Document:

Ex-10.5 Commitment Agreement

 

Exhibit 10.5

This Commitment Agreement has been filed to provide investors with information regarding its terms.
It is not intended to provide any other factual information about the Tennessee Valley Authority.
The representations and warranties of the parties in this Commitment Agreement were made to, and
solely for the benefit of, the other parties to this Commitment Agreement. The assertions embodied
in the representations and warranties may be qualified by information included in schedules,
exhibits or other materials exchanged by the parties that may modify or create exceptions to the
representations and warranties. Accordingly, investors should not rely on the representations and
warranties as characterizations of the actual state of facts at the time they were made or
otherwise.

 

 

COMMITMENT
AGREEMENT

     THIS AGREEMENT is effective as of the date it is executed by the last party to execute it
and is made and entered into among MEMPHIS LIGHT, GAS AND WATER DIVISION (Board), acting for itself
and on behalf of the CITY OF MEMPHIS, TENNESSEE (Municipality), a municipal corporation created and
existing under and by virtue of the laws of the State of Tennessee, as they exist on the effective
date of this agreement, and TENNESSEE VALLEY AUTHORITY (TVA), a corporation created and existing
under and by virtue of the Tennessee Valley Authority Act of 1933, as it exists on the effective
date of this agreement;

W
I T N E S S E
T H:

     WHEREAS, TVA and Board have a long-standing relationship as seller and buyer of power, under
which Board currently purchases all of its power requirements from TVA pursuant to Power Contract
TV-65726A, dated December 26, 1984, as amended (Power Contract); and

     WHEREAS, the electric utility industry is currently undergoing significant changes and
restructuring; and

     WHEREAS, TVA and Board have discussed a proposed transaction under which the Municipality
would issue municipal bonds for the benefit of the Board that are
exempt from federal income tax
(the Bonds) and use the proceeds of the Bonds to prepay $1,500,000,000 (one billion five hundred
million dollars) of the costs it would incur under the Power Contract for a fifteen-year period;
and

     WHEREAS, Board wishes to make a prepayment to TVA of a portion of Board’s power costs over
the next fifteen years under the Power Contract in order to assure a reliable supply of electrical
energy for its customers at favorable and predictable rates;
and

     WHEREAS, TVA wishes to be assured of its long-term market for the sale of electrical power by
contracting to supply at least half of Board’s power
requirements for the next fifteen years;

     NOW, THEREFORE, for and in consideration of the premises and of the mutual agreements set
forth below and subject to the provisions of the Tennessee Valley Authority Act of 1933, as it
exists on the date of execution of this agreement, the parties agree as follows:

 

 

Section 1.
Prepayment Transaction.

Board and TVA have agreed in principle to implement a transaction under which the
Municipality will issue for the benefit of the Board the Bonds and use the proceeds thereby
obtained to prepay $1,500,000,000 (one billion five hundred million dollars) of the costs it
will incur under the Power Contract for a fifteen-year period (the Prepayment Transaction).
In order to implement the Prepayment Transaction, and subject to the terms of this agreement,
Board and TVA have executed as of even date a supplement to the Power Contract in
substantially the form of Attachment A hereto (the Supplement). The Supplement shall not be
effective unless the provisions of section 4 of this agreement have been satisfied.

Section 2.
Wire Transfer.

Prior to 12:00 noon, EST, on the next business day following the day Board receives the
proceeds, Board shall prepay TVA $1,500,000,000 (one billion five hundred million dollars)
of costs under the Power Contract by wire transferring $1,500,000,000 (one billion five
hundred million dollars) to an account designated by TVA. If such wire transfer occurs
before the first day of the month following the month in which the conditions precedent
identified in section 4 of this agreement have been satisfied, then an appropriate
proration adjustment will be reflected in the document referenced in section 4(f) of this
agreement.

Section 3.
Further Assurances.

Board and TVA undertake to work diligently and in good faith to:

     a. negotiate, draft, and reach agreement on the terms and conditions of such other
documents as are or may be necessary to consummate the Prepayment Transaction;

     b. obtain all necessary approvals from their respective governing bodies to enter
into the Supplement and to execute such other documents and take such other steps as are
or may be necessary to consummate the Prepayment Transaction; and

     c. obtain from the Internal Revenue Service and/or the Department of Treasury all
necessary regulatory provisions, rulings, and/or other administrative guidance permitting
the use of tax-exempt financing for the Prepayment Transaction.

