Branch, as Agent.
99(j)- Fourth Amendment, dated as of August 29, 1996, to
$200,000,000 364-Day Credit Agreement as of September 1,
1990, as amended, among Detroit Edison, Renaissance, the
Banks party thereto and Barclays Bank, PLC, New York Branch,
as Agent.
99(k)- Fifth Amendment, dated as of September 1, 1997, to
$200,000,000 Multi-Year Credit Agreement, dated as of
September 1, 1993, as amended, among Detroit Edison,
Renaissance, the Banks Party thereto and Barclays Bank PLC,
New York Branch, as Agent.
99(l)- $200,000,000 Three-Year Credit Agreement, dated September 1,
1993, among Detroit Edison, Renaissance and Barclays Bank,
PLC, New York Branch, as Agent.
99(m)- First Amendment, dated as of September 1, 1994, to
$200,000,000 Three-Year Credit Agreement, dated as of
September 1, 1993, among The Detroit Edison Company,
Renaissance Energy Company, the Banks party thereto and
Barclays Bank, PLC, New York Branch, as Agent.
99(n)- Third Amendment, dated as of March 8, 1996, to $200,000,000
Three-Year Credit Agreement, dated September 1, 1993, as
amended among Detroit Edison, Renaissance, the Banks party
thereto and Barclays Bank, PLC, New York Branch, as Agent.
99(o)- Fourth Amendment, dated as of September 1, 1996, to
$200,000,000 Multi-Year (formerly Three-Year) Credit
Agreement, dated as of
<PAGE> 101
September 1, 1993, as amended among Detroit Edison,
Renaissance, the Banks party thereto and Barclays Bank,
PLC, New York Branch, as Agent.
99(p)- Fifth Amendment, dated as of August 28, 1997, to
$200,000,000 364-Day Credit Agreement, dated as of September
1, 1990, as amended, among Detroit Edison, Renaissance, the
Banks Party thereto and Barclays Bank PLC, New York Branch,
as Agent.
99(q)- Sixth Amendment, dated as of August 27, 1998, to
$200,000,000 364-Day Credit Agreement dated as of September
1, 1990, as amended, among Detroit Edison, Renaissance, the
Banks party thereto and Barclays Bank PLC, New York Branch,
as agent.
99(r)- 1988 Amended and Restated Nuclear Fuel Heat Purchase
Contract, dated October 4, 1988, between Detroit Edison and
Renaissance.
99(s)- First Amendment to 1988 Amended and Restated Nuclear Fuel
Heat Purchase Contract, dated as of February 1, 1990,
between Detroit Edison and Renaissance.
99(t)- Second Amendment, dated as of September 1, 1993, to 1988
Amended and Restated Nuclear Fuel Heat Purchase Contract
between Detroit Edison and Renaissance.
99(u)- Third Amendment, dated as of August 31, 1994, to 1988
Amended and Restated Nuclear Fuel Heat Purchase Contract,
dated October 4, 1988, between The Detroit Edison Company
and Renaissance Energy Company.
99(v)- Fourth Amendment, dated as of March 8, 1996, to 1988 Amended
and Restated Nuclear Fuel Heat Purchase Contract Agreement,
dated as of October 4, 1988, between Detroit Edison and
Renaissance.
99(w) Sixth Amendment, dated as of August 28, 1997, to 1988
Amended and Restated Nuclear Fuel Heat Purchase Contract
between Detroit Edison and Renaissance.
99(x) Standby Note Purchase Credit Facility, dated as of September
12, 1997, among The Detroit Edison Company and the Bank's
Signatory thereto and The Chase Manhattan Bank, as
Administrative Agent, and Citicorp Securities, Inc., Lehman
Brokers, Inc., as Remarketing Agents and Chase Securities,
Inc. as Arranger.
99(y)- Master Trust Agreement ("Master Trust"), dated as of June
30, 1994, between Detroit Edison and Fidelity Management
Trust Company relating to the Savings & Investment Plans.
99(z)- First Amendment, effective as of February 1, 1995, to Master
Trust.
<PAGE> 102
99(aa)- Second Amendment, effective as of February 1, 1995 to Master
Trust.
99(bb)- Third Amendment, effective January 1, 1996, to Master Trust.
99(cc)- Fourth Amendment to Trust Agreement Between Fidelity
Management Trust Company and The Detroit Edison Company
(July 1996).
99(dd)- Fifth Amendment to Trust Agreement Between Fidelity
Management Trust Company and The Detroit Edison Company
(December 1997).
99(ee)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Savings Reparation Plan.
99(ff)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Retirement Reparation Plan.
99(gg)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Management Supplemental Benefit Plan.
99(hh)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Benefit Equalization Plan.
99(ii)- The Detroit Edison Company Irrevocable Grantor Trust for The
Detroit Edison Company Plan for Deferring the Payment of
Directors' Fees.
99(jj)- The Detroit Edison Company Irrevocable Grantor Trust for The
DTE Energy Company Retirement Plan for Non-Employee
Directors.
99(kk)- DTE Energy Company Irrevocable Grantor Trust for The DTE
Energy Company Plan for Deferring the Payment of Directors'
Fees.
99(ll)- DTE Energy Company Irrevocable Grantor Trust for The DTE
Energy Company Retirement Plan for Non-Employee Directors.
*Denotes management contract or compensatory plan or arrangement required to
be entered as an exhibit to this report.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.198
<SEQUENCE>2
<DESCRIPTION>SEVENTH SUPPLEMENTAL NOTE INDENTURE
<TEXT>
<PAGE> 1
EXHIBIT 4-198
- --------------------------------------------------------------------------------
THE DETROIT EDISON COMPANY
AND
BANKERS TRUST COMPANY
TRUSTEE
--------
SEVENTH SUPPLEMENTAL INDENTURE
DATED AS OF OCTOBER 15, 1998
--------
SUPPLEMENTING THE COLLATERAL TRUST INDENTURE
DATED AS OF JUNE 30,1993
PROVIDING FOR
7.375% QUARTERLY INCOME DEBT SECURITIES
("QUIDS") (JUNIOR SUBORDINATED DEFERRABLE
INTEREST DEBENTURES, DUE 2028)
- --------------------------------------------------------------------------------
<PAGE> 2
SEVENTH SUPPLEMENTAL INDENTURE, dated as of the 15th day of October,
1998 between THE DETROIT EDISON COMPANY, a corporation organized and existing
under the laws of the State of Michigan (the "Company"), and BANKERS TRUST
COMPANY, a New York banking corporation, having its principal office in The City
of New York, New York, as trustee (the "Trustee");
WHEREAS, the Company has heretofore executed and delivered to the
Trustee a Collateral Trust Indenture dated as of June 30, 1993 (the "Original
Indenture"), as supplemented by a First Supplemental Indenture dated as of June
30, 1993, a Second Supplemental Indenture dated as of September 15, 1993, as
amended, a Third Supplemental Indenture dated as of August 15, 1994, as amended,
a Fourth Supplemental Indenture dated as of August 15, 1995, a Fifth
Supplemental Trust Indenture dated as of February 1, 1996 and a Sixth
Supplemental Indenture dated as of May 1, 1998 (the "Prior Supplemental
Indentures") providing for the issuance by the Company from time to time of its
debt securities; and
WHEREAS, the Company now desires to provide for the issuance of an
additional series of its unsecured, subordinated debt securities pursuant to the
Original Indenture; and
WHEREAS, the Company intends hereby to designate a series of debt
securities which shall not have the benefit of the provisions of Article Four of
the Original Indenture and the other related provisions of the Original
Indenture relating to the grant of security and which shall have the terms and
variations from the provisions of the Original Indenture as set forth herein;
and
WHEREAS, the Company, in the exercise of the power and authority
conferred upon and reserved to it under the provisions of the Original
Indenture, including Section 1001 thereof, and pursuant to appropriate
resolutions of the Board of Directors, has duly determined to make, execute and
deliver to the Trustee this Seventh Supplemental Indenture to the Original
Indenture as permitted by Sections 201 and 301 of the Original Indenture in
order to establish the form or terms of, and to provide for the creation and
issue of, a series of its debt securities under the Original Indenture, which
shall be known as the 7.375% Quarterly Income Debt Securities (the "QUIDS")
(Junior Subordinated Deferrable Interest Debentures, Due 2028); and
WHEREAS, all things necessary to make such debt securities, when
executed by the Company and authenticated and delivered by the Trustee or any
Authenticating Agent and issued upon the terms and subject to the conditions
hereinafter and in the Original Indenture set forth against payment therefor,
the valid, binding and legal obligations of the Company and to make this Seventh
Supplemental Indenture a valid, binding and legal agreement of the Company, have
been done;
NOW, THEREFORE, THIS SEVENTH SUPPLEMENTAL INDENTURE WITNESSETH that, in
order to establish the terms of a series of debt securities, and for and in
consideration of the premises and of the covenants contained in the Original
Indenture and in this Seventh Supplemental Indenture and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, it is mutually covenanted and agreed as follows:
<PAGE> 3
ARTICLE ONE
DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions. Each capitalized term that is used herein and
is defined in the Original Indenture shall have the meaning specified in the
Original Indenture unless such term is otherwise defined herein.
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions located in the State of
Michigan or in the state in which the principal corporate trust office of the
Trustee is located, are authorized or obligated by or pursuant to law or
executive order to close.
"Capital Stock" means any and all shares of the Company's Preferred
Stock, Preference Stock or Common Stock or any other equity securities of the
Company.
"Payment Obligation", when used with respect to Senior Indebtedness,
means an obligation stated in an agreement, instrument or lease to pay money
(whether for principal, premium, interest, sinking fund, periodic rent,
stipulated value, termination value, liquidated damages or otherwise), but
excluding an obligation to pay money in respect of fees of, or as payment or
reimbursement for expenses incurred by or on behalf of, or as indemnity for
losses, damages, taxes or other indemnity claims of any kind owed to, any holder
of Senior Indebtedness or other party to such agreement, instrument or lease.
"Senior Indebtedness" means each of the following, whether outstanding
on the date hereof or hereafter created, incurred or assumed:
(a) any Payment Obligation of the Company in respect of any
indebtedness, directly or indirectly, created, incurred or assumed (i)
for borrowed money other than (A) the 8.5% $49,877,700 in aggregate
principal amount of Quarterly Income Debt Securities (Junior
Subordinated Deferrable Interest Debentures, Due 2025), (B) the 7.625%
$185,000,000 in aggregate principal amount of Quarterly Income Debt
Securities (Junior Subordinated Deferrable Interest Debentures, Due
2026) and (C) the 7.54% $100,122,300 in aggregate principal amount of
Quarterly Income Debt Securities (Junior Subordinated Deferrable
Interest Debentures, Due 2028), each of which has been expressly deemed
by its terms to be subordinate or (ii) in connection with the
acquisition of any business, property or asset (including securities),
other than any account payable or other indebtedness created, incurred
or assumed in the ordinary course of business in connection with the
obtaining of materials or services;
(b) any Payment Obligation of the Company in respect of any
lease that would, in accordance with generally accepted accounting
principles, be required to be classified and accounted for as a capital
lease;
2
<PAGE> 4
(c) any Payment Obligation of the Company in respect of any
interest rate exchange agreement, currency exchange agreement or
similar agreement that provides for payment (whether or not contingent)
over a period or term (including any renewals or extensions) longer
than one year from the execution thereof;
(d) any Payment Obligation of the Company in respect of any
agreement relating to the acquisition (including a sale and buyback) or
lease (including a sale and leaseback) of real or personal property
that provides for payment (whether or not contingent) over a period or
term (including any renewals or extensions) longer than one year from
the execution thereof;
(e) any Payment Obligation of any Subsidiary or of others of
the kind described in the preceding clauses (a) through (d) assumed or
guaranteed by the Company or for which the Company is otherwise
responsible or liable; and
(f) any amendment, renewal, extension or refunding of any
Payment Obligation described in the preceding subparagraphs (a) through
(e);
unless in the agreement, instrument or lease in which any such Payment
Obligation is stated it is expressly provided that such Payment Obligation is
not senior in right of payment to the QUIDS.
"Tax Event" means that the Company shall have received an opinion of
counsel (which may be counsel to the Company or an affiliate but not an employee
thereof) experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change), in the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein affecting taxation, or as a
result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such pronouncement or decision is announced on or after the date of
original issuance of the QUIDS, there is more than an insubstantial risk that
interest payable by the Company on the QUIDS is not, or will not be, deductible
by the Company for federal income tax purposes.
SECTION 102. Section References. Each reference to a particular section
set forth in this Supplemental Indenture shall, unless the context otherwise
requires, refer to this Seventh Supplemental Indenture.
ARTICLE TWO
TITLE AND TERMS OF THE QUIDS
SECTION 201. Title of the QUIDS. This Seventh Supplemental Indenture
hereby establishes a series of QUIDS, which shall be known as the Company's
7.375% Quarterly Income Debt Securities (Junior Subordinated Deferrable Interest
Debentures, Due 2028) (referred to herein as the "QUIDS"). For purposes of the
Original Indenture, the QUIDS shall constitute a single series of Securities.
The stated maturity of the QUIDS will be December 31, 2028.
3
<PAGE> 5
SECTION 202. Variations from the Original Indenture. Notwithstanding
the provisions of the Original Indenture, the QUIDS shall be without benefit of
any security and shall be subordinated to Senior Indebtedness as and to the
extent provided in Article Four of this Supplemental Indenture. The QUIDS shall
not have the benefit of the provisions of Article Four of the Original Indenture
and shall not have the benefit of, or be subject to, the other related
provisions of the Original Indenture relating to the grant of security,
including (for avoidance of doubt and not for purposes of limitation) the
Granting Clause, the definitions of "Deliverable Mortgage Bonds," "Deliverable
Securities," "Designated Mortgage Bonds," "Grant," "Mortgage," "Mortgage Bonds,"
"Mortgage Trustee," "Previously Delivered Mortgage Bonds," and "Trust Estate,"
Section 301 (20), Sections 301 (a) (v), (ix), (x) and (xi), Sections 301 (b)
(ii) and (iii), Section 301 (d), and Sections 601(4) and (8).
SECTION 203. Amount and Denominations; DTC. The aggregate principal
amount of QUIDS that may be issued under this Seventh Supplemental Indenture is
limited to $100,000,000. The QUIDS shall be issuable only in fully registered
form and, as permitted by Sections 301 and 302 of the Original Indenture, in
denominations of $25 and integral multiples thereof. The QUIDS will initially be
issued under a book-entry system, registered in the name of The Depository Trust
Company, as depository ("DTC"), or its nominee, who is hereby designated as
"U.S. Depository" under the Original Indenture.
SECTION 204. Interest Rate and Interest Payment Dates. (a) The QUIDS
will bear interest at the rate of 7.375% per annum from the date of original
issuance until the principal thereof becomes due and payable, and on any overdue
principal and (to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest at the same rate per
annum during such overdue period. Interest on the QUIDS will be payable
quarterly (subject to deferral as set forth herein) in arrears on March 31, June
30, September 30 and December 31 of each year (each an "Interest Payment Date"),
commencing December 31, 1998, to the persons in whose names the QUIDS are
registered at the close of business on the relevant record date for such
interest installment, which will be one Business Day prior to the relevant
Interest Payment Date or, in the case of a Deferral Period (as described
herein), one Business Day prior to the Interest Payment Date for such Deferral
Period (each a "Record Date"); provided, however, that, in the event that any
Interest Payment Date shall not be a Business Day, then interest shall be
payable on the next day that is a Business Day (but without interest or other
payment in respect of such delay), except that, if such Business Day is in the
next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day without reduction in amount due to such early payment
(and in which case the relevant Record Date shall be on the Business Day
immediately preceding such Interest Payment Date), in each case with the same
force and effect as if made on such Interest Payment Date, subject to certain
rights of deferral described in Section 204(b) hereof.
The amount of interest payable in any period will be computed on the
basis of twelve 30-day months and a 360-day year and, for any period shorter
than a full quarterly interest period, will be computed on the basis of the
actual number of days elapsed in such period.
4
<PAGE> 6
(b) The provisions of Section 204(a) notwithstanding, the Company shall
have the right at any time, on one or more occasions so long as an Event of
Default with respect to the QUIDS has not occurred and is not continuing, to
extend any interest payment period on the QUIDS for a period (a "Deferral
Period") not to exceed 20 consecutive quarterly interest payment periods;
provided that the date on which such Deferral Period ends must be an Interest
Payment Date and must be no later than December 31, 2028 or any date on which
any QUIDS are fixed for redemption. The quarterly interest payments on the QUIDS
so deferred will continue to accrue with interest thereon at the rate of
interest of the QUIDS during such Deferral Period. On the Interest Payment Date
at the end of the Deferral Period, the Company shall pay all interest then
accrued and unpaid, which shall be compounded quarterly at the rate of interest
on the QUIDS (except to the extent prohibited by law) to the date of payment, to
the persons in whose names the QUIDS are registered on the Record Date for such
Deferral Period. The Company shall give the Holders of the QUIDS notice of its
election to defer interest payments or to extend the Deferral Period ten
Business Days prior to the earlier of (1) the next scheduled quarterly payment
date and (2) the date the Company is required to give notice of the record date
of such related interest payment to the New York Stock Exchange or other
applicable self-regulatory organization or to the Holders of the QUIDS, but in
any event not less than two Business Days prior to such record date. During the
Deferral Period the Company shall not declare or pay any dividend on or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
Capital Stock or make any guaranty payment with respect to the foregoing, other
than redemptions of any series of Capital Stock of the Company pursuant to the
terms of any sinking fund provisions with respect thereto. During any Deferral
Period, the Company may not (i) make any distributions, loans or guarantees for
the benefit of, (ii) purchase, defease, redeem or otherwise acquire or retire
for value any securities of or (iii) make any other investment in, any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company, for the purpose of, or to enable the payment
of, directly or indirectly, dividends on any equity securities of DTE Energy
Company and its successors or assigns. During any Deferral Period, the Company
may continue to extend the interest payment period by extending the Deferral
Period, on one or more occasions, by notice given as aforesaid in this paragraph
(b), provided that such Deferral Period, as so extended, must end on an Interest
Payment Date and in no event shall the aggregate Deferral Period, as extended,
exceed 20 consecutive quarterly interest payment periods or extend beyond
December 31, 2028 or any date on which QUIDS are fixed for redemption. No
interest shall be due and payable during a Deferral Period except at the end
thereof.
SECTION 205. Optional Redemption of QUIDS. Other than in accordance
with Section 206 below, the QUIDS shall not be redeemable prior to December 31,
2003. Thereafter, upon notice given by mailing the same, postage prepaid, at
least 30 days and not more than 60 days prior to the date fixed for redemption,
any or all of the QUIDS may be redeemed by the Company, at its option, at any
time and from time to time, at a redemption price equal to 100% of the principal
amount of the QUIDS to be redeemed plus accrued and unpaid interest thereon to
the date fixed for redemption.
