[Federal Register Volume 59, Number 188 (Thursday, September 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23924]


[[Page Unknown]]

[Federal Register: September 29, 1994]


                                                   VOL. 59, NO. 188

                                       Thursday, September 29, 1994

DEPARTMENT OF AGRICULTURE

Rural Electrification Administration

7 CFR Part 1718

RIN 0572-AB06

 

Loan Security Documents for Electric Borrowers

AGENCY: Rural Electrification Administration.

ACTION: Proposed rule.

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SUMMARY: The Rural Electrification Administration (REA) hereby proposes 
new policies and requirements for the standard form of mortgage 
ordinarily required of electric distribution borrowers. This proposed 
rule is intended to continue to provide adequate security for loans 
made to distribution borrowers, to update and clarify the provisions of 
the mortgage, to generally confine the scope of the mortgage primarily 
to basic issues of collateral and loan security, and to support 
borrower access to other credit sources.

DATES: Written comments must be received by REA or carry a postmark or 
equivalent by January 26, 1995.

ADDRESSES: Written comments should be addressed to Mr. F. Lamont Heppe, 
Jr., Deputy Director, Program Support Staff, U.S. Department of 
Agriculture, Rural Electrification Administration, room 2234-S, 14th 
Street and Independence Avenue, SW., Washington, DC 20250-1500. REA 
requires a signed original and 3 copies of all comments (7 CFR 1700.30 
(e)). Comments will be available for public inspection during regular 
business hours (7 CFR 1.27(b)).

FOR FURTHER INFORMATION CONTACT: Mr. Alex M. Cockey, Jr., Acting 
Assistant Administrator--Electric, U.S. Department of Agriculture, 
Rural Electrification Administration, room 4037-S, 14th Street & 
Independence Avenue, SW., Washington, DC 20250-1500. Telephone: 202-
720-9547.

SUPPLEMENTARY INFORMATION: This proposed rule has been determined to be 
not significant for the purposes of Executive Order 12866, and 
therefore has not been reviewed by the Office of Management and Budget 
(OMB). The Administrator of REA has determined that the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this rule. The 
Administrator of REA has determined that this rule will not 
significantly affect the quality of the human environment as defined by 
the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.). 
Therefore, this action does not require an environmental impact 
statement or assessment. This rule is excluded from the scope of 
Executive Order 12372, Intergovernmental Consultation, which may 
require consultation with State and local officials. A Notice of Final 
Rule titled Department Programs and Activities Excluded from Executive 
Order 12372 (50 FR 47034) exempts REA electric loans and loan 
guarantees from coverage under this Order. This rule has been reviewed 
under Executive Order 12778, Civil Justice Reform. This rule: (1) Will 
not preempt any State or local laws, regulations, or policies, unless 
they present an irreconcilable conflict with this rule; (2) Will not 
have any retroactive effect; and (3) Will not require administrative 
proceedings before any parties may file suit challenging the provisions 
of this rule.
    The program described by this rule is listed in the Catalog of 
Federal Domestic Assistance Programs under number 10.850 Rural 
Electrification Loans and Loan Guarantees. This catalog is available on 
a subscription basis from the Superintendent of Documents, the United 
States Government Printing Office, Washington, DC 20402-9325.

Information Collection and Recordkeeping Requirements

    The existing recordkeeping and reporting burdens contained in this 
rule were approved by the Office of Management and Budget (OMB) 
pursuant to the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et 
seq.), under control numbers 0572-0017, 0572-0032, and 0572-0103. 
Additional information collection and recordkeeping requirements 
contained in this proposed rule have been submitted to OMB for review.
    Send questions or comments regarding these burdens or any other 
aspect of these collections of information, including suggestions for 
reducing the burden, to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, room 3201, NEOB, Washington, 
DC 20503. Attention: Desk Officer for USDA.