Section 4.
Conditions Precedent.

The Supplement shall not become effective unless and until each of the following
conditions has been satisfied prior to the Effective Date thereof:

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     a. Board and TV A shall have negotiated, drafted, and reached agreement
on the terms and conditions of such other documents as are or may be necessary
to consummate the Prepayment Transaction:

     b. Board and TV A shall each have rendered an opinion that the
Supplement is enforceable;

     c. Board and TV A shall each have obtained all necessary approvals from
their respective governing bodies to enter into the Supplement and to execute such
other documents and take such other steps as are or may be necessary to
consummate the Prepayment Transaction;

     d. Board shall have obtained all necessary regulatory provisions, rulings,
and/or other administrative guidance from the Internal Revenue Service and/or the
Department of Treasury, acceptable to Board in its sole discretion, to permit the
use of tax-exempt financing for the Prepayment Transaction;

     e. Board shall have obtained appropriate tax-exempt financing for the
Prepayment Transaction containing such terms and conditions and expenses as
are, after coordination with TVA, acceptable to Board in its sole discretion. In
exercising its discretion, Board will give due consideration to how the terms and
conditions would affect TVA;

     f. If either Board or TVA has requested an economic adjustment pursuant
to section 5 of this agreement, Board and TVA shall have executed a document
modifying the Supplement as provided in section 5 of this agreement in
substantially the form of Attachment B hereto; and

     g. Board and TVA shall have executed a document confirming that the
foregoing conditions precedent have been satisfied and that they waive any
remaining termination rights under section 5 of this agreement in substantially the
form of Attachment C hereto.

Section 5. Economic Adjustment.

At any time prior to the execution of the bond purchase agreement for the issuance by the
Municipality for the benefit of the Board of Bonds for the Prepayment Transaction, either
Board or TVA may request a one-time adjustment of the Monthly Savings under the Supplement
in order to preserve the economics of the Prepayment Transaction. If the parties shall
agree on a revised level for the Monthly Savings, they shall, prior to the execution of the
bond purchase agreement, execute a document modifying the Supplement by adjusting the
Monthly Savings and other terms or figures, as necessary, to the agreed-upon revised
amount(s) for all purposes under the Supplement, in substantially the form of Attachment B
hereto. If they do not reach agreement, then, upon written notice from either party to the
other, this agreement shall be terminated. In the event of such a termination, the
Supplement shall not become effective and the parties

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shall share equally all reasonable and customary out-of-pocket expenses of the
transaction through the date of termination.

Section 6. Books and Records.

Each party will make available for the review of the other party and its representatives
any and all information necessary for the other party’s exercise of rights and discharge of
obligations in connection with the Prepayment Transaction. This review will be conducted
during normal business hours at the location of the party making the documents available.
No documents or copies may be taken from this location without the permission of the party
making the documents available. Except for reasonable copying charges incurred if a party
allows copies to be made and removed from its offices, nether party shall charge the other
for the cost of making its books and records available to the other party. If requested,
TVA may make any records it has with respect to the Prepayment Transaction available to the
U.S. General Accounting Office or other governmental body with a legitimate interest in
such transaction.

Section 7. Definitions.

Terms that are capitalized but not defined in this agreement have the meanings given to
them in the Supplement.

Section 8. Entire Agreement.

Except for such agreements of the parties as are set out in the Supplement, this
agreement contains the entire agreement and understanding between the parties, and there
are no oral understandings, terms, or conditions not herein recited, and neither party has
relied upon any representations not contained in this agreement. All prior understandings,
terms, or conditions are deemed to be merged in this agreement, which may not be changed
or supplemented orally by either party.

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     IN WITNESS WHEREOF, the parties have caused this agreement to be executed by their duly
authorized officers, as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	MEMPHIS LIGHT, GAS AND WATER DIVISION	 	 
	 

	 	And	 	 
	 	 	CITY OF MEMPHIS, TENNESSEE	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Herman Morris Jr.
 