SECTION 206. Tax Event Redemption of QUIDS. If a Tax Event has occurred
and is continuing, the Company has the right, within 90 days following the
occurrence of such Tax
5
<PAGE> 7
Event, to redeem the QUIDS, in whole but not in part, at a redemption price
equal to the aggregate principal amount of the QUIDS plus accrued and unpaid
interest to the date of redemption.
SECTION 207. Form of QUIDS. Attached hereto as Exhibit A is a form of
the definitive QUIDS.
ARTICLE THREE
ADDITIONAL EVENTS OF DEFAULT AND COVENANTS
SECTION 301. Inapplicability of Certain Events of Default. The Events
of Default set forth in Sections 601(4) and 601(8) of the Original Indenture
shall not apply to the QUIDS. The omission by the Company to pay interest on the
QUIDS during a Deferral Period as permitted by Section 204 shall not constitute
an Event of Default under Section 601 (1) of the Original Indenture.
ARTICLE FOUR
SUBORDINATION OF QUIDS
SECTION 401. QUIDS Subordinate to Senior Indebtedness. The Company for
itself, its successors and assigns, covenants and agrees, and each Holder of
QUIDS issued, whether upon original issue or upon transfer or assignment
thereof, by its acceptance thereof likewise covenants and agrees, that the
payment of principal of and interest on each and all of the QUIDS is hereby
expressly subordinated, to the extent and in the manner hereinafter in this
Article set forth, in right of payment to the prior payment in full of all
existing and future Senior Indebtedness of the Company.
SECTION 402. Payments to Securityholders. (a) Upon (i) any acceleration
of the principal amount due on the QUIDS or (ii) any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any dissolution or winding-up or total or partial
liquidation or reorganization of the Company, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, all principal,
premium, if any, and interest, if any, due upon all Senior Indebtedness shall
first be paid in full, or payment thereof provided for in money or money's worth
in accordance with its terms, before any payment is made on account of the
principal of or interest on the indebtedness evidenced by the QUIDS, and upon
any such dissolution or winding-up or liquidation or reorganization any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the Holders of the QUIDS under the terms
of this Supplemental Indenture would be entitled, except for the provisions
hereof, shall (subject to the power of a court of competent jurisdiction to make
other equitable provision reflecting the rights conferred by the provisions
hereof upon the Senior Indebtedness and the holders thereof with respect to the
QUIDS and the Holders thereof by a lawful plan of reorganization under
applicable bankruptcy law), be paid by the Company or any receiver, trustee in
bankruptcy, liquidating trustee, agent or
6
<PAGE> 8
other person making such payment or distribution, or by the Holders of the QUIDS
if received by them, directly to the holders of Senior Indebtedness (pro rata to
each such holder on the basis of the respective amounts of Senior Indebtedness
held by such holder) or their representatives, to the extent necessary to pay
all Senior Indebtedness (including interest thereon) in full, in money or
money's worth, in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness,
before any payment or distribution is made to the Holders of the indebtedness
evidenced by the QUIDS. The consolidation of the Company with, or a merger of
the Company into, another Person or the liquidation or dissolution of the
Company following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another Person upon the terms and conditions
provided in Section 901 of the Original Indenture shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 402(a).
(b) In the event that any payment or distribution of assets of the
Company of any kind or character not permitted by Section 402(a), whether in
cash, property or securities, shall be received by the Trustee or the Holders of
QUIDS before all Senior Indebtedness is paid in full, or provision made for such
payment, in accordance with its terms, upon written notice to the Trustee or, as
the case may be, such Holder, such payment or distribution shall be held in
trust for the benefit of, and shall be paid over or delivered to, the holders of
such Senior Indebtedness or their representative or representatives, or to the
Trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all such Senior
Indebtedness in full in accordance with its terms, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
Nothing in this Article shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 706 of the Original Indenture. In addition, nothing
in this Article shall prevent the Company from making or the Trustee from
receiving or applying any payment in connection with the redemption of the QUIDS
if the first publication of notice of such redemption (whether by mail or
otherwise in accordance with this Supplemental Indenture) has been made, and the
Trustee has received such payment from the Company, prior to the occurrence of
any of the contingencies specified in this Section 402.
(c) No payment on account of principal of or interest on the QUIDS
shall be made unless full payment of amounts then due for principal, premium, if
any, sinking funds and interest on any Senior Indebtedness has been made or duly
provided for in money or money's worth in accordance with the terms of such
Senior Indebtedness. No payment on account of principal or interest on the QUIDS
shall be made if, at the time of such payment or immediately after giving effect
thereto, (i) there shall exist a default in the payment of principal, premium,
if any, sinking fund or interest with respect to any Senior Indebtedness, or
(ii) there shall have occurred an event of default (other than a default in the
payment of principal, premium, if any, sinking funds or interest) with respect
to any Senior Indebtedness, as defined therein or in the instrument under which
the same is outstanding, permitting the holders thereof to accelerate the
maturity thereof and upon written notice thereof given to the Trustee, with a
copy to the Company (the delivery of which shall not affect the validity of the
notice to the Trustee), and such event of default shall not have been cured or
waived or shall not have ceased to exist;
7
<PAGE> 9
provided, however, that if the holders of the Senior Indebtedness to which the
default relates have not declared such Senior Indebtedness to be immediately due
and payable within 180 days after the occurrence of such default (or have
declared such Senior Indebtedness to be immediately due and payable and within
such period have rescinded such declaration of acceleration), then the Company
shall resume making any and all required payments in respect of the QUIDS
(including any missed payments). Only one payment blockage period under the
immediately preceding sentence may be commenced within any consecutive 365-day
period with respect to the QUIDS of any series. No event of default which
existed or was continuing on the date of the commencement of any 180-day payment
blockage period with respect to the Senior Indebtedness initiating such payment
blockage period shall be, or be made, the basis for the commencement of a second
payment blockage period by a registered holder or representative of such Senior
Indebtedness whether or not within a period of 365 consecutive days unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days (and, in the case of any such waiver, no payment shall be
made by the Company to the holders of Senior Indebtedness in connection with
such waiver other than amounts due pursuant to the terms of the Senior
Indebtedness as in effect at the time of such default).
SECTION 403. Subrogation to Rights of Holders of Senior Indebtedness.
From and after the payment in full of all Senior Indebtedness, the Holders of
the QUIDS (together with the holders of any other indebtedness of the Company
which is subordinate in right of payment to the payment in full of all Senior
Indebtedness, which is not subordinate in right of payment to the QUIDS and
which by its terms grants such right of subrogation to the holder thereof) shall
be subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets or securities of the Company applicable to
the Senior Indebtedness until the QUIDS shall be paid in full, and, for the
purposes of such subrogation, no such payments or distributions to the holders
of Senior Indebtedness of assets or securities, which otherwise would have been
payable or distributable to Holders of the QUIDS, shall, as between the Company,
its creditors other than the holders of Senior Indebtedness, and the Holders of
the QUIDS, be deemed to be a payment by the Company to or on account of the
Senior Indebtedness, it being understood that the provisions of this Article are
and are intended solely for the purpose of defining the relative rights of the
Holders of the QUIDS, on the one hand, and the holders of the Senior
Indebtedness, on the other hand, and nothing contained herein is intended to or
shall impair as between the Company, its creditors other than the holders of
Senior Indebtedness, and the Holders of the QUIDS, the obligation of the
Company, which is unconditional and absolute, to pay to the Holders of the QUIDS
the principal of and interest on the QUIDS as and when the same shall become due
and payable in accordance with their terms, or to affect the relative rights of
the Holders of the QUIDS and creditors of the Company other than the holders of
the Senior Indebtedness, nor shall anything herein or therein prevent the
Trustee or the Holder of QUIDS from exercising all remedies otherwise permitted
by applicable law upon default hereunder with respect to the QUIDS subject to
the rights of the holders of Senior Indebtedness, under Section 402, to receive
cash, property or securities of the Company otherwise payable or deliverable to
the Trustee or the Holders of the QUIDS or to a representative of such Holders,
on their behalf.
Upon any distribution or payment in connection with any proceedings or
sale referred to in Section 402(a), the Trustee and each Holder of the QUIDS
then Outstanding, shall be entitled
8
<PAGE> 10
to rely upon a certificate of the liquidating trustee or agent or other Person
making any distribution or payment to the Trustee or such Holder for the purpose
of ascertaining the holders of Senior Indebtedness entitled to participate in
such payment or distribution, the amount of such Senior Indebtedness or the
amount payable thereon, the amount or amounts paid or distributed thereon and
all other facts pertinent thereto or to this Article.
SECTION 404. No Impairment of Subordination. Nothing contained in this
Article or elsewhere in this Supplemental Indenture or the QUIDS shall prevent
at any time the Company from making payments at any time of principal of or
interest on the QUIDS, except under the conditions described in Section 402 or
during the pendency of any proceedings or sale therein referred to.
SECTION 405. Trustee to Effectuate Subordination. Each Holder of QUIDS
by his acceptance thereof, whether upon original issue or upon transfer or
assignment, authorizes and directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provisions in
this Article and appoints the Trustee his attorney-in-fact for any and all such
purposes.
No rights of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Trustee
or any Holder of the QUIDS then Outstanding, or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by any such holder, with
the terms, provisions and covenants of this Supplemental Indenture, regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Holders of the QUIDS, without incurring
responsibility to the Holders of the QUIDS and without impairing or releasing
the subordination provided in this Article or the obligations of the Holders of
the QUIDS to the holders of Senior Indebtedness, do any one or more of the
following: (i) change the manner, place or terms of payment of, or renew or
alter, Senior Indebtedness, or otherwise amend or supplement in any manner
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 406. Notice to Trustee. The Company shall give prompt written
notice to the Trustee in the form of an Officers' Certificate of any fact known
to the Company which would prohibit the making of any payment of money to or by
the Trustee in respect of the QUIDS pursuant to the provisions of this Article.
Notwithstanding the provisions of this Article or any other provisions of this
Supplemental Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee in respect of the QUIDS pursuant to the provisions of this Article,
unless and until the
9
<PAGE> 11
Trustee shall have received at its Corporate Trust Office written notice thereof
from the Company or a holder or holders of Senior Indebtedness or from any
trustee therefor at least two Business Days prior to such payment date; and,
prior to the receipt of any such written notice, the Trustee, shall be entitled
in all respects to assume that no such facts exist.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee on behalf of such holder) to establish that such
notice has been given by a holder of Senior Indebtedness or a trustee on behalf
of any such holder. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under the Article, and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 407. Reliance on Certificate of Liquidating Agent. Upon any
payment or distribution referred to in this Article, the Trustee and the Holders
of the QUIDS shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which a dissolution, winding up or total or
partial liquidation or reorganization of the Company is pending, or a
certificate of the trustee in bankruptcy, liquidating trustee, custodian,
receiver, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Trustee or to the Holders of the
QUIDS, for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article.
SECTION 408. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall in
good faith mistakenly pay over or distribute to Holders of the QUIDS of any
series or to the Company or to any other Person cash, property or securities to
which any holders of Senior Indebtedness shall be entitled by virtue of this
Article or otherwise.
SECTION 409. Rights of Trustee as Holder of Senior Indebtedness. The
Trustee in its individual capacity shall be entitled to all the rights set forth
in this Article with respect to any Senior Indebtedness which may at any time be
held by it, to the same extent as any other holder of Senior Indebtedness, and
nothing in this Supplemental Indenture shall deprive the Trustee of any of its
rights as such holder.
SECTION 410. Article Applicable to Paying Agent. In case at any time
any Paying Agent other than the Trustee shall have been appointed by the Company
and be then acting hereunder, the term "Trustee" as used in this Article shall
in such case (unless the context shall
10
<PAGE> 12
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
however, that this Section shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
ARTICLE FIVE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and
shall not be responsible in any manner whatsoever for and in respect of, the
validity or sufficiency of this Seventh Supplemental Indenture or the proper
authorization or the due execution hereof by the Company or for or in respect of
the recitals and statements contained herein, all of which recitals and
statements are made solely by the Company.
Except as expressly amended hereby, the Original Indenture shall
continue in full force and effect in accordance with the provisions thereof and
the Original Indenture is in all respects hereby ratified and confirmed. This
Seventh Supplemental Indenture and all its provisions shall be deemed a part of
the Original Indenture in the manner and to the extent herein and therein
provided.
This Seventh Supplemental Indenture shall be governed by, and construed
in accordance with, the laws of the State of New York.
This Seventh Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
11
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first above
written.
THE DETROIT EDISON COMPANY
By:
----------------------------
Name: C. C. Arvani
Title: Assistant Treasurer
ATTEST:
By:
---------------------
12
<PAGE> 14
[Corporate Seal]
STATE OF MICHIGAN )
) :
COUNTY OF WAYNE )
On the day of 1998, before me personally came C. C.
Arvani, to me known, who, being by me duly sworn, did depose and say that he is
Assistant Treasurer of THE DETROIT EDISON COMPANY, one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and he signed his name thereto by like authority.
---------------------------
Notary Public
My Commission Expires
[Notarial Seal]
BANKERS TRUST COMPANY,
as Trustee
By:
---------------------------
Name:
Title:
ATTEST:
By:
------------------
13
<PAGE> 15
[Corporate Seal]
STATE OF NEW YORK )
) :
COUNTY OF NEW YORK )
On the day of 1998, before me personally came ,
to me known, who, being by me duly sworn, did depose and say that he is
of BANKERS TRUST COMPANY, one of the corporations described in
and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation, and she signed her name thereto by like authority.
------------------------------
[Notarial Seal]
14
<PAGE> 16
EXHIBIT A
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART
FOR NOTES IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TRUST COMPANY ("DTC"), TO A NOMINEE OF DTC OR BY DTC OR
ANY SUCH NOMINEE TO A SUCCESSOR OF DTC OR A NOMINEE OF SUCH SUCCESSOR. UNLESS
THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.,
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC)
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL, INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
NO. R-1 $100,000,000
THE DETROIT EDISON COMPANY
7.375% QUARTERLY INCOME DEBT SECURITIES
(JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES
DUE 2028)
ISSUE PRICE ISSUE DATE CUSIP NO.
----------- ---------------- ---------
$25.00, or any integral
multiple thereof. November 3, 1998 250847688
THE DETROIT EDISON COMPANY, a corporation duly organized and existing
under the laws of the State of Michigan (herein referred to as the "Company",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the principal sum of $100,000,000 on December 31, 2028 and
to pay interest at the rate of 7.375% per annum on said principal sum from the
date of issuance until the principal of this Debenture ("Note") hereof becomes
due and payable, and on any overdue principal and (to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum during such overdue period. Interest on this
Note will be payable quarterly (subject to deferral as set forth herein) in
arrears on March 31, June 30, September 30 and December 31 of each year (each
such date, an "Interest Payment Date"), commencing December 31, 1998.
A-1
<PAGE> 17
The amount of interest payable for any period shall be computed on the
basis of twelve 30-day months and a 360-day year and, for any period shorter
than a full quarterly interest period, will be computed on the basis of the
actual number of days elapsed in such period. In the event that any date on
which interest is payable on this Note is not a Business Day, then payment of
the amount payable on such date will be made on the next succeeding day which is
a Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day
without reduction in the amount due to such early payment (and in which case the
relevant Record Date shall be on the Business Day immediately preceding such
Interest Payment Date), in each case with the same force and effect as if made
on such date, subject to certain rights of deferral described below. A "Business
Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is
not a day on which banking institutions located in the State of Michigan or in
the state in which the principal corporate trust office of the Trustee is
located are authorized or obligated by or pursuant to law or executive order to
close. The interest installment so payable, and punctually paid or duly provided
for, on any Interest Payment Date (other than interest payable on redemption or
maturity) will, as provided in the Indenture (as defined herein), be paid to the
person in whose name this Note (or one or more Predecessor Notes, as defined in
said Indenture) is registered at the close of business on the relevant record
date for such interest installment, which shall be one Business Day prior to the
relevant Interest Payment Date or, in the case of a Deferral Period (as defined
in the Indenture), one Business Day prior to Interest Payment Date for such
Deferral Period (each a "Record Date"). Interest payable on redemption or
maturity shall be payable to the person to whom the principal is paid. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered holders on such Record Date, and may be
paid to the person in whose name this Note (or one or more Predecessor Notes) is
registered at the close of business on a special record date to be fixed by the
Trustee for the payment of such defaulted interest, notice whereof shall be
given to the registered holders of this series of Notes not less than 10 days
prior to such special record date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Notes may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in the Indenture. The principal of and
the interest on this Note shall be payable at the office or agency of the
Company maintained for that purpose in the Borough of Manhattan, The City of New
York, in any coin or currency of the United States of America which at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the registered holder at the close of business on the Record
Date at such address as shall appear in the Security Register.
Payment of the principal of and interest on this Note is, to the extent
provided in the Indenture, subordinated and subject in right of payment to the
prior payment in full of all existing and future Senior Indebtedness, as defined
in the Indenture, of the Company and this Note is issued subject to the
provisions of the Indenture with respect thereto. Each registered holder of this
Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the
A-2
<PAGE> 18
Trustee as his or her attorney-in-fact for any and all such purposes. Each
registered holder hereof, by his or her acceptance hereof, hereby waives all
notice of the acceptance of the subordination provisions contained herein and in
the Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said
provisions.
This Note shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
Unless the Certificate of Authentication hereon has been executed by
the Trustee or a duly appointed Authentication Agent referred to herein, this
Note shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
This Note is one of a duly authorized series of Notes of the Company
(herein sometimes referred to as the "Notes"), specified in the Indenture, all
issued or to be issued in one or more series under and pursuant to a Collateral
Trust Indenture dated as of June 30, 1993 (the "Original Indenture") duly
executed and delivered between the Company and Bankers Trust Company, a New York
banking corporation, as Trustee (herein referred to as the "Trustee"), as
supplemented by the First Supplemental Indenture dated as of June 30, 1993, a
Second Supplemental Indenture dated as of September 15, 1993, as amended, a
Third Supplemental Indenture dated as of August 15, 1994, as amended, a Fourth
Supplemental Indenture dated as of August 15, 1995 , a Fifth Supplemental
Indenture dated as of February 1, 1996, a Sixth Supplemental Indenture dated as
of May 1, 1998 and a Seventh Supplemental Indenture dated as of October 15,
1998, (together with the Original Indenture, the "Indenture") between the
Company and the Trustee, to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the respective rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the registered holders of the Notes and of the terms
upon which the Notes are, and are to be, authenticated and delivered. By the
terms of the Indenture, the Notes are issuable in series which may vary as to
amount, date of maturity, rate of interest and in other respects as in the
Indenture provided. This series of Notes is limited in aggregate principal
amount as specified in said Seventh Supplemental Indenture.
Notwithstanding the provisions of the Original Indenture, this Note
shall be without benefit of any security and shall be subordinated to Senior
Indebtedness (as defined in the Indenture) as and to the extent provided in
Article Four of said Seventh Supplemental Indenture. This Note shall not have
the benefit of the provisions of Article Four of the Original Indenture and
shall not have the benefit of, or be subject to, the other related provisions of
the Original Indenture relating to the grant of security, including (for
avoidance of doubt and not for purposes of limitation) the Granting Clause, the
definitions of "Deliverable Mortgage Bonds," "Deliverable Securities,"
"Designated Mortgage Bonds," "Grant," "Mortgage," "Mortgage Bonds," "Mortgage
Trustee," "Previously Delivered Mortgage Bonds," and "Trust Estate," Section
301(20), Sections 301 (a) (v), (ix), (x) and (xi), Sections 301 (b) (ii) and
(iii), and Section 301 (d). In addition, the Events of Default set forth in
Sections 601(4) and 601 (8) of the Original Indenture shall not apply to this
Note. The omission by the Company to pay interest on
A-3
<PAGE> 19
this Note during a Deferral Period as permitted by Section 204 of said Seventh
Supplemental Indenture shall not constitute an Event of Default under Section
601(l) of the Original Indenture.
The Company shall have the right to redeem this Note at the option of
the Company, without premium or penalty, in whole or in part, at any time on or
after December 31, 2003 and prior to maturity at a redemption price equal to
100% of the principal amount redeemed plus the accrued and unpaid interest
thereon to the date fixed for redemption. Any redemption pursuant to this
paragraph will be made upon not less than 30 nor more than 60 days notice. If
the Notes are only partially redeemed by the Company, the Notes will be redeemed
pro rata or by lot or by any other method utilized by the Trustee; provided that
if, at the time of redemption, the Notes are registered as a Global Note, the
Depositary shall determine by lot the principal amount of such Notes held by
each Note holder to be redeemed.
If a Tax Event (as hereinafter defined) has occurred and is continuing,
the Company shall have the right, within 90 days following the occurrence of
such Tax Event, to redeem the QUIDS, in whole but not in part, at a redemption
price equal to the aggregate principal amount of the QUIDS plus accrued and
unpaid interest to the date of redemption. "Tax Event" means that the Company
shall have received an opinion of counsel (which may be counsel to the Company
or an affiliate but not an employee thereof) experienced in such matters to the
effect that, as a result of any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein
affecting taxation, or as a result of any official administrative pronouncement
or judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or such pronouncement or decision is announced
on or after the date of original issuance of the QUIDS, there is more than an
insubstantial risk that interest payable by the Company on the QUIDS is not, or
will not be, deductible by the Company for federal income tax purposes.
In the event of redemption of this Note in part only, a new Note or
Notes of this series for the unredeemed portion hereof will be issued in the
name of the registered holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Notes may be declared,
and upon such declaration shall become, due and payable, in the manner, with the
effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Note upon compliance by the Company with certain
conditions set forth therein.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the registered holders of not less than a majority
in aggregate principal amount of the outstanding Notes of each series affected
at the time, as defined in the Indenture, to execute supplemental indentures for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Indenture or of any supplemental indenture or of
A-4
<PAGE> 20
modifying in any manner the rights of the registered holders of the Notes;
provided, however, that no such supplemental indenture shall (i) extend the
fixed maturity of any Notes of any series, or reduce the principal amount
thereof, or reduce the rate of or extend the time of payment of interest
thereon, or reduce any premium payable upon the redemption thereof, without the
consent of the registered holder of each Note so affected or (ii) reduce the
aforesaid percentage of Notes, the registered holders of which are required to
consent to any such supplemental indenture, without the consent of the
registered holders of each Note then outstanding and affected thereby. The
Indenture also contains provisions permitting (i) the registered holders of at
least 66 2/3% in aggregate principal amount of the Notes of all series at the
time outstanding affected thereby, on behalf of the registered holders of the
Notes of such series, to waive compliance by the Company with certain provisions
of the Indenture and (ii) the registered holders of a majority in aggregate
principal amount of the Notes of all series at the time outstanding affected
thereby, on behalf of the registered holders of the Notes of such series, to
waive certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the registered bolder of this Note (unless revoked as
provided in the Indenture) shall be conclusive and binding upon such registered
holder and upon all future registered holders and owners of this Note and of any
Note issued in exchange hereof or in place hereof (whether by registration of
transfer or otherwise), irrespective of whether or not any notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the time and place and at the rate and in the coin or currency herein
prescribed.
The Company shall have the right at any time, on one or more occasions,
so long as an Event of Default has not occurred and is not continuing under the
Indenture with respect to the Notes, to extend any interest payment period on
this Note to a period not to exceed 20 consecutive quarterly interest payment
periods and, as a consequence, the quarterly interest payment on the Notes would
be deferred (but would continue to accrue with interest thereon compounded
quarterly at the rate of interest on the Notes, except as provided by law)
during any such Deferral Period (as defined in the Indenture). At the end of
each Deferral Period, the Company shall pay all interest then accrued and unpaid
(compounded quarterly, at the rate of interest on the Notes, except to the
extent provided by law) to the persons in whose name the QUIDS are registered on
the Record Date for such Deferral Period. In the event the Company exercises
this right, the Company shall not declare or pay any dividends on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
Capital Stock (as defined in the Indenture) or make any guarantee payments with
respect to the foregoing during such Deferral Period, other than redemptions of
any series of Capital Stock of the Company pursuant to the terms of any sinking
fund provisions with respect thereto. In addition, during any Deferral Period,
the Company may not (i) make any distributions, loans or guarantees for the
benefit of, (ii) purchase, defease, redeem or otherwise acquire or retire for
value any securities of or (iii) make any other investment in any person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company, for the purpose of, or to enable the payment
of, directly or indirectly, dividends on any equity security of DTE Energy
Company and
A-5
<PAGE> 21
its successors or assigns. During any Deferral Period, the Company may continue
to extend the interest payment period by extending the Deferral Period, provided
that the aggregate Deferral Period, as extended, must end on an Interest Payment
Date and in no event shall the aggregate Deferral Period exceed 20 consecutive
quarterly interest payment periods or extend beyond the maturity of the Notes or
any date on which any of the Notes are fixed for redemption. No interest shall
be due and payable on the Notes during a Deferral Period except at the end
thereof. The Company shall give the registered holders of Notes notice of its
election to defer interest payments or to extend the Deferral Period ten
Business Days prior to the earlier of (i) the next scheduled quarterly payment
date or (ii) the date the Company is required to give notice of the record date
of such related interest payment to the New York Stock Exchange or other
applicable self-regulatory organization or to the holders of the Notes, but in
any event not less than two Business Days prior to such record date.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note is registrable in the Security Register of
the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company in any place where the principal of and any
interest on this Note are payable or at such other offices or agencies as the
Company may designate, duly endorsed by or accompanied by a written instrument
or instruments of transfer in form satisfactory to the Company and the Security
Registrar or any transfer agent duly executed by the registered holder hereof or
his or her attorney duly authorized in writing, and thereupon one or more new
Notes of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount will be issued to the designated transferee or
transferees. No service charge will be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Note, the
Company, the Trustee, any paying agent and any Note Registrar may deem and treat
the registered holder hereof as the absolute owner hereof (whether or not this
Note shall be overdue and notwithstanding any notice of ownership or writing
hereon made by anyone other than the Note Registrar) for the purpose of
receiving payment of or on account of the principal hereof and interest due
hereon and for all other purposes, and neither the Company nor the Trustee nor
any paying agent nor any Note Registrar shall be affected by any notice to the
contrary.
The Notes of this series are issuable only in fully registered form
without coupons in denominations of $25 and any integral multiple thereof. This
Global Note is exchangeable for Notes in definitive form only under certain
limited circumstances set forth in the Indenture. Notes of this series so issued
are issuable only in registered form without coupons in denominations of $25 and
any integral multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, Notes of this series are exchangeable for
a like aggregate principal amount of Notes of this series of a different
authorized denomination, as requested by the registered holder surrendering the
same.
As set forth in, and subject to the provisions of, the Indenture, no
registered owner of any Note will have any right to institute any proceeding
with respect to the Indenture or for any
A-6
<PAGE> 22
remedy thereunder, unless (i) such registered owner shall have previously given
to the Trustee written notice of a continuing Event of Default with respect to
the Notes of this series, (ii) the registered owners of not less than 25% in
principal amount of the outstanding Notes of this series shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, (iii) the Trustee shall have failed to institute such
proceeding within 60 days and (iv) the Trustee shall not have received from the
registered owners of a majority in principal amount of the outstanding Notes of
this series a direction inconsistent with such request within such 60-day
period; provided, however, that such limitations do not apply to a suit
instituted by the registered owner hereof for the enforcement of payment of the
principal of or any interest on this Note on or after the respective due dates
expressed herein, subject to deferral as set forth herein.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
A-7
<PAGE> 23
IN WITNESS WHEREOF, the Company has caused this Instrument to be
executed.
THE DETROIT EDISON COMPANY
By
----------------------------
Attest:
By
----------------------
[Corporate Seal]
CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series of Notes described in the within
mentioned Indenture.
BANKERS TRUST COMPANY
as Trustee
By
----------------------------
Authorized Signatory
Date:
A-8
<PAGE> 24
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
- --------------------------------------------------------------------------------
(Please insert Social Security or Other Identifying Number of Assignee)
- --------------------------------------------------------------------------------
(Please print or type name and address, including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing such person attorneys to transfer the within Note on the books of the
Issuer, with full power of substitution in the premises.
Dated:
----------------------
NOTICE: The signature of this assignment must correspond with the name as
written upon the face of the within Note in every particular, without alteration
or enlargement or any change whatever and NOTICE: Signature(s) must be
guaranteed by a financial institution that is a member of the Securities
Transfer Agents Medallion Program ("STAMP"), the Stock Exchange, Inc. Medallion
Signature Program ("MSP"). When assignment is made by a guardian, trustee,
executor or administrator, an officer of a corporation, or anyone in a
representative capacity, proof of his or her authority to act must accompany
this Note.
A-9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.199
<SEQUENCE>3
<DESCRIPTION>$300,000,000 SUPPORT AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 4-199
SUPPORT AGREEMENT
BETWEEN
DTE ENERGY COMPANY
AND
DTE CAPITAL CORPORATION
THIS SUPPORT AGREEMENT, dated as of November 18, 1998, is between
DTE ENERGY COMPANY, a Michigan corporation ("Parent"), and DTE CAPITAL
CORPORATION, a Michigan corporation ("Subsidiary").
WHEREAS, Parent is the owner of 100% of the outstanding common
stock of Subsidiary;
WHEREAS, Subsidiary intends to issue $300,000,000 aggregate
principal amount of debt securities (hereinafter referred to as the "Debt
Securities," and such amount and all interest and other amounts, if any, payable
with respect thereto being hereinafter collectively referred to as "Debt") to
parties other than Parent pursuant to the Indenture dated as of June 15, 1998
(as amended or supplemented with respect to the Debt Securities, the
"Indenture") between Subsidiary and The Bank of New York (or any successor or
replacement trustee), as trustee (the "Trustee");
WHEREAS, Parent and Subsidiary desire to take certain actions to
enhance and maintain the financial condition of Subsidiary as hereinafter set
forth in order to enable Subsidiary and its subsidiaries to incur indebtedness
on more advantageous and reasonable terms; and
WHEREAS, the Lenders (as defined below) will rely upon this
Agreement in making loans or extending credit or otherwise acquiring Debt
Securities of Subsidiary.
NOW THEREFORE, in consideration of the premises, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Stock Ownership. During the term of this Agreement, Parent will
own directly or indirectly all of the voting common stock of Subsidiary and The
Detroit Edison Company ("DECO") now or hereafter issued and outstanding.
2. Negative Pledge. During the term of this Agreement, Parent will
not create or suffer to exist any lien, security interest or other charge of
encumbrance, upon or with respect to any voting common stock of DECO from time
to time owned directly or indirectly by Parent or any capital stock of
Subsidiary from time to time owned directly or indirectly by Parent, provided,
however, that any restriction on the payment of dividends by DECO or Subsidiary
<PAGE> 2
contained in any subordinated debt instrument, preferred stock or preference
stock of DECO or Subsidiary shall not constitute a lien, security interest or
other charge or encumbrance.
3. Liquidity Provision. If, during the term of this Agreement,
Subsidiary is unable to make timely payment on the relevant payment date of
interest, principal or premium, if any, on, or other amounts due in respect of,
all or any portion of the Debt Securities issued by it or related Debt, Parent
promptly shall provide to Subsidiary, at its request, such funds (in the form of
cash or liquid assets) in an amount sufficient to permit Subsidiary to make
timely payment on the relevant payment date in respect of such Debt as equity or
as a loan, as Parent shall determine in its sole discretion. If such funds are
advanced to Subsidiary as a loan, such loan shall be on such terms and
conditions, including maturity and rate of interest, as Parent and Subsidiary
shall agree. Notwithstanding the foregoing, any such loan shall be subordinated
to any and all debt of Subsidiary owing to any lender (including any Lender)
other than Parent. Each of the parties hereto acknowledges that Parent's
obligations hereunder do not constitute a guarantee by Parent of Debt of
Subsidiary. As used herein, the term "Lender" shall mean (i) any person, firm,
corporation or other entity to which Subsidiary is indebted for any Debt or
which is acting as the Trustee or a trustee or authorized representative on
behalf of such person, firm corporation or other entity or which is acting as
MAPS Agent (as defined in the Indenture), and (ii) Salomon Smith Barney Inc.,
Chase Securities Inc., Barclays Capital Inc. and First Chicago Capital Markets,
Inc., and their respective successors (collectively, the "Initial Purchasers"),
with respect to Debt owing by Subsidiary to the Initial Purchasers in accordance
with the terms of that certain Purchase Agreement, dated as of November 18,
1998, relating to the Debt Securities; provided that, notwithstanding the
foregoing, the claims of the Initial Purchasers shall be subordinated to the
claims of the holders of the Debt Securities hereunder.
4. Waivers. Parent hereby waives any failure or delay on the part
of Subsidiary in asserting or enforcing any of its rights or in making any
claims or demands hereunder. Subsidiary or any Lender may at any time, without
Parent's consent, without notice to Parent and without affecting or impairing
Subsidiary's or such Lender's rights or Parent's obligations hereunder, do any
of the following with respect to any Debt: (a) make changes, modifications,
amendments or alterations, by operation of law or otherwise, including, without
limitation, any changes in the rate of interest payable thereon or any changes
in the method of calculating the rate of interest payable thereon, (b) grant
renewals and extensions and extensions of time, for payment or otherwise, (c)
accept new or additional documents, instruments or agreements relating to or in
substitution of said Debt, or (d) otherwise handle the enforcement of their
respective rights and remedies in accordance with their business judgment.
5. Amendment; Suspension. This Agreement may be amended or
terminated at any time by written amendment or agreement signed by both parties;
provided that such amendment or termination does not adversely affect the rights
of the Initial Purchasers; and provided further, however, that except as set
forth in the next succeeding sentence, no amendment to the Agreement which
adversely affects the rights of Subsidiary or any Lender and no termination of
this Agreement shall be effective as to Subsidiary or any Lender until such time
as all Debt owing to such Lender by Subsidiary on the date of such amendment or
termination shall have
2
<PAGE> 3
been paid in full, unless such Lender shall consent in writing to the contrary.
Notwithstanding the foregoing, (A) upon not less than 30 days prior notice to
the applicable Remarketing Agent and the Trustee, Subsidiary and Parent may
amend this Agreement (subject to the proviso that such amendment shall not
adversely affect the rights of the Initial Purchasers) on any Interest Rate
Adjustment Date (as defined in the Indenture) for Debt Securities, effective
commencing on such Interest Rate Adjustment Date; provided that such amendment
shall not be applicable to such Debt Securities until after the Debt Securities
have been tendered for remarketing and successfully remarketed on such Interest
Rate Adjustment Date; and provided further that no such amendment shall be of
such nature as would require (i) registration or re-registration of the Debt
Securities under the Securities Act of 1933, as amended (the "Securities Act"),
unless Subsidiary has a registration statement under the Securities Act
effective with respect thereto or (ii) registration of Subsidiary under the
Investment Company Act of 1940, as amended, and (B) Parent's obligations under
this Agreement shall be suspended and shall be of no force and effect as to the
parties hereto and as to all Lenders if and for so long as (i) Subsidiary shall
have a long-term debt rating of not less than "A-" from Standard & Poor's
Ratings Services or its successor or a long-term debt rating of not less than
"A3" from Moody's Investors Service, Inc. or its successor and (ii) Parent shall
have submitted a written request to Subsidiary that its obligations under this
Agreement be so suspended (with a copy to the Trustee, if applicable) and shall
not have revoked such request in writing. Parent covenants that it will revoke
any such request to the extent that the suspension of Parent's obligations under
this Agreement has an adverse effect on any debt rating of Subsidiary. For
purposes of this Section 5, ratings shall be based upon unsecured non-credit
enhanced debt of Subsidiary.
6. Rights of Lenders. Subsidiary hereby assigns and pledges to the
Lenders, for the ratable benefit of each Lender (subject to the subordination of
claims of the Initial Purchasers pursuant to Section 3 hereof), Subsidiary's
right under Sections 1, 2, 3 and 4 of this Agreement, and, if Subsidiary fails
or refuses to take timely action to enforce its rights under Section 1, 2, 3 or
4 of this Agreement, any Lender may enforce such rights on behalf of Subsidiary
directly against Parent. Parent hereby consents to such assignment and pledge.
This assignment and pledge secures all obligations of Subsidiary under the Debt.
Subsidiary and Parent agree, for the benefit of the Lenders to execute and
deliver all further instruments and documents, and take all further action, that
the Lenders may request in order to perfect and protect any security interest
purported to be granted hereby or to enable the Lenders to enforce their rights
and remedies hereunder.
7. Parity. Parent's obligations hereunder shall be pari passu with
Parent's obligations under any existing as well as additional "make-well,"
"keep-well" or support agreements (that are not by their terms subordinated) as
are entered into between Parent and Subsidiary from time to time.
8. Notices. Any notice, instruction, request, consent, demand or
other communication required or contemplated by this Agreement shall be in
writing, shall be given or made by United States first class mail, telex,
facsimile transmission or hand delivery, addressed as follows:
3
<PAGE> 4
If to Parent: 2000 2nd Avenue
Detroit, Michigan 48226-1279
Attention: Assistant Treasurer-Banking
If to Subsidiary: 2000 2nd Avenue
Detroit, Michigan 48226-1279
Attention: Assistant Treasurer
9. Successors. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns and is also intended for the
benefit of Lenders, and, notwithstanding that such Lenders are not parties
hereto, each Lender shall be entitled to the full benefits of this Agreement and
to enforce the covenants and agreements contained herein as set forth in Section
6. This Agreement is not intended for the benefit of any person other than
Lenders and shall not confer or be deemed to confer upon any such person any
benefits, rights or remedies hereunder.