President of Light, Gas and Water Division
	 	 
	 
	 	 	 	 	 	 
	 	 	Date: November 19, 2003	 	 
	 
	 	 	 	 	 	 
	 	 	TENNESSEE VALLEY AUTHORITY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Mark O. Medford	 	 
	 

	 	 	 	 

	 	 
	 	 	Date: November 19, 2003	 	 

5Ex-10.6 Power Contract Supplement No. 95

 

Exhibit 10.6

This Power Contract Supplement has been filed to provide investors with information regarding its
terms. It is not intended to provide any other factual information about the Tennessee Valley
Authority. The representations and warranties of the parties in this Power Contract Supplement
were made to, and solely for the benefit of, the other parties to this Power Contract Supplement.
The assertions embodied in the representations and warranties may be qualified by information
included in schedules, exhibits or other materials exchanged by the parties that may modify or
create exceptions to the representations and warranties. Accordingly, investors should not rely on
the representations and warranties as characterizations of the actual state of facts at the time
they were made or otherwise.

 

 

AGREEMENT

Among

MEMPHIS LIGHT, GAS AND WATER DIVISION

CITY OF MEMPHIS, TENNESSEE

And

TENNESSEE VALLEY AUTHORITY

			
	 	 	 
	     Date: November 19, 2003
	 	TV-65726A, Supp. No. 95

     THIS AGREEMENT, made and entered into among MEMPHIS LIGHT, GAS AND WATER DIVISION
(Board), acting for itself and on behalf of the CITY OF MEMPHIS, TENNESSEE (Municipality), a
municipal corporation created and existing under and by virtue of the laws of the State of
Tennessee, as they exist on the date of this agreement, and TENNESSEE VALLEY AUTHORITY (TVA), a
corporation created and existing under and by virtue of the Tennessee Valley Authority Act of 1933,
as it exists on the date of execution of this agreement;

WITNESSETH:

     WHEREAS, TVA and Board have a long-standing relationship as seller and buyer of power,
under which Board currently purchases all of its power requirements from TVA pursuant to Power
Contract TV-65726A, dated December 26, 1984, as amended (Power Contract); and

     WHEREAS, in accordance with the Commitment Agreement between the parties of even date herewith
(Commitment Agreement), it is contemplated that Board will make a prepayment to TVA to cover a
portion of its power costs over the next fifteen (15) years; and

     WHEREAS, notwithstanding the termination rights otherwise provided for under the Power
Contract, Board wishes to make a commitment to purchase, and TVA wishes to make a commitment to
supply, the power and energy to which the prepayment will be applied over that same period; and

     WHEREAS,
the parties have agreed that such prepayment and commitment should be
reflected as
reserved energy to be supplied on a monthly basis over such period at a discounted capacity cost to
Board to be reflected by TVA’s application of a monthly savings amount in billing Board under the
Power Contract; and

     WHEREAS, the parties wish to further supplement and amend the Power Contract in the respects
necessary to reflect such prepayment arrangements;

     NOW, THEREFORE, for and in consideration of the premises and of the mutual agreements set
forth below, and subject to the provisions of the Tennessee Valley Authority Act of 1933, as it
exists on the date of execution of this agreement, the parties agree as follows:

 

 

SECTION 1 — CONDITIONS PRECEDENT TO PREPAYMENT

This agreement shall not become effective unless and until each of the conditions
precedent set forth in section 4 of the Commitment Agreement has been satisfied.
Accordingly, this agreement shall become effective upon the execution of the document
described in section 4(g) of the Commitment Agreement (Effective
Date).

SECTION 2 — DEFINITION OF TERMS

2.1 “Prepaid Period” shall mean the wholesale billing month in which the Effective Date
occurs plus the next 179 wholesale billing months thereafter.

2.2
“Baseload” shall mean 928,671 kWh for each hour of
each year of the Prepaid
Period, subject to such kWh amount being revised by a modification of this agreement
executed by both parties on or before the Effective Date.

2.3 “Reserved kWh” shall mean 122,027,315,960 kWh of Baseload capacity over the
Prepaid Period, subject to such kWh amount being revised by a
modification of this
agreement executed by both parties on or before the Effective Date.

2.4 “Monthly Reserved kWh” for each wholesale billing month during the Prepaid Period
shall mean 677,929,533 kWh of Baseload capacity for such month, subject to such kWh
amount being revised by a modification of this agreement executed by both parties on or
before the Effective Date.

2.5 “Monthly Savings” for each wholesale billing month during the Prepaid Period shall
mean $12,992,061.83 (1/12 of an Annual Savings amount of $155,904,742 and 1/180 of
a Total Savings amount of $2,338,571,130), subject to such savings amounts being
revised by a modification of this agreement executed by both parties on or before the
Effective Date.