10. Governing Law. This Agreement shall be governed by the laws of
the State of New York.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
duly executed as of the day and year first above written.
DTE ENERGY COMPANY
By:______________________________
Name:
Title:
DTE CAPITAL CORPORATION
By:______________________________
Name:
Title:
5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.200
<SEQUENCE>4
<DESCRIPTION>SECOND SUPPLEMENTAL INDENTURE
<TEXT>
<PAGE> 1
EXHIBIT 4.200
================================================================================
DTE CAPITAL CORPORATION
AND
THE BANK OF NEW YORK
Trustee
-----------
SECOND SUPPLEMENTAL INDENTURE
Dated as of November 1, 1998
Supplementing the Indenture
Dated as of June 15, 1998
----------------
$300,000,000
Remarketed Notes, 1998 Series B
================================================================================
<PAGE> 2
SECOND SUPPLEMENTAL INDENTURE, dated as of the 1st day of
November, 1998, between DTE CAPITAL CORPORATION, a corporation organized and
existing under the laws of the State of Michigan (the "Company"), and THE BANK
OF NEW YORK, a New York banking corporation, having its principal corporate
trust office in The City of New York, New York, as trustee (the "Trustee");
WHEREAS, the Company has heretofore executed and delivered to
the Trustee an Indenture dated as of June 15, 1998 and a First Supplemental
Indenture dated as of June 15, 1998 (the "Original Indenture" and, together with
this Second Supplemental Indenture, the "Indenture") providing for the issuance
by the Company from time to time of its debt securities to be issued in one or
more series (in the Original Indenture and herein called the "Securities"); and
WHEREAS, the Company, in the exercise of the power and
authority conferred upon and reserved to it under the provisions of the Original
Indenture, including Section 901 thereof, and pursuant to appropriate
resolutions of the Board of Directors, has duly determined to make, execute and
deliver to the Trustee this Second Supplemental Indenture to the Original
Indenture as permitted by Sections 201 and 301 of the Original Indenture in
order to establish the form or terms of, and to provide for the creation and
issue of, a series of Securities under the Original Indenture in the aggregate
principal amount of up to $300,000,000; and
WHEREAS, all things necessary to make the Securities, when
executed by the Company and authenticated and delivered by the Trustee or any
Authenticating Agent and issued upon the terms and subject to the conditions
hereinafter and in the Original Indenture set forth against payment therefor,
the valid, binding and legal obligations of the Company and to make this Second
Supplemental Indenture a valid, binding and legal agreement of the Company, have
been done;
NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH
that, in order to establish the terms of a series of Securities, and for and in
consideration of the premises and of the covenants contained in the Original
Indenture and in this Second Supplemental Indenture and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, it is mutually covenanted and agreed as follows:
ARTICLE ONE
DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions. Each capitalized term that is used
herein and is defined in the Original Indenture shall have the meaning specified
in the Original Indenture unless such term is otherwise defined herein.
"Administrative Agent" means the entity designated as such in
the applicable Standby Note Purchase Agreement, if any.
<PAGE> 3
"Base Rate" means the interest rate established by the MAPS4
Agent, after consultation with the Company, as the applicable "Base Rate" at or
prior to the commencement of the MAPS Mode and set forth on Annex A to the
applicable Note.
"Beneficial Owner" means, for Notes in book-entry form, the
person who acquires an interest in the Notes which is reflected on the records
of DTC through its participants.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions located in the State
of Michigan or in the state in which the principal corporate trust office of the
Trustee is located are authorized or obligated by or pursuant to law or
executive order to close; provided, however, that with respect to Notes in the
Long Term Rate Mode or the MAPS Mode as to which LIBOR is an applicable Interest
Rate Basis, such day is also a London Business Day (as hereinafter defined).
"London Business Day" means a day on which commercial banks are open for
business (including for dealings in the Index Currency (as hereinafter defined)
in London.
"Calculation Agent" has the meaning specified in Section 204
hereof.
"Calculation Date" has the meaning set forth in Section 204
hereof.
"CD Rate" has the meaning specified in Section 204 hereof.
"Commercial Paper Term Mode" means, with respect to any Note,
the Interest Rate Mode in which the interest rate on such Note is reset on a
periodic basis which shall not be less than one calendar day nor more than 364
consecutive calendar days and interest is paid as provided for such Interest
Rate Mode in Section 204 hereof.
"Commercial Paper Term Period" means an Interest Rate Period
of not less than one calendar day nor more than 364 consecutive calendar days,
as determined by the Company, or if not so determined, by the Remarketing Agent.
"Conversion Date" has the meaning set forth in Section 205(d)
hereof.
"Conversion Notice" means a notice, promptly confirmed in
writing in substantially the form of Exhibit H hereto (which includes facsimile
or appropriate electronic media) from the Company, that sets forth the
applicable Note to which it relates, the new Interest Rate Mode (if applicable),
the new Interest Rate Period, the Conversion Date, and with respect to any Long
Term Rate Period, any optional redemption or repayment terms for such Note.
- --------------------
MAPS4 is a servicemark of Salomon Smith Barney Inc.
2
<PAGE> 4
"Determination Date" means the third Business Day preceding
the applicable MAPS Remarketing Date.
"DTC" has the meaning specified in Section 203 hereof.
"DTE Energy" means DTE Energy Company, a Michigan corporation
and the owner, directly or indirectly, of 100% of the outstanding common stock
of the Company.
"Floating Interest Rate Notice" has the meaning specified in
Section 204 hereof. The form of Floating Rate Interest Notice is set forth as
Exhibit G to this Second Supplemental Indenture.
"Floating Rate Maximum Interest Rate" and "Floating Rate
Minimum Interest Rate" have the respective meanings specified in Section 204
hereof.
"Index Maturity" means the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
"Initial Interest Rate" means the annual rate of interest
applicable to the Notes during the Initial Interest Rate Period.
"Initial Interest Rate Adjustment Date" means November 15,
2003.
"Initial Interest Rate Period" means the period commencing on
the date of issuance for the Notes and ending on the Business Day immediately
preceding the Initial Interest Rate Adjustment Date.
"Insurer" means such issuer of a financial guaranty insurance
policy in respect of the Notes as may be purchased by the Company from time to
time.
"Interest Determination Date" has the meaning specified in
Section 204 hereof.
"Interest Rate Adjustment Date" means, for a particular
Interest Rate Period in any Interest Rate Mode, each date, which shall be a
Business Day, on which interest and, in the case of a floating interest rate,
the Spread (if any) and the Spread Multiplier (if any) on the Notes subject
thereto commences to accrue at the rate determined and announced by the
applicable Remarketing Agent for such Interest Rate Period and for Notes bearing
interest at the Initial Interest Rate (as hereinafter defined), the Business Day
following the expiration of the Initial Interest Rate Period (as hereinafter
defined).
"Interest Rate Basis" has the meaning specified in Section 204
hereof.
"Interest Rate Mode" means the mode in which the Interest Rate
on a Note is being determined, i.e., the Commercial Paper Term Mode, the Long
Term Rate Mode or the MAPS Mode.
"Interest Rate Period" means, with respect to any Note in the
Commercial Paper Mode or Long Term Rate Mode, the period of time commencing on
the Interest Rate Adjustment
3
<PAGE> 5
Date to, but not including, the immediately succeeding Interest Rate Adjustment
Date during which such Note bears interest at a particular fixed interest rate
or floating interest rate, and with respect to any Note in the MAPS Mode, a MAPS
Rate Period.
"Interest Reset Date", "Initial Interest Reset Date" and
"Interest Reset Period" have the respective meanings specified in Section 204
hereof.
"Liquidity Provider" means, any bank or other credit provider
whose obligations such as those under the applicable Standby Note Purchase
Agreement with respect to any Notes are exempt from registration under the
Securities Act of 1933, as amended, with long term senior debt ratings from
Standard & Poor's Ratings Services and Moody's Investors Service, Inc. at least
equal to those of the Company as of the date of the Standby Note Purchase
Agreement, and a minimum combined capital and surplus of at least $50,000,000,
that has entered into a Standby Note Purchase Agreement with the Company for the
purpose of purchasing unremarketed Notes on any Interest Rate Adjustment Date.
"Long Term Rate Mode" means, with respect to any Note, the
Interest Rate Mode in which the interest rate on such Note is reset in a Long
Term Rate Period and interest is paid as provided for such Interest Rate Mode in
Section 204 hereof.
"Long Term Rate Period" means, with respect to any Note, any
period of more than 364 days and not exceeding the remaining term to the Stated
Maturity of such Note.
"MAPS Agent", or such other designation as may be used at the
time of remarketing, means such Remarketing Agent as the Company may appoint
from time to time for the purpose of remarketing Notes in the MAPS Mode.
"MAPS Mode", or such other designation as may be used at the
time of remarketing, means, with respect to any Note, the Interest Rate Mode in
which such Note shall bear interest and be subject to remarketing as "MAndatory
Putable remarketable Securities" (or such other designation as may be used at
the time of remarketing) ("MAPS") as provided for in Article Three hereof.
"MAPS Rate Period", or such other designation as may be used
at the time of remarketing, means an Interest Rate Period for any Note in the
MAPS Mode established by the Company as a period of more than 364 days and not
exceeding the remaining term to the Stated Maturity of such Note; provided,
however, that such Interest Rate Period must end on the day prior to an Interest
Payment Date for such Note. The MAPS Rate Period shall consist of the period to
and excluding the MAPS Remarketing Date and the period from and including the
MAPS Remarketing Date to but excluding the next succeeding Interest Rate
Adjustment Date.
"MAPS Remarketing Agreement", or such other designation as may
be used at the time of remarketing, shall mean the agreement dated as of the
Interest Rate Adjustment Date commencing the applicable MAPS Rate Period which
sets forth the rights and obligations of the Company and the applicable MAPS
Agent with respect to the remarketing of the MAPS.
"MAPS Remarketing Date", or such other designation as may be
used at the time of remarketing, means the date designated by the applicable
MAPS Agent after consultation with
4
<PAGE> 6
the Company, upon which the applicable MAPS Agent may elect to remarket the
Notes at the MAPS Interest Rate.
"Notes" or "Note" have the meaning specified in Section 201.
"Notification Date" means the Business Day not later than ten
(10) days prior to the applicable MAPS Remarketing Date on which the MAPS Agent
gives notice to the Company and the Trustee of its intention to purchase the
Notes for remarketing.
"Optional Redemption" means the redemption of any Note prior
to its maturity at the option of the Company as described herein.
"Optional Redemption Price" has the meaning set forth in
Section 304(c) hereof.
"Policy" means such financial guaranty insurance policy as may
be purchased by the Company from an Insurer from time to time in the form
attached as Exhibit F hereto or such other form as may be adopted in any manner
consistent with the requirements of this Second Supplemental Indenture and the
Original Indenture.
"Principal Financial Center" means, except as otherwise
specified in the applicable Floating Interest Rate Notice, the capital city of
the country issuing the Index Currency, except that with respect to United
States dollars, Australian dollars, Canadian dollars, Deutsche marks, Dutch
guilders, Portuguese escudos, Italian lire, South African rand, and Swiss
francs, the Principal Financial Center will be The City of New York, Sydney,
Toronto, Frankfurt, Amsterdam, London, Milan, Johannesburg and Zurich,
respectively.
"Remarketing Agent" means such agent or agents, including any
standby remarketing agent (each a "Standby Remarketing Agent"), as the Company
may appoint from time to time for the purpose of remarketing of the Notes, as
set forth in the remarketing agreement which the Company shall enter into prior
to the remarketing of such Notes.
"Special Interest Rate" means the rate of interest equal to
the rate per annum announced by Citibank, N.A., or such other nationally
recognized bank located in the United States as the Company may select, as its
prime lending rate.
"Special Mandatory Purchase" means the obligation of the
Company (or, if applicable, a Liquidity Provider) to purchase Notes not
successfully remarketed by the Remarketing Agent and the applicable Standby
Remarketing Agent(s) by 12:00 o'clock noon, New York City time, on any Interest
Rate Adjustment Date.
"Spread" means, with respect to any Note, the number of basis
points to be added to or subtracted from the related Interest Rate Basis or
Bases applicable to an Interest Rate Period for such Note.
"Spread Multiplier" means the percentage of the related
Interest Rate Basis or Bases applicable to an Interest Rate Period by which such
Interest Rate Basis or Bases will be multiplied to determine the applicable
interest rate from time to time for an Interest Rate Period.
5
<PAGE> 7
"Standby Note Purchase Agreement" means the agreement, which
the Company may, at its option, enter into from time to time with a Liquidity
Provider for the purpose of purchasing unremarketed Notes.
"Weekly Rate Period" means a Commercial Paper Term Period with
an Interest Rate Period of generally seven days.
Section 102. Section References. Each reference to a
particular section set forth in this Second Supplemental Indenture shall, unless
the context otherwise requires, refer to this Second Supplemental Indenture.
ARTICLE TWO
TITLE, RANKING AND TERMS OF THE NOTES
Section 201. Title and Ranking of the Notes. This Second
Supplemental Indenture hereby establishes a series of senior Securities
designated as the "Remarketed Notes, 1998 Series B" of the Company (referred to
herein as the "Notes"), and shall rank equally with each other and all other
senior and unsubordinated indebtedness of the Company. For purposes of the
Original Indenture, the Notes shall constitute a single series of Securities.
Section 202. Variations in Terms of Notes. Subject to the
terms and conditions set forth in the Original Indenture and in this Second
Supplemental Indenture, the terms of any particular Note may vary from the terms
of any other Note as contemplated by Section 301. of the Original Indenture, and
the terms for a particular Note will be set forth in such Note as delivered to
the Trustee or an Authenticating Agent for authentication pursuant to Section
303. of the Original Indenture.
Section 203. Amount and Denominations; DTC. The aggregate
principal amount of Notes that may be issued under this Second Supplemental
Indenture is limited to $300,000,000.
The Notes shall be issuable only in fully registered form and
will initially be registered in the name of The Depository Trust Company, as
depositary ("DTC"), or its nominee who is hereby designated as "U.S. Depositary"
under the Original Indenture. The authorized denominations of Notes shall be
$100,000 and integral multiples of $1,000 in excess thereof.
Section 204. Interest, Interest Rates and Interest Rate Modes.
The Notes will initially bear interest at the Initial Interest Rate as set forth
on Annex A thereof for the Initial Interest Rate Period. Thereafter, each Note
at the option of the Company will bear interest in the Commercial Paper Term
Mode, the Long Term Rate Mode or the MAPS Mode. Each Note may bear interest for
designated Interest Rate Periods in the same or a different Interest Rate Mode
from other Notes. The interest rate for the Notes will be established
periodically as described herein by the applicable Remarketing Agent.
Interest will be payable on any Note at Maturity and (i) in
the Initial Interest Rate Period, on the date or dates set forth on Annex A
thereto; (ii) for any Interest Rate Period in the
6
<PAGE> 8
Commercial Paper Term Mode, on the Interest Rate Adjustment Date commencing the
next succeeding Interest Rate Period for such Note and on such other dates (if
any) as will be established upon conversion of such Note to the Commercial Paper
Term Mode or upon remarketing of the Note in a new Interest Rate Period in the
Commercial Paper Term Mode and set forth in the applicable Note; and (iii) in
the Long Term Rate Mode or MAPS Mode, no less frequently than semiannually on
such dates as will be established upon conversion of such Note to the Long Term
Rate Mode or the MAPS Mode (or upon remarketing of the Note in a new Interest
Rate Period in the Long Term Rate Mode or the MAPS Mode, as the case may be) and
set forth in the applicable Note in the case of a fixed interest rate, or as
described below under "Floating Interest Rates" in the case of a floating
interest rate, and on the Interest Rate Adjustment Date commencing the next
succeeding Interest Rate Period. Such interest will be payable to the Holder
thereof as of the related Record Date, which, for any Note (x) in the Initial
Interest Rate Period, is the date or dates set for therein; (y) in the
Commercial Paper Term Mode, is the Business Day prior to the related Interest
Payment Date; and (z) bearing interest in the Long Term Rate Mode or the MAPS
Mode, is 15 days prior to the related Interest Payment Date. Except as provided
below under "Floating Interest Rates," if any Interest Payment Date would
otherwise be a day that is not a Business Day, such Interest Payment Date will
be postponed to the next succeeding Business Day, and no interest will accrue on
such payment for the period from and after such Interest Payment Date to the
date of such payment on the next succeeding Business Day. Interest on Notes
bearing interest in the Commercial Paper Term Mode or at a floating interest
rate during an Interest Rate Period in the Long Term Rate Mode or the MAPS Mode
will be computed on the basis of actual days elapsed over 360; provided that, if
an applicable Interest Rate Basis is the CMT Rate or Treasury Rate (each as
defined below), interest will be computed on the basis of actual days elapsed
over the actual number of days in the year. Interest on Notes bearing interest
at a fixed rate in the Long Term Rate Mode or MAPS Mode will be computed on the
basis of a year of 360 days consisting of twelve 30-day months. Interest on
Notes at the Initial Interest Rate will be computed on the basis of a year of
360 days consisting of twelve 30-day months.
Determination of Interest Rates.
General. The interest rate and, in the case of a floating
interest rate, the Spread (if any) and the Spread Multiplier (if any) for any
Note will be established by the applicable Remarketing Agent in a remarketing as
described in Section 207 hereof or otherwise not later than each Interest Rate
Adjustment Date for such Note as the minimum rate of interest and, in the case
of a floating interest rate, Spread (if any) and Spread Multiplier (if any)
necessary in the judgment of such Remarketing Agent to produce a par bid in the
secondary market for such Note on the date the interest rate is established.
Such rate will be effective for the next succeeding Interest Rate Period for
such Note commencing on such Interest Rate Adjustment Date.
In the event that (i) the applicable Remarketing Agent has
been removed or has resigned and no successor has been appointed, or (ii) such
Remarketing Agent has failed to announce the appropriate interest rate, Spread,
if any, or Spread Multiplier, if any, as the case may be, on the Interest Rate
Adjustment Date for any Note for whatever reason, or (iii) the appropriate
interest rate, Spread, if any, or Spread Multiplier, if any, as the case may be,
or Interest Rate Period cannot be determined for any Note for whatever reason,
then such Note shall be automatically converted to the Commercial Paper Term
Mode with a Weekly Rate Period,
7
<PAGE> 9
determined as provided below under "Interest Rate Modes - Commercial Paper Term
Period", and the rate of interest thereon shall be equal to the Special Interest
Rate.
The Trustee shall, upon request of any Beneficial Owner of a
Note, advise such Beneficial Owner or the applicable Remarketing Agent of the
interest rate and, in the case of a floating interest rate, the Interest Rate
Basis or Bases, Spread (if any) and Spread Multiplier (if any), and in each case
the other terms applicable to such Beneficial Owner's Notes for the next
Interest Rate Period. Neither the Trustee nor the Company will otherwise be
required to advise Beneficial Owners of the applicable interest rate. The
interest rate and other terms announced by the Remarketing Agent, absent
manifest error, will be binding and conclusive upon the Beneficial Owners, the
Company and the Trustee.
Floating Interest Rates.
While any Note bears interest in the Long Term Rate Mode or
the MAPS Mode (with respect to the period from, and including, the Interest Rate
Adjustment Date commencing such period to, but excluding, the MAPS Remarketing
Date), the Company may elect a floating interest rate by providing notice, which
will be in or promptly confirmed in writing (which includes facsimile or
appropriate electronic media), received by the Trustee and the Remarketing Agent
for such Note (the "Floating Interest Rate Notice") not less than ten (10) days
prior to the Interest Rate Adjustment Date for such Long Term Rate Period or
MAPS Rate Period. The Floating Interest Rate Notice must identify by CUSIP
number or otherwise the portion of the Note to which it relates and state the
Interest Rate Period (or portion thereof, in the case of the MAPS Mode) therefor
to which it relates. Each Floating Interest Rate Notice must also state the
Interest Rate Basis or Bases, the Initial Interest Reset Date, the Interest
Reset Period and Dates, the Interest Payment Period and Dates, the Index
Maturity and the Floating Rate Maximum Interest Rate and/or Floating Rate
Minimum Interest Rate, if any. If one or more of the applicable Interest Rate
Bases is LIBOR or the CMT Rate, the Floating Interest Rate Notice shall also
specify the Index Currency and Designated LIBOR Page or the Designated CMT
Maturity Index and Designated CMT Telerate Page, respectively.
If any Note bears interest at a floating rate in a Long Term
Rate Period or MAPS Rate Period, such Note shall bear interest at the rate
determined by reference to the applicable Interest Rate Basis or Bases (a) plus
or minus the Spread, if any, and/or (b) multiplied by the Spread Multiplier, if
any, specified by the Remarketing Agent, in the case of a Long Term Rate Period,
or the MAPS Agent, in the case of a MAPS Rate Period, and recorded in Annex A to
such Note. Commencing on the Interest Rate Adjustment Date for such Interest
Rate Period, the rate at which interest on such Note shall be payable shall be
reset as of each Interest Reset Date during such Interest Rate Period specified
in the applicable Floating Interest Rate Notice.
The applicable floating interest rate on any Note during any
Interest Rate Period will be determined by reference to the applicable Interest
Rate Basis or Interest Rate Bases, which may include (i) the CD Rate, (ii) the
CMT Rate, (iii) the Federal Funds Rate, (iv) LIBOR, (v) the Prime Rate, (vi) the
Treasury Rate, or (vii) such other Interest Rate Basis or interest rate formula
as may be specified in the applicable Floating Interest Rate Notice (each, an
"Interest Rate Basis").
8
<PAGE> 10
Unless otherwise specified in the applicable Floating Interest
Rate Notice, the interest rate with respect to each Interest Rate Basis will be
determined in accordance with the applicable provisions below. Except as set
forth above or in the applicable Floating Interest Rate Notice, the interest
rate in effect on each day shall be (i) if such day is an Interest Reset Date,
the interest rate determined as of the Interest Determination Date immediately
preceding such Interest Reset Date or (ii) if such day is not an Interest Reset
Date, the interest rate determined as of the Interest Determination Date
immediately preceding the most recent Interest Reset Date. If any Interest Reset
Date would otherwise be a day that is not a Business Day, such Interest Reset
Date will be postponed to the next succeeding Business Day, unless LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, in which case such Interest Reset Date will be the
immediately preceding Business Day. In addition, if the Treasury Rate is an
applicable Interest Rate Basis and the Interest Determination Date would
otherwise fall on an Interest Reset Date, then such Interest Reset Date will be
postponed to the next succeeding Business Day.
The applicable Floating Interest Rate Notice will specify
whether the rate of interest will be reset daily, weekly, monthly, quarterly,
semiannually or annually or on such other specified basis (each, an "Interest
Reset Period") and the dates on which such rate of interest will be reset (each,
an "Interest Reset Date"). Unless otherwise specified in the applicable Floating
Interest Rate Notice, the Interest Reset Dates will be, in the case of a
floating interest rate which resets: (i) daily, each Business Day; (ii) weekly,
the Wednesday of each week (unless the Treasury Rate is an applicable Interest
Rate Basis, in which case the Tuesday of each week except as described below);
(iii) monthly, the third Wednesday of each month; (iv) quarterly, the third
Wednesday of March, June, September and December of each year, (v) semiannually,
the third Wednesday of the two months specified in the applicable Floating
Interest Rate Notice; and (vi) annually, the third Wednesday of the month
specified in the applicable Floating Interest Rate Notice.
The interest rate applicable to each Interest Reset Period
commencing on the related Interest Reset Date will be the rate determined as of
the applicable Interest Determination Date. The "Interest Determination Date"
with respect to the CD Rate, the CMT Rate, the Federal Funds Rate and the Prime
Rate will be the second Business Day immediately preceding the applicable
Interest Reset Date; and the "Interest Determination Date" with respect to LIBOR
shall be the second London Business Day immediately preceding the applicable
Interest Reset Date, unless the Index Currency is British pounds sterling, in
which case the "Interest Determination Date" will be the applicable Interest
Reset Date. The "Interest Determination Date" with respect to the Treasury Rate
shall be the day in the week in which the applicable Interest Reset Date falls
on which day Treasury Bills (as defined below) are normally auctioned (Treasury
Bills are normally sold at an auction held on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, except that such auction may be held on the preceding
Friday); provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the "Interest Determination Date"
shall be such preceding Friday. If the interest rate of any Note is a floating
interest rate determined with reference to two or more Interest Rate Bases
specified in the applicable Floating Interest Rate Notice, the "Interest
Determination Date" pertaining to the Note shall be the most recent Business Day
which is at least two Business Days prior to the applicable Interest Reset Date
on which each Interest Rate Basis is determinable. Each Interest Rate Basis
9
<PAGE> 11
shall be determined as of such date, and the applicable interest rate shall take
effect on the related Interest Reset Date.
Either or both of the following may also apply to the floating
interest rate on any Note for an Interest Rate Period: (i) a floating rate
maximum interest rate, or ceiling, that may accrue during any Interest Reset
Period (the "Floating Rate Maximum Interest Rate") and (ii) a floating rate
minimum interest rate, or floor, that may accrue during any Interest Reset
Period (the "Floating Rate Minimum Interest Rate"). In addition to any Floating
Rate Maximum Interest Rate that may apply, the interest rate on any Note will in
no event be higher than the maximum rate permitted by New York law, as the same
may be modified by United States laws of general application.
Except as provided below or in the applicable Floating
Interest Rate Notice, interest will be payable, in the case of floating interest
rates which reset: (i) daily, weekly or monthly, on the third Wednesday of each
month or on the third Wednesday of March, June, September and December of each
year, as specified in the applicable Floating Interest Rate Notice; (ii)
quarterly, on the third Wednesday of March, June, September and December of each
year; (iii) semiannually, on the third Wednesday of the two months of each year
specified in the applicable Floating Interest Rate Notice; and (iv) annually, on
the third Wednesday of the month of each year specified in the applicable
Floating Interest Rate Notice and, in each case, on the Business Day immediately
following the applicable Long Term Rate Period or MAPS Rate Period, as the case
may be. If any Interest Payment Date for the payment of interest at a floating
rate (other than following the end of the applicable Long Term Rate Period or
MAPS Rate Period, as the case may be) would otherwise be a day that is not a
Business Day, such Interest Payment Date will be postponed to the next
succeeding Business Day, except that if LIBOR is an applicable Interest Rate
Basis and such Business Day falls in the next succeeding calendar month, such
Interest Payment Date will be the immediately preceding Business Day.
All percentages resulting from any calculation of floating
interest rates will be rounded to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point rounded upwards
(e.g., 9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655)), and
all amounts used in or resulting from such calculation will be rounded, in the
case of United States dollars, to the nearest cent or, in the case of a foreign
currency or composite currency, to the nearest unit (with one-half cent or unit
being rounded upwards).
Accrued floating rate interest will be calculated by
multiplying the principal amount of the applicable Note by an accrued interest
factor. Such accrued interest factor will be computed by adding the interest
factor calculated for each day in the applicable Interest Reset Period. Unless
otherwise specified in the applicable Floating Interest Rate Notice, the
interest factor for each such day will be computed by dividing the interest rate
applicable to such day by 360, if an applicable Interest Rate Basis is the CD
Rate, the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number
of days in the year if an applicable Interest Rate Basis is the CMT Rate or the
Treasury Rate. Unless otherwise specified in the applicable Floating Interest
Rate Notice, if the floating interest rate is calculated with reference to two
or more Interest Rate Bases, the interest factor will be calculated in each
period in the same manner as if only one of
10
<PAGE> 12
the applicable Interest Rate Bases applied as specified in the applicable
Floating Interest Rate Notice.
Unless otherwise specified in the applicable Floating Interest
Rate Notice, The Bank of New York will be the "Calculation Agent." For any
Remarketed Note bearing interest at a floating rate, the applicable Remarketing
Agent will determine the interest rate in effect from the Interest Rate
Adjustment Date for such Remarketed Note to the Initial Interest Reset Date. The
Calculation Agent will determine the interest rate in effect for each Interest
Reset Period thereafter. Upon request of the Beneficial Owner of a Note, after
any Interest Rate Adjustment Date, the Calculation Agent or the Remarketing
Agent shall disclose the interest rate and, in the case of a floating interest
rate, Interest Rate Basis or Bases, Spread (if any) and Spread Multiplier (if
any), and in each case the other terms applicable to such Note then in effect
and, if determined, the interest rate that will become effective as a result of
a determination made for the next succeeding Interest Reset Date with respect to
such Note. Except as described herein with respect to a Note earning interest at
floating rates, no notice of the applicable interest rate, Spread (if any) or
Spread Multiplier (if any) shall be sent to the Beneficial Owner of any Note.
Unless otherwise specified in the applicable Floating Interest
Rate Notice, the "Calculation Date", if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date or, if such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day immediately preceding the
applicable Interest Payment Date or Maturity, as the case may be.
CD Rate. If an Interest Rate Basis for any Note is specified
in the applicable Floating Interest Rate Notice as the "CD Rate," the CD Rate
means with respect to any Interest Determination Date relating to a Note for
which the interest rate is determined with reference to the CD Rate (a "CD Rate
Interest Determination Date"), the rate on such date for negotiable United
States dollar certificates of deposit having the Index Maturity specified in the
applicable Floating Interest Rate Notice as published in ("H.15(519)" (as
hereinafter defined)) under the heading "CDs (Secondary Market)," or, if not
published by 3:00 p.m., New York City time, on the related Calculation Date, the
rate on such CD Rate Interest Determination Date for negotiable United States
dollar certificates of deposit of the Index Maturity specified in the applicable
Floating Interest Rate Notice as published in H.15 Daily Update (as hereinafter
defined), or such other recognized electronic source used for the purpose of
displaying such rate under the caption "CDs (secondary market)". If such rate is
not yet published in H.15(519), H.15 Daily Update or another recognized
electronic source by 3:00 p.m., New York City time, on the related Calculation
Date, then the CD Rate on such CD Rate Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 a.m., New York City time, on such CD
Rate Interest Determination Date, of three leading nonbank dealers in negotiable
United States dollar certificates of deposit in The City of New York (which may
include the Remarketing Agent or its affiliates) selected by the Calculation
Agent, after consultation with the Company, for negotiable United States dollars
certificates of deposit of major United States money center banks for negotiable
certificates of deposit with a remaining maturity closest to the Index Maturity
specified in the applicable Floating Interest Rate Notice in an amount that is
representative for a single transaction in that market at that time; provided,
however, that if the dealers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the CD Rate determined as of such CD Rate
11
<PAGE> 13
Interest Determination Date will be the CD Rate in effect on such CD Rate
Interest Determination Date.
"H.15(519)" means the weekly statistical release designated as
such, or any successor publication published by the Board of Governors of the
Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519),
available through the world-wide-web site of the Board of Governors of the
Federal Reserve System at http://www.bog.frb.fed.us/releases/h15/update, or any
successor site or publication.
CMT Rate. If an Interest Rate Basis for any Note is specified
in the applicable Floating Interest Rate Notice as the "CMT Rate," the CMT Rate
means, with respect to any Interest Determination Date relating to a Note for
which the interest is determined with reference to the CMT Rate (a "CMT Rate
Interest Determination Date"), the rate displayed on the Designated CMT Telerate
Page (as defined below) under the caption "...Treasury Constant
Maturities...Federal Reserve Board Release H.15...Mondays Approximately 3:45
P.M.," under the column for the Designated CMT Maturity Index (as defined below)
for (i) if the Designated CMT Telerate Page is 7051, the rate on such CMT Rate
Interest Determination Date and (ii) if the Designated CMT Telerate Page is
7052, the weekly or monthly average, as specified in the Floating Interest Rate
Notice, for the week or the month, as applicable, ended immediately preceding
the week in which the related CMT Rate Interest Determination Date occurs. If
such rate is no longer displayed on the relevant page or is not displayed by
3:00 p.m., New York City time, on the related Calculation Date, then the CMT
Rate for such CMT Rate Interest Determination Date will be such treasury
constant maturity rate for the Designated CMT Maturity Index as published in
H.15(519). If such rate is no longer published or is not published by 3:00 p.m.,
New York City time, on the related Calculation Date, then the CMT Rate on such
CMT Rate Interest Determination Date will be such treasury constant maturity
rate for the Designated CMT Maturity Index (or other United States Treasury rate
for the Designated CMT Maturity Index) for the CMT Rate Interest Determination
Date with respect to such Interest Reset Date as may then be published by either
the Board of Governors of the Federal Reserve System or the United States
Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Designated CMT Telerate Page
and published in H.15(519). If such information is not provided by 3:00 p.m.,
New York City time, on the related Calculation Date, then the CMT Rate on the
CMT Rate Interest Determination Date will be calculated by the Calculation Agent
and will be a yield to maturity, based on the arithmetic mean of the secondary
market closing offer side prices as of approximately 3:30 p.m., New York City
time, on such CMT Rate Interest Determination Date reported, according to their
written records, by three leading primary United States government securities
dealers (each, a "Reference Dealer") in The City of New York (which may include
the Remarketing Agent or its affiliates) selected by the Calculation Agent after
consultation with the Company (from five such Reference Dealers selected by the
Calculation Agent, after consultation with the Company, and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for the
most recently issued direct noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not less than
such Designated CMT Maturity Index minus one year. If the Calculation Agent is
unable to obtain three such Treasury Note quotations, the CMT Rate on such CMT
Rate
12
<PAGE> 14
Interest Determination Date will be calculated by the Calculation Agent and
will be a yield to maturity based on the arithmetic mean of the secondary market
offer side prices as of approximately 3:30 p.m., New York City time, on such CMT
Rate Interest Determination Date of three Reference Dealers in The City of New
York (from five such Reference Dealers selected by the Calculation Agent, after
consultation with the Company, and eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for Treasury Notes with an original
maturity of the number of years that is the next highest to the Designated CMT
Maturity Index and a remaining term to maturity closest to the Designated CMT
Maturity Index and in an amount of at least U.S.$100 million. If three or four
(and not five) of such Reference Dealers are quoting as described above, then
the CMT Rate will be based on the arithmetic mean of the offer prices obtained
and neither the highest nor the lowest of such quotes will be eliminated;
provided, however, that if fewer than three Reference Dealers so selected by the
Calculation Agent, after consultation with the Company, are quoting as mentioned
herein, the CMT Rate determined as of such CMT Rate Interest Determination Date
will be the CMT Rate in effect on such CMT Rate Interest Determination Date. If
two Treasury Notes with an original maturity as described in the second
preceding sentence have remaining terms to maturity equally close to the
Designated CMT Maturity Index, the Calculation Agent, after consultation with
the Company, will obtain from five Reference Dealers quotations for the Treasury
Note with the shorter remaining term to maturity.
"Designated CMT Telerate Page" means the display on Bridge
Telerate, Inc. (or any successor service) on the page specified in the
applicable Floating Interest Rate Notice (or any other page as may replace such
page on such service for the purpose of displaying Treasury Constant Maturities
as reported in H.15(519)) for the purpose of displaying Treasury Constant
Maturities as reported in H.15(519). If no such page is specified in the
applicable Floating Interest Rate Notice, the Designated CMT Telerate Page shall
be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to
maturity of the United States Treasury securities (either 1, 2, 3, 5, 7, 10, 20
or 30 years) specified in the applicable Floating Interest Rate Notice with
respect to which the CMT Rate will be calculated. If no such maturity is
specified in the applicable Floating Interest Rate Notice, the Designated CMT
Maturity Index shall be 2 years.
Federal Funds Rate. If an Interest Rate Basis for any Note is
specified in the applicable Floating Interest Rate Notice as the "Federal Funds
Rate," the Federal Funds Rate means, with respect to any Interest Determination
Date relating to a Note for which the interest rate is determined with reference
to the Federal Funds Rate (a "Federal Funds Rate Interest Determination Date"),
the rate on such date for United States dollar federal funds as published in
H.15(519) under the heading "Federal Funds (Effective)" as such rate is
displayed on Bridge Telerate, Inc. (or any successor service) on page 120
("Telerate Page 120") or, if such rate does not appear on Telerate Page 120 or
is not published by 3:00 p.m., New York City time, on the Calculation Date, the
rate on such Federal Funds Rate Interest Determination Date as published in H.15
Daily Update, or such other recognized electronic source used for the purpose of
displaying such rate, under the heading "Federal Funds (Effective)." If such
rate is not published in H.15(519), H.15 Daily Update or another recognized
electronic source by 3:00 p.m., New York City time, on the related Calculation
Date, then the Federal Funds Rate on such Federal
13
<PAGE> 15
Funds Rate Interest Determination Date shall be calculated by the Calculation
Agent and will be the arithmetic mean of the rates for the last transaction in
overnight United States dollar federal funds arranged by three leading brokers
of United States dollar federal funds transactions in The City of New York
(which may include the Remarketing Agent or its affiliates) selected by the
Calculation Agent after consultation with the Company, prior to 9:00 a.m., New
York City time, on such Federal Funds Rate Interest Determination Date;
provided, however, that if the brokers so selected by the Calculation Agent are
not quoting as mentioned in this sentence, the Federal Funds Rate determined as
of such Federal Funds Rate Interest Determination Date will be the Federal Funds
Rate in effect on such Federal Funds Rate Interest Determination Date.