2.6 “Rate Change” shall mean a change in the wholesale power rate schedule of the
Schedule of Rates and Charges, made by TVA in accordance with the paragraph headed “Change”
of the section of the Power Contract’s Schedule of Terms and Conditions entitled
“Adjustment and Change of Wholesale Rate and Resale Rates.”

2.7 “Rate Adjustment” shall mean an adjustment to the charges of the wholesale
power
rate schedule of the Schedule of Rates and Charges, made by TVA in accordance with
the paragraph headed “Adjustment” of the section of the Power Contract’s Schedule of
Terms and Conditions entitled “Adjustment and Change of Wholesale Rate and Resale
Rates.”

2.8 “Partial Requirements Option” shall mean any right arising pursuant to
contract, Act
of Congress, executive order, court decision, or regulatory action, or any other right or
opportunity under any program offered by TVA, for distributors of TVA power currently
purchasing all of their requirements from TVA to reduce the level of such purchases and
become partial requirements customers of TVA.

SECTION 3 — THE PREPAYMENT

Board will make a prepayment for Baseload capacity to TVA in the amount of
$1,500,000,000 (one billion five hundred million dollars) in cash in the manner provided
in the Commitment Agreement.

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SECTION 4 — TERM OF CONTRACT

Notwithstanding the section of the Power Contract entitled “Term of Contract,” a notice
of termination given by either party under that section prior to the end of the tenth year
of the Prepaid Period shall not be effective to terminate the Power Contract before
the end of the Prepaid Period; provided however, that, subject only to the
limitation that Board shall continue to be obligated to purchase from TVA its requirements
up to the amount of the Baseload each hour for the entire Prepaid Period,
nothing in this agreement shall be construed in any way to limit Board’s right to fully
exercise and participate in any Partial Requirements Option(s). Further, it is
expressly recognized and agreed that the provisions of section 3 of Agreement TV-65726A,
Supp. No. 80, dated August 20, 2002, shall be applicable in the event of any exercise by
Board of its right to participate in any Partial Requirements Option(s), such that
the releases and discharges contained in that section 3 are fully applicable to any partial
termination of the Power Contract that may result from Board’s exercise of such right.

SECTION 5 — FIXED MONTHLY SAVINGS

     To reflect the prepayment, for each billing month during the Prepaid Period,
Board shall receive a credit on its monthly power bill equal to the Monthly
Savings. It is expressly recognized and agreed that:

     (a) the prepayment includes full payment for the capacity costs associated with
the Reserved kWh as such costs are presently reflected in TVA’s current rates,

     (b) in accordance with the provisions of the Power Contract as supplemented
and amended by this agreement, upon TVA’s delivery of the
Reserved kWh, Board
shall
be obligated to pay such additional amounts for capacity costs, it any, as may be
applicable as a result of a Rate Change or a Rate
Adjustment,

     (c) notwithstanding any non-performance of any generation assets reflected in
such capacity costs, nothing in this agreement shall affect TVA’s obligation under the
Power Contract to supply all of Board’s requirements,

     (d) except as expressly provided in section 2 of the Commitment Agreement,
notwithstanding (i) any Rate Change, (ii) any Rate Adjustment, (iii)
any exercise by
Board of a Partial Requirements Option, (iv) any other lawful reduction in the
level of
Board’s purchases from TVA, or (v) any other reason, the Monthly Savings shall
remain
fixed for each wholesale billing month of the Prepaid Period,

     (e) to the extent that the Monthly Savings exceeds the amount of the invoice
for
any wholesale billing month, Board shall have a credit balance which shall be applied
to
its next monthly invoice and carried forward with interest at a rate equal to the
three-month London Interbank Offered Rate (LIBOR) for the last day of the TVA-Board billing
cycle as published in the Wall Street Journal, provided that, if Board so requests,
TVA
shall pay Board the amount of such credit balance plus interest within five (5)
business
days of such request, and

     (f) in the event that any such credit balance is outstanding as of the end of the
Prepaid Period, TVA shall pay Board the amount of such credit balance within
five (5)
business days after the end of the Prepaid Period.

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SECTION 6 — OPTIONS, INCENTIVES, PROGRAMS, AND RATES

6.1 Nondiscrimination. TVA will not, because of the prepayment arrangements
reflected in this agreement, and with no other basis, discriminate against Board by:

     (a) foreclosing or limiting, in whole or in part, Board’s participation in any new or
existing contract options, incentives, and other programs, including, without limitation,
any options, incentives, and other programs where participation is linked to contract
length, any options or programs which allow Board to elect a longer contract term, and any
Partial Requirements Option(s); provided, however, that:

     (i) Board’s participation in options, incentives, and other programs where
participation is linked to contract length shall be subject to the proration
provided for in section 6.3 below, and

     (ii) Board’s participation in any Partial Requirements Option(s) shall
be limited by the provisions in section 4 above;

or

     (b) charging Board a special rate, charging Board a special surcharge, or placing
Board in a special rate category for the purpose of:

     (i) canceling, in whole or in part, the value of the fixed Monthly Savings
 provided for in section 5 above, or

     (ii) otherwise using the TVA obligation to apply the fixed Monthly Savings
to Board’s power bills as the basis for determining the design of the wholesale
rate schedule of the Power Contract’s Schedule of Rates and Charges.

6.2
Contract Length Requirements. During the Prepaid Period, the 15-year
commitment provided for in section 4 above shall be deemed sufficient to meet the contract
length requirement for, and Board may elect:

     (a) new or existing contract options, incentives, and other programs (as now
offered, or may hereafter be offered, to other municipal and cooperative distributors
of
TVA power) where participation is linked to a contract length of ten (10) years, or

     (b) new or existing contract options, incentives, and other programs (as now
offered, or may hereafter be offered, to other municipal and cooperative distributors
of
TVA power) where participation is linked to a contract length of fifteen (15) years;

provided, however, that the benefits and obligations of any such options, incentives,
or other programs shall be applied on a prorated basis as further described in section
6.3 below to reflect the then-remaining duration of the Prepaid Period.

     Further, it is expressly recognized and agreed that nothing in this agreement shall
prohibit Board from making the election provided for in section 6.2(a) above for some
contract options, incentives, and programs and making the election provided for in section
6.2(b) above for other contract options, incentives, and programs.

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6.3
Prorating Benefits and Obligations. (a) If Board elects any options, incentives,
or programs available to it under section 6.2(a) above, the benefits and obligations of any
such options, incentives, or other programs shall be prorated during the last 120 months (10
years) of the Prepaid Period only. For purposes of such prorating, TVA shall apply a
factor equal to X/10, where X is equal to the then-remaining number of full or partial years
in the Prepaid Period.

     (b)If Board elects any options, incentives, or programs available to it under
section 6.2(b) above, the benefits and obligations of any such options, incentives, or other
programs shall be prorated during the entire Prepaid Period. For purposes of such
prorating, TVA shall apply a factor equal to X/15, where X is equal to the then-remaining
number of full or partial years in the Prepaid Period.

SECTION 7 — DEFAULT BY TVA

7.1 TVA’s Delivery Obligation. (a) The provisions in this section 7.1 shall be
applicable solely for the purposes of implementing the prepayment arrangements reflected in
this agreement and applying the remedies specified in section 7.2
below and shall not
otherwise modify TVA’s obligation to deliver electric power as provided for by the Power
Contract.

     (b) Notwithstanding section 9 of the Terms and Conditions to the Power Contract
or any other provision of the Power Contract, TVA shall be absolutely obligated to
supply
and deliver to Board the Reserved KWh (the Delivery Obligation or the
Obligation). So
long as Board remains committed to purchase at least the Baseload from TVA,
TVA’s
Obligation shall not be excused or reduced by any reduction in Board’s purchases from
TVA pursuant to section 4 of this agreement or by any other lawful reduction by Board
in
its level of purchases from TVA. TVA’s Obligation shall continue in effect until the
end of
the Prepaid Period.

     (c) This Delivery Obligation, so long as Board remains committed to purchase at
least the Baseload from TVA, shall be absolute and unconditional under any and
all
circumstances and shall not be terminated, extinguished, diminished, lost, or
otherwise
impaired by any circumstance of any character, including by (i) any loss, destruction
of,
damage to, or inability to continue to use for any reason any or all electric
generating
plants owned or controlled by TVA or any part thereof for any reason whatsoever,
(ii) any loss, destruction of, damage to, or inability to continue to use for any reason
any or all facilities for the transmission of electricity owned or controlled by TVA, (iii)
the inability for any reason of TVA to purchase electricity generated by others and to
supply such purchased power to Board, (iv) any event of force majeure or any frustration,
and (v) any legal requirement similar or dissimilar to the foregoing, any future law to the
contrary notwithstanding. In the event that TVA is unable to fulfill its Delivery
Obligation to Board hereunder or to effect delivery of electric power to Board to fulfill
its Delivery Obligation to Board hereunder, for any reason whatsoever, then TVA shall be
liable to Board for the remedies prescribed in section 7.2 of this agreement.