LIBOR. If an Interest Rate Basis for any Note is specified in
the applicable Floating Interest Rate Notice as "LIBOR," LIBOR means the rate
determined by the Calculation Agent as of the applicable Interest Determination
Date (a "LIBOR Interest Determination Date") in accordance with the following
provisions:
(i) if(a) "LIBOR Reuters" is specified in the applicable Floating
Interest Rate Notice, the arithmetic mean of the offered rates (unless the
Designated LIBOR Page (as defined below) by its terms provides only for a single
rate, in which case such single rate will be used) for deposits in the Index
Currency having the Index Maturity specified in the applicable Floating Interest
Rate Notice, commencing on the applicable Interest Reset Date, that appear (or,
if only a single rate is required as aforesaid, appears) on the Designated LIBOR
Page as of 11:00 a.m., London time, on such LIBOR Interest Determination Date,
or (b) "LIBOR Telerate" is specified in the applicable Floating Interest Rate
Notice, or if neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the
applicable Floating Interest Rate Notice as the method for calculating LIBOR,
the rate for deposits in the Index Currency having the Index Maturity specified
in the applicable Floating Interest Rate Notice, commencing on such Interest
Reset Date, that appears on the Designated LIBOR Page as of 11:00 a.m., London
time, on such LIBOR Interest Determination Date. If fewer than two such offered
rates appear, or if no such rate appears, as applicable, LIBOR on such LIBOR
Interest Determination Date shall be determined in accordance with the
provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the case may be, on
the Designated LIBOR Page as specified in clause (i) above, the Calculation
Agent shall request the principal London offices of each of four major reference
banks in the London interbank market, as selected by the Calculation Agent,
after consultation with the Company, to provide the Calculation Agent with its
offered quotation for deposits in the Index Currency for the period of the Index
Maturity specified in the applicable Floating Interest Rate Notice, commencing
on the applicable Interest Reset Date, to prime banks in the London interbank
market at approximately 11:00 a.m., London time, on such LIBOR Interest
Determination Date and in a principal amount that is representative for a single
transaction in such Index Currency in such market at such time. If at least two
such quotations are so provided, then LIBOR on such LIBOR Interest Determination
Date will be the arithmetic mean of such quotations. If fewer than two such
quotations are so provided, then LIBOR on such LIBOR Interest Determination Date
will be the arithmetic mean of the rates quoted at approximately 11:00 a.m., in
the applicable Principal Financial Center, on such LIBOR Interest Determination
Date by three major banks in such Principal Financial Center selected by the
Calculation Agent, after consultation with the Company, for loans in the
14
<PAGE> 16
Index Currency to leading European banks, having the Index Maturity specified in
the applicable Floating Interest Rate Notice and in a principal amount that is
representative for a single transaction in such Index Currency in such market at
such time; provided, however, that if the banks so selected by the Calculation
Agent are not quoting as mentioned in this sentence, LIBOR determined as of such
LIBOR Interest Determination Date shall be LIBOR in effect on such LIBOR
Interest Determination Date.
"Index Currency" means the currency or composite currency
specified in the applicable Floating Interest Rate Notice as to which LIBOR
shall be calculated. If no such currency or composite currency is specified in
the applicable Floating Interest Rate Notice, the Index Currency shall be United
States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is
specified in the applicable Floating Interest Rate Notice, the display on the
Reuter Monitor Money Rates Service (or any successor service) on the page
specified in such Floating Interest Rate Notice (or on any other page as may
replace such page on such service) for the purpose of displaying the London
interbank rates of major banks for the Index Currency, or (b) if "LIBOR
Telerate" is specified in the applicable Floating Interest Rate Notice or
neither "LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable
Floating Interest Rate Notice as the method for calculating LIBOR, the display
on Bridge Telerate, Inc. (or any successor service) on the page specified in
such Floating Interest Rate Notice (or on any other page as may replace such
page on such service) for the purpose of displaying the London interbank rates
of major banks for the Index Currency.
Prime Rate. If an Interest Rate Basis for any Note is
specified in the applicable Floating Interest Rate Notice as the "Prime Rate,"
the Prime Rate means, with respect to any Interest Determination Date relating
to a Note for which the interest rate is determined with reference to the Prime
Rate (a "Prime Rate Interest Determination Date"), the rate on such date as such
rate is published in H.15(519) under the heading "Bank Prime Loan," or, if not
published prior to 3:00 p.m., New York City time, on the related Calculation
Date, the rate on such Prime Rate Interest Determination Date as published in
H.15 Daily Update, or such other recognized electronic source used for the
purpose of displaying such rate, under the caption "Bank Prime Loan." If such
rate is not yet published in H.15(519), H.15 Daily Update or another recognized
electronic source by 3:00 p.m., New York City time, on the related Calculation
Date, then the Prime Rate shall be the arithmetic mean of the rates of interest
publicly announced by each bank that appears on the Reuters Screen U.S. PRIME 1
Page (as defined below) as such bank's prime rate or base lending rate as in
effect for such Prime Rate Interest Determination Date. If fewer than four such
rates so appear on the Reuters Screen U.S. PRIME 1 Page for such Prime Rate
Interest Determination Date, the Prime Rate shall be the arithmetic mean of the
prime rates quoted on the basis of the actual number of days in the year divided
by a 360-day year as of the close of business on such Prime Rate Interest
Determination Date by three major banks (which may include The Bank of New York)
in The City of New York selected by the Calculation Agent, after consultation
with the Company; provided, however, that if the banks or trust companies so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Prime Rate determined as of such Prime Rate Interest Determination Date will
be the Prime Rate in effect on such Prime Rate Interest Determination Date.
15
<PAGE> 17
"Reuters Screen U.S. PRIME 1 Page" means the display on the
Reuter Monitor Money Rates Service (or any successor service) on the "USPRIME1"
page (or such other page as may replace the USPRIME1 page on such service) for
the purpose of displaying prime rates or base lending rates of major United
States banks.
Treasury Rate. If an Interest Rate Basis for any Note is
specified in the applicable Floating Interest Rate Notice as the "Treasury
Rate," the Treasury Rate means, with respect to any Interest Determination Date
relating to a Note for which the interest rate is determined with reference to
the Treasury Rate (a "Treasury Rate Interest Determination Date"), as the rate
from the auction held on such Treasury Rate Interest Determination Date (the
"Auction") of direct obligations of the United States ("Treasury Bills") having
the Index Maturity specified in the applicable Floating Interest Rate Notice,
under the caption "AVGE INVEST YIELD" on the display on Bridge Telerate, Inc.
(or any successor service) on page 56 or page 57 or, if not published by 3:00
p.m., New York City time, on the related Calculation Date, the auction average
rate of such Treasury Bills (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise announced by the United States Department of Treasury. In the event
that the results of the Auction of Treasury Bills having the Index Maturity
specified in the applicable Floating Interest Rate Notice are not reported as
provided above by 3:00 p.m., New York City time, on such Calculation Date, or if
no such Auction is held, then the Treasury Rate will be the rate (expressed as a
bond equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) on such Treasury Rate Interest Determination Date of
Treasury Bills having the Index Maturity specified in the applicable Floating
Interest Rate Notice as published in H.15(519) under the caption "U.S.
Government Securities/Treasury Bills/Secondary Market" or, if not yet published
by 3:00 p.m., New York City time, on the related Calculation Date, the rate on
such Treasury Rate Interest Determination Date of such Treasury Bills as
published in H.15 Daily Update, or such other recognized electronic source used
for the purpose of displaying such rate, under the caption "U.S. Government
Securities/Treasury Bills/Secondary Market." If such rate is not yet published
in H.15(519), H.15 Daily Update or another recognized electronic source, then
the Treasury Rate will be calculated by the Calculation Agent and will be a
yield to maturity (expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 p.m., New York City
time, on such Treasury Rate Interest Determination Date, of three primary United
States government securities dealers (which may include the Remarketing Agent or
its affiliates) selected by the Calculation Agent, after consultation with the
Company, for the issue of Treasury Bills with a remaining maturity closest to
the Index Maturity specified in the applicable Floating Interest Rate Notice;
provided, however, that if the dealers so selected by the Calculation Agent are
not quoting as mentioned in this sentence, the Treasury Rate determined as of
such Treasury Rate Interest Determination Date will be the Treasury Rate in
effect on such Treasury Rate Interest Determination Date.
Interest Rate Modes.
Commercial Paper Term Mode. The Interest Rate Period for any
Note in the Commercial Paper Term Mode shall be a period of not less than one
nor more than 364 consecutive calendar days, as determined by the Company (as
described below in Section 205) or, if not so determined, by the Remarketing
Agent for (a "Commercial Paper Term Period")
16
<PAGE> 18
such Note (in its best judgment in order to obtain the lowest interest cost for
such Note). Each Commercial Paper Term Period will commence on the Interest Rate
Adjustment Date therefor and end on the day preceding the date specified by such
Remarketing Agent as the first day of the next Interest Rate Period for such
Note. A "Weekly Rate Period" is a Commercial Paper Term Period and will be a
period of seven days commencing on any Interest Rate Adjustment Date and ending
on the day preceding the first day of the next Interest Rate Period for such
Note. The interest rate for any Commercial Paper Term Period relating to a Note
will be determined not later than 11:50 a.m., New York City time, on the
Interest Rate Adjustment Date for such Note (subject to Section 207), which is
the first day of each Interest Rate Period for such Note.
Long Term Rate Mode. The Interest Rate Period for any Note in
the Long Term Rate Mode will be established by the Company (as described in
Section 205 below) as a period of more than 364 days and not exceeding the
remaining term to the Stated Maturity of such Note; provided, however, that such
Interest Rate Period must end on the day prior to an Interest Payment Date for
such Note; and provided further that, if so provided in a Note in the Long Term
Rate Mode and specified at the time of remarketing into a Long Term Rate Period,
the Company may shorten the Interest Rate Period and provide for payment of a
premium, if any, in respect thereof for any such Note upon written notice to the
Remarketing Agent and the Trustee not less than thirty (30) days prior to the
date upon which such shortened Interest Rate Period shall expire. Promptly upon
receipt of such notice and, in any case, not later than the close of business on
such date, the Trustee will transmit such information to DTC in accordance with
DTC's procedures as in effect from time to time. In such case, the next Interest
Rate Adjustment Date otherwise set forth in such Note shall instead be the
Business Day immediately following the expiration of such Interest Rate Period.
The interest rate, or Spread (if any) and Spread Multiplier (if any) for any
Note in the Long Term Rate Mode will be determined not later than 11:50 a.m.,
New York City time, on the Interest Rate Adjustment Date for such Notes (subject
to Section 207), which is the first day of the Interest Rate Period for such
Note.
If any Note is subject to early remarketing as provided above,
the Interest Rate Period may be shortened by the Company to end on any date on
or after the Initial Early Remarketing Date, if any, specified in the Note, upon
prior written notice as provided above. On or after the Initial Early
Remarketing Date, if any, on the Interest Rate Adjustment Date relating to such
shortened Interest Rate Period for such Note, the Company will pay a premium to
the tendering Beneficial Owner of the Note, together with accrued interest, if
any, thereon at the applicable rate payable to such Interest Rate Adjustment
Date. Unless otherwise specified in the Note, the premium shall be an amount
equal to the Initial Early Remarketing Premium specified therein (as adjusted by
the Annual Early Remarketing Premium Percentage Reduction specified therein, if
applicable), multiplied by the principal amount of the Note subject to early
remarketing. The Initial Early Remarketing Premium, if any, shall decline at
each anniversary of the Initial Early Remarketing Date by an amount equal to the
applicable Annual Early Remarketing Premium Percentage Reduction, if any,
specified in the Note until the premium is equal to 0.
MAPS Mode. So long as any Notes are in the MAPS Mode, the
provisions set forth in Article Two applicable to the remarketing of Notes
generally shall apply to such Notes only to the extent expressly provided in
Article Three.
17
<PAGE> 19
The Interest Rate Period for any Note in the MAPS Mode will be
established by the Company (as described in Section 205 below) as a period of
more than 364 days and not exceeding the remaining term to the Stated Maturity
of such Note; provided, however, that such Interest Rate Period must end on the
day prior to an Interest Payment Date for such Note. The MAPS Rate Period shall
consist of the period from and including the Interest Rate Adjustment Date
commencing such Interest Rate Period to and excluding the MAPS Remarketing Date
and the period from and including the MAPS Remarketing Date to, but excluding,
the next succeeding Interest Rate Adjustment Date, as described in Article Three
and subject to the conditions therein and otherwise herein described. The
interest rate and, in the case of a floating interest rate, the Spread, if any,
and the Spread Multiplier, if any, to the MAPS Remarketing Date for any Note in
the MAPS Mode will be determined not later than 11:50 a.m., New York City time,
on the Interest Rate Adjustment Date for such Note, which for the MAPS Mode is
the first day of the Interest Rate Period for such Note.
Section 205. Conversion. The Company may change the Interest
Rate Mode or Interest Rate Period at its option in the manner described below.
(a) Conversion Between Commercial Paper Term Periods. Each
Note in Commercial Paper Term Period may be remarketed into the same Interest
Rate Period or converted at the option of the Company to a different Commercial
Paper Term Period on any Interest Rate Adjustment Date for such Note upon
receipt by the applicable Remarketing Agent and the Trustee of a Conversion
Notice prior to 9:30 a.m., New York City time, or the remarketing of such Note,
whichever later occurs, on such Interest Rate Adjustment Date.
(b) Conversion from the Commercial Paper Term Mode to the Long
Term Rate Mode or the MAPS Mode. Each Note in the Commercial Paper Term may be
converted at the option of the Company to the Long Term Rate Mode or the MAPS
Mode on any Interest Rate Adjustment Date upon receipt not less than ten days
prior to such Interest Rate Adjustment Date by the applicable Remarketing Agent
and the Trustee of a Conversion Notice from the Company.
(c) Conversion Between Long Term Rate Periods or from the Long
Term Rate Mode or the MAPS Mode to the Commercial Paper Term Mode or the MAPS
Mode. Each Note in a Long Term Rate Period may be remarketed into the same
Interest Rate Period or converted at the option of the Company to a different
Long Term Rate Period or from the Long Term Rate Mode to the Commercial Paper
Term Mode or the MAPS Mode, or from the MAPS Mode to a different MAPS Mode or to
the Long Term Rate Mode or the Commercial Paper Term Mode, on any Interest Rate
Adjustment Date for such Note upon receipt by the Trustee and the Remarketing
Agent of a Conversion Notice from the Company not less than ten days prior to
such Interest Rate Adjustment Date.
(d) Conversion Notice. Each Conversion Notice must state each
Note to which it relates and the new Interest Rate Mode (if applicable), the new
Interest Rate Period, the Conversion Date and, with respect to any Long Term
Rate Period, any optional redemption or repayment terms for each such Note. If
the Company revokes a Conversion Notice or the Trustee and the Remarketing Agent
fail to receive a Conversion Notice from the Company by
18
<PAGE> 20
the specified date in advance of the Interest Rate Adjustment Date for a Note,
the Note shall be converted automatically to a Weekly Rate Period.
(e) Revocation or Change of Conversion Notice or Floating
Interest Rate Notice. The Company may, upon written notice received by the
Trustee and the applicable Remarketing Agent, revoke any Conversion Notice or
Floating Interest Rate Notice or change the Interest Rate Mode to which such
Conversion Notice relates or change any Floating Interest Rate Notice up to 9:30
a.m., New York City time, on the Conversion Date, subject to the provisions of
subsection (f) below.
(f) Limitation on Conversion, Change of Conversion Notice or
Floating Interest Rate Notice and Revocation. Notwithstanding the foregoing
subsections (a), (b), (c), (d) and (e) the Company may not, without the consent
of the applicable Remarketing Agent, convert any Note or revoke or change any
Conversion Notice or Floating Interest Rate Notice at or after the time at which
such Remarketing Agent has determined the interest rate, or Spread (if any) and
Spread Multiplier (if any), for any Note being remarketed (i.e., the time at
which such Note has been successfully remarketed, subject to settlement on the
related Interest Rate Adjustment Date). The Remarketing Agent will advise the
Company of indicative rates from time to time, or at any time upon the request
of the Company, prior to making such determination of the interest rate, Spread
or Spread Multiplier, as the case may be.
Section 206. Mandatory Tender of Notes. Each Note will be
automatically tendered for purchase, or deemed tendered for purchase, on each
Interest Rate Adjustment Date relating thereto. Notes will be purchased on the
Interest Rate Adjustment Date relating thereto as described in Section 207.
hereof.
Section 207. Remarketing. The interest rate on each Note will
be established from time to time by each Remarketing Agent responsible for the
remarketing thereof in accordance with the following procedures:
(a) Interest Rate Adjustment Date; Determination of Interest
Rate. By 11:00 a.m., New York City time, on the Interest Rate Adjustment Date
for any Note, the applicable Remarketing Agent will determine the interest rate
for such Note being remarketed to the nearest one hundred-thousandth (0.00001)
of one percent per annum for the next Interest Rate Period in the case of a
fixed interest rate, and the Spread (if any) and Spread Multiplier (if any) in
the case of a floating interest rate; provided, that between 11:00 a.m., New
York City time, and 11:50 a.m., New York City time, the Remarketing Agent and
the Standby Remarketing Agent(s), if any, shall use their reasonable efforts to
determine the interest rate for any Notes not successfully remarketed as of the
applicable deadline specified in this paragraph. In determining the applicable
interest rate for such Note and other terms, such Remarketing Agent will, after
taking into account market conditions as reflected in the prevailing yields on
fixed and variable rate taxable debt securities, (i) consider the principal
amount of all Notes tendered or to be tendered on such date and the principal
amount of such Notes prospective purchasers are or may be willing to purchase
and (ii) contact, by telephone or otherwise, prospective purchasers and
ascertain the interest rates therefor at which they would be willing to hold or
purchase such Notes.
19
<PAGE> 21
(b) Notification of Results; Settlement. By 12:30 p.m., New
York City time, on the Interest Rate Adjustment Date for any Notes, the
applicable Remarketing Agent will notify the Company and the Trustee in writing
(which may include facsimile or other electronic transmission), of (i) the
interest rate or, in the case of a floating interest rate, the initial interest
rate, the Spread and Spread Multiplier and the Initial Interest Reset Date,
applicable to such Notes for the next Interest Rate Period, (ii) the Interest
Rate Adjustment Date, (iii) the Interest Payment Dates, for any Notes in the
Commercial Paper Term Mode (if other than the Interest Rate Adjustment Date),
the Long Term Rate Mode or the MAPS Mode, (iv) the optional redemption terms, if
any, and early remarketing terms, if any, in the case of a remarketing into a
Long Term Rate Period, (v) the aggregate principal amount of tendered Notes and
(vi) the aggregate principal amount of such tendered Notes which such
Remarketing Agent was able to remarket, at a price equal to 100% of the
principal amount thereof plus accrued interest, if any. Immediately after
receiving such notice, and in any case, not later than 1:30 p.m. New York City
time, the Trustee will transmit such information and any other settlement
information required by DTC to DTC in accordance with DTC's procedures as in
effect from time to time.
By telephone at approximately 1:00 p.m., New York City time,
on such Interest Rate Adjustment Date, the applicable Remarketing Agent will
advise each purchaser of such Notes (or the DTC participant of each such
purchaser who it is expected in turn will advise such purchaser) of the
principal amount of such Notes that such purchaser is to purchase.
Each purchaser of Notes in a remarketing will be required to
give instructions to its DTC participant to pay the purchase price therefor in
same day funds to the applicable Remarketing Agent against delivery of the
principal amount of such Notes by book-entry through DTC by 3:00 p.m., New York
City time, on the Interest Rate Adjustment Date.
All tendered Notes will be automatically delivered to the
account of the Trustee (or such other account meeting the requirements of DTC's
procedures as in effect from time to time), by book-entry through DTC against
payment of the purchase price or redemption price therefor, on the Interest Rate
Adjustment Date relating thereto.
The applicable Remarketing Agent will make, or cause the
Trustee to make, payment to the DTC participant of each tendering Beneficial
Owner of Notes subject to a remarketing, by book-entry through DTC by the close
of business on the Interest Rate Adjustment Date against delivery through DTC of
such Beneficial Owner's tendered Notes, of the purchase price for tendered Notes
that have been sold in the remarketing. If any such Notes were purchased
pursuant to a Special Mandatory Purchase, subject to receipt of funds from the
Company or the Liquidity Provider, if any, as the case may be, the Trustee will
make such payment of the purchase price of such Notes plus accrued interest, if
any, to such date.
The transactions described above for a remarketing of any
Notes will be executed on the Interest Rate Adjustment Date for such Notes
through DTC in accordance with the procedures of DTC, and the accounts of the
respective DTC participants will be debited and credited and such Notes
delivered by book-entry as necessary to effect the purchases and sales thereof,
in each case as determined in the related remarketing.
20
<PAGE> 22
Except as otherwise set forth in Section 208 hereof, any Notes
tendered in a remarketing will be purchased solely out of the proceeds received
from purchasers of such Notes in such remarketing, and none of the Trustee, the
applicable Remarketing Agent, any Standby Remarketing Agent or the Company will
be obligated to provide funds to make payment upon any Beneficial Owner's tender
in a remarketing.
Although tendered Notes will be subject to purchase by a
Remarketing Agent in a remarketing, such Remarketing Agent and any Standby
Remarketing Agent will not be obligated to purchase any such Notes.
The settlement and remarketing procedures described above,
including provisions for payment by purchasers of tendered Notes or for payment
to selling Beneficial Owners of tendered Notes, may be modified to the extent
required by DTC. In addition, each Remarketing Agent may, without the consent of
the Holders of the Notes, modify the settlement and remarketing procedures set
forth above in order to facilitate the settlement and remarketing process.
As long as DTC's nominee holds the certificates representing
the Notes in the book-entry system of DTC, no certificates for such Notes will
be delivered by any selling Beneficial Owner to reflect any transfer of Notes
effected in any remarketing.
The Trustee shall confirm to DTC the interest rate for the
following Interest Rate Period in accordance with DTC's procedures as in effect
from time to time.
The interest rate announced by the applicable Remarketing
Agent, absent manifest error, shall be binding and conclusive upon the
Beneficial Owners, the Company and the Trustee.
(c) Failed Remarketing. Notes not successfully remarketed will
be subject to Special Mandatory Purchase by the Company (a "Special Mandatory
Purchase"). The obligation of the Company to effect a Special Mandatory Purchase
of the Notes (the "Special Mandatory Purchase Right") can be satisfied either
directly by the Company or through a Liquidity Provider. By 12:00 o'clock noon,
New York City time, on any Interest Rate Adjustment Date, the applicable
Remarketing Agent will notify the Liquidity Provider, if any, the Trustee and
the Company by telephone or facsimile, confirmed in writing, of the principal
amount of Notes that such Remarketing Agent and the applicable Standby
Remarketing Agent, if any, were unable to remarket on such date. In the event
that the Company has entered into a Standby Note Purchase Agreement which is in
effect on such date, such notice will constitute a demand for the benefit of the
Company to the Liquidity Provider to purchase such unremarketed Notes at a price
equal to the outstanding principal amount thereof pursuant to the terms of such
Standby Note Purchase Agreement. If a Standby Note Purchase Agreement is not in
effect on such date, or if the Liquidity Provider fails to advance funds under
the Standby Note Purchase Agreement, the Company hereby agrees to purchase such
unremarketed Notes. In each case the Company will pay all accrued and unpaid
interest, if any, on unremarketed Notes to such Interest Rate Adjustment Date.
Payment of the principal amount of unremarketed Notes by the Company or the
Liquidity Provider, as the case may be, and payment of accrued and unpaid
interest, if any, by the Company, shall be made by deposit of same-day funds
with the Trustee (or such other
21
<PAGE> 23
account meeting the requirements of DTC's procedures as in effect from time to
time) irrevocably in trust for the benefit of the Beneficial Owners of Notes
subject to Special Mandatory Purchase by 3:00 p.m., New York City time, on such
Interest Rate Adjustment Date.
Section 208. Purchase and Redemption of Notes.
(a) Special Mandatory Purchase. If by 12:00 o'clock noon, New
York City time, on any Interest Rate Adjustment Date for any Notes, the
applicable Remarketing Agent and the applicable Standby Remarketing Agent(s)
have not remarketed all such Notes, the Notes that are unremarketed are subject
to Special Mandatory Purchase. Either the Company or, subject to the terms and
conditions of a Standby Note Purchase Agreement, if any, which may be in effect
on such date, the Liquidity Provider (if any), will deposit same-day funds in
the account of the Trustee (or such other account meeting the requirements of
DTC's procedures as in effect from time to time) irrevocably in trust for the
benefit of the Beneficial Owners of Notes subject to Special Mandatory Purchase
by 3:00 p.m., New York City time, on such Interest Rate Adjustment Date. Such
funds shall be in an amount sufficient to pay the aggregate purchase price of
such unremarketed Notes, equal to 100% of the principal amount thereof. In the
event a Standby Note Purchase Agreement is in effect but the Liquidity Provider
shall fail to advance funds for whatever reason thereunder, the Company hereby
agrees to purchase such unremarketed Notes on such Interest Rate Adjustment
Date. The Company hereby agrees to pay the accrued interest, if any, on such
Notes by depositing sufficient same-day funds therefor in the account of the
Trustee (or such other account meeting the requirements of DTC's procedures as
in effect from time to time) by 3:00 p.m., New York City time, on such Interest
Rate Adjustment Date.
Failure by the Company to purchase Notes pursuant to a Special
Mandatory Purchase in the manner provided in the Notes will constitute an Event
of Default under the Original Indenture in which event the date of such failure
shall constitute a date of Maturity for such Notes and the principal amount
thereof may be declared due and payable in the manner and with the effect
provided for in the Original Indenture. Following such failure to pay pursuant
to a Special Mandatory Purchase, such Notes will bear interest at the Special
Interest Rate as provided for in Section 204 hereof.
If the Company enters into a Standby Note Purchase Agreement
with a Liquidity Provider, Notes purchased by the Liquidity Provider ("Purchased
Notes") shall bear interest at the rates and be payable on the dates as may be
agreed upon by the Company and the Liquidity Provider. Upon purchase of any Note
by the Liquidity Provider, all interest accruing thereon from the last date for
which interest was paid shall accrue for the benefit of and be payable to the
Liquidity Provider. Unless an event of default under the Standby Note Purchase
Agreement occurs, the applicable Remarketing Agent shall continue its
remarketing efforts with respect to Purchased Notes until the earlier to occur
of a successful remarketing of such Purchased Notes or the expiration of the
Standby Note Purchase Agreement. In the event the Liquidity Provider holds
Purchased Notes on the date the Standby Note Purchase Agreement expires, the
Company will be required to purchase such Notes on such date at a purchase price
equal to the principal amount thereof plus accrued interest thereon to the
purchase date. Such Notes will remain outstanding and enjoy the benefits of the
Original Indenture and this Second Supplemental Indenture until such time as the
Company delivers the Notes to the Trustee for cancellation.
22
<PAGE> 24
(b) Optional Redemption on any Interest Rate Adjustment Date. Each Note
is subject to redemption at the option of the Company in whole or in part on any
Interest Rate Adjustment Date, without notice to the Holders thereof, at a
redemption price equal to the aggregate principal amount of such Notes to be
redeemed plus accrued interest thereon to the redemption date.
(c) Redemption While Notes are in the Long Term Rate Mode. Any Notes in
the Long Term Rate Mode are subject to redemption at the option of the Company
at the times and upon the terms specified at the time of conversion to or within
such Long Term Rate Mode.
(d) Notice of Redemption. In the case of any Note being redeemed on an
Interest Rate Adjustment Date therefor, the Company shall give the applicable
Remarketing Agent and the Trustee written notice of such redemption prior to the
time the interest rate applicable to the next Interest Rate Period for such Note
is established by such Remarketing Agent. In any other case, the Company shall
give the Remarketing Agents and the Trustee written notice of redemption of any
Note at least two Business Days prior to the date notice is required to be given
to Holders. In addition, the Company shall give each Remarketing Agent with
respect to any Note being repaid at the option of the Holder thereof and the
Trustee notice as soon as practicable, and in any event not later than twelve
Business Days prior to the next succeeding Interest Rate Adjustment Date
therefor of each such Note which will be repaid by the Company at the option of
the Holder thereof on or prior to such Interest Rate Adjustment Date. Each
Remarketing Agent's obligation to remarket any Note shall terminate immediately
upon receipt by it from the Company of any notice of redemption or repayment
thereof.
(e) Allocation. Except in the case of a Special Mandatory Purchase, if
the Notes are to be redeemed in part, DTC, after receiving notice of redemption
specifying the aggregate principal amount of Notes to be so redeemed, will
determine by lot (or otherwise in accordance with the procedures of DTC) the
principal amount of such Notes to be redeemed from the account of each DTC
participant. After making its determination as described above, DTC will give
notice of such determination to each DTC participant from whose account such
Notes are to be redeemed. Each such DTC participant, upon receipt of such
notice, will in turn determine the principal amount of Notes to be redeemed from
the accounts of the Beneficial Owners of such Notes for which it serves as DTC
participant, and give notice of such determination to the Remarketing Agent.
Section 209. Form and Other Terms of the Notes.
(a) Attached hereto as Exhibit A is the form of Note, which form is
hereby established as the form in which Notes may be issued bearing interest at
the Initial Interest Rate or in the Commercial Paper Term Mode, the Long Term
Rate Mode or the MAPS Mode. Annex A to Exhibit A is deemed to be a part of such
Note and such Annex may be changed upon the mutual agreement of the Company and
the Trustee to reflect changes occasioned by remarketings. The Notes will
initially bear legends indicating that they have not been registered under the
Securities Act of 1933, as amended, and restricting transfers thereof.
(b) Attached hereto as Exhibit B is a form of Liquidity Provider Note,
which form is hereby established as a form in which Notes held by the Liquidity
Provider may be
23
<PAGE> 25
issued. The form of Liquidity Provider Note may be amended to reflect changes
occasioned by remarketings upon the mutual agreement of the Company and the
Trustee, but only with the consent of the applicable Administrative Agent.
(c) Subject to (a) and (b) above, any Note may be issued in such other
form as may be provided by, or not inconsistent with, the terms of the Original
Indenture and this First Supplemental Indenture.
ARTICLE THREE
THE MAPS MODE
Section 301. Applicability of Article. The provisions of this Article
Three shall apply to any Note in the MAPS Mode. To the extent that any provision
of this Article Three conflicts with any provision of Article Two, the
provisions set forth in this Article Three shall govern.
Section 302. Interest To Remarketing Date. Each Note in the MAPS Mode
shall bear interest at the annual interest rate established by the MAPS Agent
from, and including the Interest Rate Adjustment Date commencing the Interest
Rate Period for the MAPS Mode to, but excluding, the date (the "MAPS Remarketing
Date") designated at such time by the MAPS Agent after consultation with the
Company and set forth in Annex A to the applicable Note. Such interest rate will
be the minimum rate of interest and, in the case of a floating interest rate,
Spread (if any) and Spread Multiplier (if any) necessary in the judgment of such
MAPS Agent to produce a par bid in the secondary market for such Note on the
date the interest rate is established. The designated MAPS Remarketing Date
shall be an Interest Payment Date within such Interest Rate Period.
Section 303. Tender; Remarketing. The MAPS Agent's obligations set
forth herein shall be performed pursuant to the MAPS Remarketing Agreement.
(a) Mandatory Tender. Provided that the MAPS Agent gives notice to the
Company and the Trustee on a Business Day not later than ten (10) days prior to
the MAPS Remarketing Date of its intention to purchase the Notes for remarketing
(the "Notification Date"), each Note shall be automatically tendered, or deemed
tendered, to the MAPS Agent for remarketing on the MAPS Remarketing Date, except
in the circumstances set forth in Section 304. The purchase price for the
tendered Notes to be paid by the MAPS Agent shall equal 100% of the principal
amount thereof. When the Notes are tendered for remarketing, the MAPS Agent may
remarket the Notes for its own account at varying prices to be determined by the
MAPS Agent at the time of each sale. From, and including, the MAPS Remarketing
Date to, but excluding, the next succeeding Interest Rate Adjustment Date, the
Notes shall bear interest at the MAPS Interest Rate. If the MAPS Agent elects to
remarket the Notes, the obligation of the MAPS Agent to purchase the Notes on
the MAPS Remarketing Date is subject to, among other things, the conditions
specified in the applicable MAPS Remarketing Agreement. If the MAPS Agent for
any reason does not purchase all tendered Notes on the MAPS Remarketing Date or
if the MAPS Agent gives notice of its intention to remarket the Notes but for
any reason does not purchase all tendered Notes on the MAPS Remarketing Date,
then as of such date the Notes will
24
<PAGE> 26
cease to be in the MAPS Mode, the MAPS Remarketing Date will constitute an
Interest Rate Adjustment Date, and the Notes may be subject to remarketing on
such date by a Remarketing Agent appointed by the Company in the Commercial
Paper Mode or the Long Term Rate Mode or a new MAPS Mode established by the
Company in accordance with the procedures set forth in Section 205 hereof,
provided that, in such case, the notice period required for conversion shall be
the lesser of ten (10) days and the period commencing the date that the MAPS
Agent notifies the Company that it will not purchase the Notes for remarketing
on the MAPS Remarketing Date or fails to so purchase, as the case may be.
(b) Remarketing. The MAPS Interest Rate shall be established by the
MAPS Agent in accordance with the following procedures:
(i) The MAPS Interest Rate. Subject to the MAPS Agent's election
to remarket the Notes as provided in subsection (a) above, the MAPS Interest
Rate shall be determined by the MAPS Agent by 3:30 p.m., New York City time, on
the third Business Day preceding the MAPS Remarketing Date (the "Determination
Date") to the nearest one hundred-thousandth (0.00001) of one percent per annum,
and shall be equal to the Base Rate established by the MAPS Agent, after
consultation with the Company, at or prior to the commencement of the MAPS Mode
(the "Base Rate"), plus the Applicable Spread (as defined below), which will be
based on the Dollar Price (as defined below) of the Notes.
The "Applicable Spread" will be the lowest bid indication,
expressed as a spread (in the form of a percentage or in basis points) above the
Base Rate, obtained by the MAPS Agent on the Determination Date from the bids
quoted by up to five Reference Corporate Dealers (as defined below) for the full
aggregate principal amount of the Notes at the Dollar Price, but assuming (i) an
issue date equal to the MAPS Remarketing Date, with settlement on such date
without accrued interest, (ii) a maturity date equal to the next succeeding
Interest Adjustment Date of the Notes and (iii) a stated annual interest rate,
payable semiannually on each Interest Payment Date, equal to the Base Rate plus
the spread bid by the applicable Reference Corporate Dealer. If fewer than five
Reference Corporate Dealers bid as set forth in this subsection (b)(i) of
Section 303, then the Applicable Spread shall be the lowest of such bid
indications obtained as set forth in this subsection (b)(i) of Section 303. The
MAPS Interest Rate announced by the MAPS Agent, absent manifest error, shall be
binding and conclusive upon the Beneficial Owners and Holders of the Notes, the
Company and the Trustee.
"Dollar Price" shall mean, with respect to the Notes, the
present value determined by the MAPS Agent, as of the MAPS Remarketing Date, of
the Remaining Scheduled Payments (as defined below) discounted to the MAPS
Remarketing Date, on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months), at the Treasury Rate (as defined below).
"Reference Corporate Dealers" means such Reference Corporate
Dealers as shall be appointed by the MAPS Agent after consultation with the
Company.
"Treasury Rate" shall mean, with respect to the MAPS
Remarketing Date, the rate per annum equal to the semi-annual equivalent yield
to maturity or interpolated (on a day count basis) yield to maturity of the
Comparable Treasury Issues (as defined below), assuming a price
25
<PAGE> 27
for the Comparable Treasury Issues (expressed as a percentage of its principal
amount), equal to the Comparable Treasury Price (as defined below) for such MAPS
Remarketing Date.
"Comparable Treasury Issues" shall mean the United States
Treasury security or securities selected by the MAPS Agent as having an actual
or interpolated maturity or maturities comparable or applicable to the remaining
term to the next succeeding Interest Adjustment Date of the Notes being
purchased.
"Comparable Treasury Price" means, with respect to the MAPS
Remarketing Date, (a) the offer prices for the Comparable Treasury Issues
(expressed in each case as a percentage of its principal amount) on the
Determination Date, as set forth on "Telerate Page 500" (or such other page as
may replace Telerate Page 500) or (b) if such page (or any successor page) is
not displayed or does not contain such offer prices on such Determination Date,
(i) the average of the Reference Treasury Dealer Quotations (as defined below)
for such MAPS Remarketing Date, after excluding the highest and lowest of such
Reference Treasury Dealer Quotations, or (ii) if the MAPS Agent obtains fewer
than four such Reference Treasury Dealer Quotations, the average of all such
Reference Treasury Dealer Quotations. "Telerate Page 500" means the display
designated as "Telerate Page 500" on Bridge Telerate, Inc. (or such other page
as may replace Telerate Page 500 on such service) or such other service
displaying the offer prices specified in (a) above as may replace Bridge
Telerate, Inc..