     (d) If TVA fails to deliver the Baseload amount to Board in any hour and
Board
purchases replacement power from another source, TVA shall reimburse Board for all
costs of such replacement power within five (5) business days of Board submitting an
invoice therefor.

     (e) If TVA delivers to Board less than 100 percent of the Monthly Reserved kWh in three (3) consecutive months or delivers to Board less than 50 percent of the
Monthly

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Reserved kWh for one (1) month, or fails to deliver to Board the entire Reserved KWh
within the Prepaid Period, then Board may, at its option, declare TVA to be in breach
of its Delivery Obligation and trigger the remedies prescribed in
section 7.2 of this agreement.

     (f) It is expressly recognized and agreed that the provisions of sections 7.1 (d)
and 7.1 (e) above shall not be triggered if the shortfall in deliveries of power by TVA to
Board is directly attributable to Board’s refusal or failure to accept such delivery.

     (g)
If TVA grants, within six (6) months after the Effective Date, a rate, rebate,
discount, or concession to another distributor customer or enters into a prepayment
arrangement with any other distributor customer whose economic terms are more
favorable to that customer than this agreement is to Board, then Board may request a
renegotiation of the economic terms of this agreement to achieve an economic benefit to
Board equal to the benefit to such other distributor customer of its rates, rebate,
discount, or concession or its prepayment arrangement with TVA, If
the parties fail to
reach agreement on such terms, then they will submit their dispute for resolution
pursuant to section 8.2 of this agreement. Such resolution shall account for any benefits
to such other distributor customer that exceed the benefits to Board under this
agreement by either (i) adjusting the terms of this agreement or (ii) causing TVA to make
a lump-sum payment to Board and then continuing performance under the terms of this
agreement.

7.2
Remedies for Events of Default. In the event of TVA’s failure to meet its Delivery
Obligation under section 7.1 of this agreement or a triggering event pursuant to section 9 of this
agreement, and upon written notice from Board,

     (a) the obligations of the parties under this agreement shall terminate, provided
that this agreement shall remain in effect until the remedies in this section 7.2 have been
paid and for purposes of otherwise winding up the prepayment transaction; and

     (b) TVA shall pay the Board within thirty-five (35) days an amount equal to the
sum of:

     (i) the amount necessary to pay in full all amounts payable by the Board as
set out in the Extraordinary Redemption portion of the final Official Statement (or
Official Statements, if the Bonds (as defined below) are issued in multiple series)
relating to the revenue bonds issued by the Municipality for the benefit of the Board to
finance the Prepayment (such bonds of any and all series issued for such purpose, the
“Bonds”), plus

     (ii) the net present value (calculated using the discount rate described
below, less 50 basis points) of $13 million divided by 12 per month for the number of
remaining months in the Prepaid Period, plus

     (iii) accrued interest, to the extent not reflected in section 7.2(b)(i)
above, and any other direct penalties and other costs incurred by Board for executing the
extraordinary redemption of the Bonds referred to in section 7.2(b)(i) above
(collectively, the Default Payment), plus

     (iv) any other actual damages caused to Board by TVA’s breach of this
agreement, including but not limited to the positive difference, if any,

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between the cost of purchasing replacement power and the cost of the Reserved kWh
TVA failed to deliver, plus

     (v)
interest on the amount described in section 7.2(b)(iv) at a rate equal
to the prime rate charged by Chase Manhattan Bank, N.A., from the date of the written
notice from Board until the date of payment of the Default Payment.

The discount rate shall be the rate equal to the yield to the next available date upon which
the Bonds can be redeemed before maturity by the issuer or, if there is no option for the
issuer to redeem the Bonds before maturity, the rate equal to the yield to maturity on the
U.S. Treasury security having an average life equal to the remaining
average life of the
Bonds and trading in the secondary market at the price closest to par. If there is no U.S.
Treasury security having an average life equal to the remaining average life of such Bonds,
such discount rate will be calculated using a yield to maturity interpolated or extrapolated
on a straight-line basis (rounding to the nearest calendar month, if necessary) from the
yields to maturity for two (2) U.S. Treasury securities having average lives most closely
corresponding to the remaining average life of the Bonds and trading in the secondary market
at the price closest to par.