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer and the MAPS Remarketing Date, the offer prices
for the Comparable Treasury Issues (expressed in each case as a percentage of
its principal amount) quoted in writing to the MAPS Agent by such Reference
Treasury Dealer by 3:30 p.m. New York City time, on the Determination Date.
"Reference Treasury Dealer" means such Reference Treasury
Dealers as shall be appointed by the MAPS Agent after consultation with the
Company.
"Remaining Scheduled Payments" shall mean, with respect to the
Notes, the remaining scheduled payments of the principal thereof and interest
thereon, calculated at the Base Rate only, that would be due after the MAPS
Remarketing Date to and including the next succeeding Interest Adjustment Date
as determined by the MAPS Agent.
(ii) Notification of Results; Settlement. Provided the MAPS Agent
has previously notified the Company and the Trustee on the Notification Date of
its intention to purchase all tendered Notes on the MAPS Remarketing Date, the
MAPS Agent shall notify the Company, the Trustee and DTC by telephone, confirmed
in writing, by 4:00 p.m., New York City time, on the Determination Date, of the
MAPS Interest Rate.
All of the tendered Notes shall be automatically delivered to
the account of the Trustee, by book-entry through DTC pending payment of the
purchase price therefor, on the MAPS Remarketing Date.
In the event that the MAPS Agent purchases the tendered Notes
on the MAPS Remarketing Date, the MAPS Agent shall make or cause the Trustee to
make payment to the DTC Participant of each tendering Beneficial Owner of Notes,
by book-entry through DTC by
26
<PAGE> 28
the close of business on the MAPS Remarketing Date against delivery through DTC
of such Beneficial Owner's tendered Notes, of 100% of the principal amount of
the tendered Notes that have been purchased for remarketing by the MAPS Agent.
If the MAPS Agent does not purchase all of the Notes on the MAPS Remarketing
Date, the Company may attempt to convert the Notes to a new Interest Rate Mode;
the interest will be determined as provided above in Section 204 and settlement
will be effected as described above in Section 207(b) or Section 207(c), as the
case may be. In any case, the Company shall make or cause the Trustee to make
payment of interest to each Beneficial Owner of Notes due on the MAPS
Remarketing Date by book-entry through DTC by the close of business on the MAPS
Remarketing Date.
The transactions set forth in this Section 303 shall be
executed on the MAPS Remarketing Date through DTC in accordance with the
procedures of DTC, and the accounts of the respective DTC participants will be
debited and credited and the Notes delivered by book-entry as necessary to
effect the purchases and sales thereof.
Transactions involving the sale and purchase of Notes
remarketed by the MAPS Agent on and after the MAPS Remarketing Date will settle
in immediately available funds through DTC's Same-Day Funds Settlement System.
The tender and settlement procedures set forth above,
including provisions for payment by purchasers of Notes in the remarketing or
for payment to selling Beneficial Owners of tendered Notes, may be modified to
the extent required by DTC or to the extent required to facilitate the tender
and remarketing of Notes in certificated form, if the book-entry system is no
longer available for the Notes at the time of the remarketing. In addition, the
MAPS Agent may, without the consent of the Holders of the Notes, modify the
settlement procedures set forth above in order to facilitate the tender and
settlement process.
As long as DTC's nominee holds the certificates representing
any Notes in the book-entry system of DTC, no certificates for such Notes will
be delivered by any selling Beneficial Owner to reflect any transfer of such
Notes effected in the remarketing.
Section 304. Conversion or Redemption Following Election by
the MAPS Agent to Remarket.
(a) If the MAPS Agent elects to remarket the Notes on the MAPS
Remarketing Date, the Notes will be subject to mandatory tender to the MAPS
Agent for remarketing on such date, in each case subject to the conditions set
forth in Section 303 hereof and to the Company's right to either convert the
Notes to a new Interest Rate Mode on the MAPS Remarketing Date or to redeem the
Notes from the MAPS Agent, in each case as described in the next sentence. The
Company will notify the MAPS Agent and the Trustee, not later than the Business
Day immediately preceding the Determination Date, if the Company irrevocably
elects to exercise its right to either convert the Notes to a new Interest Rate
Mode, or to redeem the Notes, in whole but not in part, from the MAPS Agent at
the Optional Redemption Price, in each case on the MAPS Remarketing Date.
(b) In the event that the Company irrevocably elects to
convert the Notes to a new Interest Rate Mode, then as of the MAPS Remarketing
Date the Notes will cease to be in the
27
<PAGE> 29
MAPS Mode, the MAPS Remarketing Date will constitute an Interest Rate Adjustment
Date, and the Notes will be subject to remarketing on such date by a Remarketing
Agent appointed by the Company in the Commercial Paper Term Mode or the Long
Term Rate Mode or a new MAPS Mode established by the Company in accordance with
the set forth in Section 205 above; provided that in such case, the notice
period required for conversion shall be the period commencing the Business Day
immediately preceding the Determination Date. In such case, the Company shall
pay to the MAPS Agent the excess of the Dollar Price of the Notes over 100% of
the principal amount of the Notes in same-day funds by wire transfer to an
account designated by the MAPS Agent on the MAPS Remarketing Date.
(c) In the event that the Company irrevocably elects to redeem
the Notes, the "Optional Redemption Price" shall be the greater of (i) 100% of
the principal amount of the Notes and (ii) the Dollar Price, plus in either case
accrued and unpaid interest from the MAPS Remarketing Date on the principal
amount being redeemed to the date of redemption. If the Company elects to redeem
the Notes, it shall pay the redemption price therefor in same-day funds by wire
transfer to an account designated by the MAPS Agent on the MAPS Remarketing
Date.
(d) If notice has been given as provided in the Original
Indenture and funds for the redemption of any Notes called for redemption shall
have been made available on the redemption date referred to in such notice, such
Notes shall cease to bear interest on the date fixed for such redemption
specified in such notice and the only right of the MAPS Agent from and after the
redemption date shall be to receive payment of the Optional Redemption Price
upon surrender of such Notes in accordance with such notice.
ARTICLE FOUR
ADDITIONAL EVENT OF DEFAULT
With respect to the Notes, the following will be an additional
Event of Default to follow subsection (11) under Section 501 of the Indenture:
(12) default in the performance of the Company's
obligation to purchase Notes held by the Liquidity Provider
under the terms of the Standby Note Purchase Agreement, if
any, and continuance of such default for a period of 60 days
after there has been given, by registered or certified mail,
to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of
the Outstanding Securities of that series a written notice
specifying such default and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder.
ARTICLE FIVE
ADDITIONAL COVENANT
With respect to the Notes, the following covenant shall
replace, and hereby supersedes, the provisions of Section 801 of the Original
Indenture in their entirety:
28
<PAGE> 30
"SECTION 801. Company May Consolidate, Etc., Only on Certain Terms
The Company will not merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to any Person, or permit any of its Subsidiaries to
do so, except that any Subsidiary of the Company may merger or consolidate with
or into any other Subsidiary of the Company, and except that any Subsidiary of
the Company may merge into or dispose of assets to the Company, provided, in
each case, that no Event of Default shall have occurred and be continuing at the
time of such proposed transaction or would result therefrom."
ARTICLE SIX
AUTHENTICATION AND DELIVERY OF THE NOTES
Section 601. Authentication and Delivery. As provided in and
pursuant to Section 303. of the Original Indenture, each time that the Company
delivers Notes to the Trustee or Authenticating Agent for authentication, the
Company shall deliver a Supplemental Company Order in the form of Exhibit C to
this Second Supplemental Indenture for the authentication and delivery of such
Notes and the Trustee or such Authenticating Agent shall authenticate and
deliver such Notes.
ARTICLE SEVEN
THE SUPPORT AGREEMENT
Section 701. The Support Agreement. The Notes shall be
entitled to the benefit of that certain support agreement (the "Support
Agreement"), dated as of November 18, 1998, by and between the Company and DTE
Energy. The form of Support Agreement is attached as Exhibit D hereto. The
Company has assigned and pledged its rights under the Support Agreement to the
Lenders (as defined therein), pursuant to the terms and conditions of that
certain collateral assignment agreement (the "Collateral Assignment Agreement"),
dated as of November 18, 1998, by and between the Company and the Lenders. The
form of Collateral Assignment Agreement is attached as Exhibit E hereto. The
foregoing are subject to amendment or termination in accordance with the terms
of the Support Agreement or, as the case may be, the Collateral Assignment
Agreement.
ARTICLE EIGHT
INSURANCE PROVISIONS
Section 801. Applicability of Article. The provisions of this
Article Eight shall be applicable to the Notes for any Interest Rate Period so
long as a Policy is in effect with respect to the Notes and the Insurer is not
in default of its obligation to make payments thereunder. The form of Policy is
attached as Exhibit F hereto.
Section 802. Rights of Insurer Controlling. Anything herein or
under the Original Indenture to the contrary notwithstanding, if a Policy is in
effect with respect to the
29
<PAGE> 31
Notes and the Insurer is not in default of its obligation to make payments
thereunder, the Insurer shall be deemed to be the Holder of all Notes then
Outstanding for all purposes under the Indenture and shall have the exclusive
right to exercise or direct the exercise of remedies on behalf of the Holders of
the Notes in accordance with the terms of the Indenture following an Event of
Default, and the principal of all such Notes Outstanding may not be declared to
be due and payable immediately without the prior written consent of the Insurer.
Section 803. Payments Under the Policy in Respect of the
Applicable Interest Rate Period. Except as otherwise provided in an amendment or
supplement to this Second Supplemental Indenture, so long as a Policy is in
effect with respect to the Notes and the Insurer is not in default of its
obligations to make payments thereunder,
(a) If, as of the opening of business on any Interest Payment
Date in the applicable Interest Rate Period, through and including the
applicable Interest Rate Adjustment Date, the Trustee has not received payments
from the Company pursuant to this Second Supplemental Indenture (and after
making demand from DTE Energy pursuant to the Support Agreement) in such amounts
so that sufficient moneys are available under this Second Supplemental Indenture
to pay all interest due on the Notes on such Interest Payment Date, the Trustee
shall promptly notify the Insurer or its designee by telephone, confirmed in
writing by registered or certified mail, of the amount of the deficiency.
(b) If, as of 3:00 p.m. New York City time, on the applicable
Interest Rate Adjustment Date in the event of a Special Mandatory Purchase, the
Trustee has not received payments from the Company pursuant to this Second
Supplemental Indenture (and after making demand from DTE Energy pursuant to the
Support Agreement) in such amounts so that sufficient moneys are available under
this Second Supplemental Indenture to pay 100% of the aggregate principal amount
of the Notes subject to Special Mandatory Purchase on such Interest Rate
Adjustment Date, the Trustee shall promptly notify the Insurer or its designee
by telephone, confirmed in writing by registered or certified mail, of the
amount of the deficiency.
(c) If the deficiency in clause (a) or (b) is made up in whole
or in part on the applicable payment or purchase date, the Trustee shall so
notify the Insurer or its designee.
(d) In addition, if the Trustee has notice that any of the
Holders have been required to disgorge payments on Notes as described in clauses
(a) or (b) to the Company or to a trustee in bankruptcy for creditors or others
pursuant to a final judgment by a court of competent jurisdiction that such
payment constitutes a voidable preference to such Holders within the meaning of
any applicable bankruptcy laws, then the Trustee shall notify the Insurer or its
designee of such fact by telephone, confirmed in writing by registered or
certified mail.
(e) The Trustee is hereby irrevocably designated, appointed,
directed and authorized to act as attorney-in-fact for Holders of the Notes as
follows:
If and to the extent there is a deficiency in amounts required
to pay interest on the Notes, the Trustee shall (A) execute and deliver to an
insurance paying agent designated by the Insurer (the "Insurance Paying Agent"),
in form provided by the Insurance Paying Agent, an instrument appointing the
Insurer as agent for such Holders in any legal proceeding related to the
30
<PAGE> 32
payment of such interest and an assignment to the Insurer of the claims for
interest to which such deficiency relates and which are paid by the Insurer, (B)
receive as designee of the respective Holders in accordance with the tenor of
the Policy payment from the Insurance Paying Agent with respect to the claims
for interest so assigned and (C) disburse the same at the written direction of
the Insurance Paying Agent to such respective Holders;
(f) Irrespective of whether any such assignment is executed
and delivered, the Company and the Trustee hereby agree for the benefit of the
Insurer that:
(i) they recognize that to the extent the Insurer makes
payments, directly or indirectly (as by paying through the
Trustee), on account of interest on the Notes, the Insurer
will be subrogated to the rights of such Holders to receive
the amount of such interest from the Company, with interest
thereon as provided and solely from the sources stated in this
Second Supplemental Indenture and the Notes; and
(ii) they will accordingly pay to the Insurer the amount
of such interest (including interest recovered under
subparagraph (ii) of the first paragraph of the Policy, which
interest shall be deemed past due and not to have been paid),
with interest thereon as provided in this Indenture and the
Note, but only from the sources and in the manner provided
herein for the payment of interest on the Notes to Holders and
will otherwise treat the Insurer as the owner of such rights
to the amount of such interest.
(g) On the date of purchase, the Company shall execute and the
Trustee shall authenticate and make available for delivery to the Insurer or the
Insurer's designee all Notes purchased with the proceeds under the Policy which
Notes shall be registered and made available in the name of or as directed in
writing by the Insurer.
(h) Payments with respect to claims for interest on and
principal of Notes disbursed by the Trustee from proceeds of the Policy shall
not be considered to discharge the obligation of the Company with respect to
such Notes, and the Insurer shall become the owner of such unpaid Notes and
claims for interest in accordance with the tenor of the assignment made to it
under the provisions of this section.
Section 804. Amendments. Copies of any amendments made to the
documents executed in connection with the issuance of the Notes which are
consented to by the Insurer shall be sent at the expense of the Company to the
rating agencies then rating the Notes.
Section 805. Notice of Defaults. Notwithstanding Section 601
of the Original Indenture, the Insurer is to receive from the Trustee prompt
notice of all defaults of which the Trustee has actual knowledge.
Section 806. Company Acting as Paying Agent. Notwithstanding
anything to the contrary in the Indenture, so long as a Policy is in effect or
the Insurer is the Holder of Notes, the Company shall not act as its own Paying
Agent.
31
<PAGE> 33
Section 807. Redemption of Insurer Notes. Notwithstanding
Section 1103 of the Original Indenture, all Notes of which the Insurer is the
Holder shall be redeemed prior to any other Notes.
Section 808. Change in Trustee. The Insurer shall receive
notice of the resignation or removal of the Trustee and the appointment of a
successor thereto.
Section 809. Effect of Amendments. In determining whether any
amendments or supplement to the Indenture may be made without the consent of the
Holders or in determining whether any action should be taken the effect of such
action on the rights of the Holders shall be considered as if the Policy were
not in effect.
Section 810. Copies of Financial Statements. The Insurer shall
receive a copy of all financial statements and reports to be delivered to the
Trustee pursuant to Section 704 of the Original Indenture at the time such
financial statements and reports are delivered to the Trustee.
Section 811. Defeasance. Notwithstanding Section 403 of the
Original Indenture, for so long as the Policy is in effect and the Insurer is
not in default of its obligation to make payments thereunder, the Company shall
not exercise its rights to satisfy and discharge the entire indebtedness on the
Notes without the consent of the Insurer, which consent shall not be
unreasonably withheld.
Section 812. Notices to Holders. Any notice, certificate or
report that is required to be given to a Holder of the Notes or to the Trustee
pursuant to the Indenture shall also be provided by the Company to the Insurer.
All notices, certificates or reports required to be given to the Insurer shall
be in writing and shall be sent by registered or certified mail to such address
as shall be designated in writing by the Insurer from time to time.
Section 813. Third Party Beneficiary. Notwithstanding Section
112 of the Original Indenture, so long as the Policy is in effect and the
Insurer is not in default of its obligation to make payments thereunder, the
Insurer is an express third-party beneficiary of the Indenture.
ARTICLE NINE
AMENDMENTS
Section 901. Notwithstanding anything herein or in the
Original Indenture to the contrary, this Second Supplemental Indenture and the
Original Indenture (in the case of the Original Indenture, with respect to any
amendment of or affecting the Notes or the Insurer) may be amended at any time
in accordance with the provisions of Article Nine of the Original Indenture, but
subject to the consent of the Insurer (which consent shall not be unreasonably
withheld) so long as the Policy is in effect and the Insurer is not in default
of its obligation to make payments under the Policy.
ARTICLE TEN
MISCELLANEOUS PROVISIONS
32
<PAGE> 34
The Trustee makes no undertaking or representations in respect
of, and shall not be responsible in any manner whatsoever for and in respect of,
the validity or sufficiency of this Second Supplemental Indenture or the proper
authorization or the due execution hereof by the Company or for or in respect of
the recitals and statements contained herein, all of which recitals and
statements are made solely by the Company.
Except as expressly amended hereby, the Original Indenture
shall continue in full force and effect in accordance with the provisions
thereof and the Original Indenture is in all respects hereby ratified and
confirmed. This Second Supplemental Indenture and all its provisions shall be
deemed a part of the Original Indenture in the manner and to the extent herein
and therein provided.
This Second Supplemental Indenture shall be governed by, and
construed in accordance with, the laws of the State of New York.
This Second Supplemental Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
33
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed and attested, all as of the day and
year first above written.
DTE CAPITAL CORPORATION
By:
---------------------------------------
Name:
Title:
ATTEST:
By:
----------------------------------
THE BANK OF NEW YORK,
as Trustee
By:
---------------------------------------
Name:
Title:
ATTEST:
By:
----------------------------------
34
<PAGE> 36
STATE OF MICHIGAN )
) :
COUNTY OF WAYNE )
On the ___ day of November ____, 1998, before me personally came_______________,
to me known, who, being by me duly sworn, did depose and say that he is
_________ of DTE CAPITAL CORPORATION, one of the corporations described in and
which executed the foregoing instrument and he signed his name thereto by like
authority.
____________________________________________
Notary Public, State of
Michigan
[Notarial Seal]
STATE OF NEW YORK )
) :
COUNTY OF )
On the _____ day of November ____, 1998, before me personally came____________,
to me known, who, being by me duly sworn, did depose and say that she is
_____________ of THE BANK OF NEW YORK, one of the corporations described in and
which executed the foregoing instrument and she signed his name thereto by like
authority.
____________________________________________
Notary Public, State of
New York
[Notarial Seal]
35
<PAGE> 37
EXHIBIT A
FORM OF NOTE
(Attached)
A-1
<PAGE> 38
THIS CERTIFICATE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES
IN CERTIFICATED FORM, THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE
BY THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") TO A NOMINEE OF THE
DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR
A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION. THIS NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM
DENOMINATIONS OF $100,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER THIS NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE
DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY "AFFILIATE" OF THE
COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) ONLY (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE NOTES ARE ELIG