The amount of accrued interest for which TVA would be liable to Board under this
section 7.2 for fixed-rate Bonds shall be determined using the applicable Bond’s fixed
interest rate and for variable-rate Bonds shall be determined by using the lesser of the
then applicable variable interest rate for the variable-rate Bond in question or the fixed
interest rate for the fixed-rate Bond having the same maturity as the variable-rate Bond
in question.

Upon the Board’s request, TVA shall set off the amount of the Default Payment against any
other obligation the Board has to pay monies to TVA.

SECTION 8 — DISPUTES

8.1 Enforceable Contract. It is expressly recognized and agreed that the parties intend
all of the obligations of each party set forth in this agreement to be legally binding
contract obligations which may be enforced by the other party. It is further expressly
recognized and agreed that venue for any lawsuit arising out of this agreement shall be
in the United States District Court for the Middle District of Tennessee. During any
litigation, the parties shall continue performance of their respective obligations under
this
agreement, unless such performance is stayed or enjoined by a court.

8.2 Alternative Dispute Resolution. The parties agree to use their best efforts to resolve
any disputes that may arise under section 7 above informally at the lowest possible
levels of decision making and without litigation, according to the following procedures:

     (a) If unassisted negotiations are unsuccessful, the parties will use mutually
acceptable Alternate Dispute Resolution (ADR) techniques in an attempt to resolve the
dispute. Mutually acceptable rules and guidelines for any dispute submitted to ADR
will
be determined when the dispute exists.

     (b) Litigation will only be considered as a last resort when ADR is unsuccessful or
when a party rejecting any proposed ADR process as inappropriate for resolving the
dispute has documented its reasons for that determination to the other party;
provided,

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however, that a party shall not be required to delay the commencement of litigation in order
to comply with this paragraph unless the parties agree to the tolling of any applicable
statutes of limitations.

     (c) During the ADR process and any litigation (unless such performance is
stayed or enjoined by a court), the parties shall continue performance of their
respective
obligations under this agreement. If the ADR is not successful, the parties retain their
existing rights.

     (d) Except as expressly provided in section 7.1 (g) of this agreement concerning
disputes regarding a rate, rebate, discount, or concession granted by TVA to another
distributor customer, it is expressly recognized and agreed that the parties will not
submit TVA’s rates, any Rate Change, or any Rate
Adjustment to ADR.

     (e) It is further expressly recognized and agreed that any disputes that arise
under provisions of this agreement other than section 7 shall not be subject to
the
provisions of this section 8.2.

SECTION 9 — ASSIGNMENT

This agreement may not be assigned by either party. If this agreement is assigned by TVA or
if it is assigned by operation of law, then Board may, at its option, trigger the remedies
prescribed in section 7.2 hereof.

SECTION 10 — INTEGRATION

Except
for such agreements of the parties as are set out in the Commitment Agreement, this
agreement represents the complete and integrated agreement between the parties concerning
the prepayment arrangements. All prior discussions, negotiations, and understandings are
merged into and superseded by this agreement. No modification of the terms and provisions of
this agreement shall be or become effective except pursuant to and upon the due and mutual
execution of a written agreement by the parties hereto.

SECTION 11 — BASIS OF AGREEMENT

Except as expressly provided herein concerning Partial Requirements Options
and assignment by operation of law in section 9 hereof, this agreement is subject to
the applicable laws and regulations in effect on the date of execution of this
agreement.

SECTION 12 — POWER CONTRACT AFFIRMED

Except as expressly set out above, nothing in this agreement shall affect the other terms
of the Power Contract.

8

 

     IN WITNESS WHEREOF, the parties have caused this agreement to be executed by their duly
authorized officers, as of the day and year first above written.

	 	 	 	 	 	 	 
	 	 	MEMPHIS LIGHT, GAS AND WATER DIVISION	 	 
	 

	 	And	 	 
	 	 	CITY OF MEMPHIS, TENNESSEE	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Herman Morris Jr.
 

President of Light, Gas and Water Division
	 	 
	 
	 	 	 	 	 	 
	 	 	Date: November 19, 2003	 	 
	 
	 	 	 	 	 	 
	 	 	TENNESSEE VALLEY AUTHORITY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Mark O. Medford	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Date: November 19, 2003	 	 

9

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