Background

    Starting in February 1991 with the publication of its proposed rule 
on pre-loan policies and procedures for electric loans, REA has 
undertaken a major effort to update, clarify, and simplify its policies 
and procedures relating to electric borrowers. As part of this overall 
effort, REA has been working on updating its mortgage and loan contract 
with electric borrowers, and its policies and procedures governing the 
granting of an accommodation or subordination of the government's lien 
on electric borrowers' systems.
    Because of the magnitude and complexity of the task, the effort was 
divided into several phases. The first phase concentrated on updating 
and streamlining REA's policies and procedures for granting a lien 
accommodation or subordination under the current mortgage.
    On December 2, 1991, REA published an advance notice of proposed 
rulemaking (ANPR) in the Federal Register (56 FR 61201) inviting 
comments on possible changes to REA's loan security documents and its 
policies and procedures governing lien accommodations and 
subordinations. Comments were received from 42 organizations, including 
comments filed on behalf of the G&T Manager's Association proposing a 
form of Mortgage Bond and Note Indenture. That proposal was modeled 
closely on the American Bar Foundation Mortgage Bond Indenture Form 
published in 1981 (the ``Model Indenture'') but also included features 
contained in mortgage indentures previously used by REA assisted 
borrowers.
    On June 30, 1992, REA held a public meeting on REA's loan security 
documents and its policies and procedures for granting lien 
accommodations and subordinations under the electric mortgage. Eighteen 
organizations gave testimony and responded to questions from 
representatives of REA and the Department of Agriculture's Office of 
General Counsel. Written comments were also received following the 
public meeting from several participants and 14 other organizations, 
mostly borrowers.
    On March 5, 1993, REA published a proposed rule on lien 
accommodations and subordinations of REA mortgages in the Federal 
Register, at 58 FR 12552. Comments were received from 32 individuals 
and organizations. After considering the comments, the final rule was 
published in the Federal Register on October 19, 1993 at 58 FR 53835. A 
significant feature of that new rule is the granting of advance 
approval for lien accommodations for additional secured notes and 
refunding notes when specified objective criteria are met.
    The proposed rule published here is the result of continuing 
efforts to update REA's loan security documents, policies and 
procedures. In addition to reviewing the Model Indenture and the 
proposed form filed in response to the 1991 ANPR, REA has reviewed 
numerous other mortgage documents in developing the form being 
published for comment as part of this proposed rule. These resources 
included three separate instruments issued by three unrelated, former 
REA borrowers, namely Chugach Electric Association (Alaska-1991), 
Guadalupe Valley Electric Cooperative, Inc. (Texas-1991), and Old 
Dominion Electric Cooperative (Virginia-1992). REA also reviewed 
mortgage documentation currently being used by the National Rural 
Utilities Cooperative Finance Corporation (``CFC'') and CoBank in 
securing loans made by them to former REA electric borrowers in various 
states. In June of 1993, the National Rural Electric Cooperative 
Association (``NRECA''), a trade association to which most REA electric 
borrowers belong, proposed to REA a form of distribution mortgage that 
had been developed by an ad hoc committee sponsored by NRECA. That 
proposal was also reviewed and considered in developing the form of 
mortgage included in this proposed rule.
    The proposed new form of mortgage for distribution borrowers is 
intended to achieve the following objectives:
     To continue to provide adequate security for loans made or 
guaranteed by REA and other mortgagees;
     To update and clarify the provisions of the mortgage;
     To limit the scope of the multi-party mortgage document 
primarily to basic issues of collateral and loan security, leaving 
lenders and borrowers the flexibility to address other issues in their 
respective loan contracts or other documents, which in the case of REA 
also includes REA regulations; and
     To support borrower access to other credit sources, 
including lenders that have no prior lending history with rural 
electric systems, by adopting provisions used in other modern mortgage 
indentures to the extent possible.
    The proposed mortgage published today does not include several 
``operational controls'' that are included in the current mortgage, 
such as mortgagee approval of extensions or additions to plant. After 
REA has had an opportunity to evaluate responses to this proposal, it 
intends to develop and publish for comment an updated form of loan 
contract for distribution borrowers that correlates with the new form 
of mortgage and more accurately reflects contemporary REA practices and 
policies. Although it seems likely that some of these existing 
operational controls will be updated and included in a new form of REA 
loan contract, it is anticipated that others will not.
    The proposed mortgage published here is for distribution borrowers. 
REA also intends to develop in the near future proposed standard forms 
of the mortgage and loan contract for power supply borrowers.
    The rest of this discussion addresses the more significant 
provisions of the proposed mortgage. The discussion focuses on changes 
from the current mortgage and other significant provisions. For the 
sake of brevity, provisions are characterized in terms of their primary 
content and thrust, without attempting to cover every legal detail.

Excepted Property

    As with the current mortgage, the proposed mortgage would place a 
first mortgage lien on most of the borrower's assets, whether currently 
existing or acquired after the effective date of the mortgage. However, 
certain types of property covered by the broad conveyancing language 
used in the current mortgage would be expressly excepted from the lien 
of the proposed mortgage. Important examples include all cash on hand 
or in banks; most contracts and contract rights, with some exceptions; 
shares of stock; bonds; notes; repurchase agreements; and other 
securities. However, a borrower may choose to subject excepted property 
to the lien of the mortgage, and in certain circumstances such as upon 
a default, the mortgagees can compel the excepted property to be placed 
under the lien of the mortgage. The proposed approach is suggested by 
the Model Indenture. It is intended to address impracticalities 
associated with perfecting and administering liens on certain classes 
of collateral otherwise included in a ``blanket'' lien on all assets. 
The proposed form more closely reflects the longstanding view that 
electric plant serves as the primary security for secured loans to 
electric distribution borrowers.

Permitted Encumbrances

    The list of permitted encumbrances in the proposed mortgage is 
somewhat longer compared to the current mortgage but is typical of more 
contemporary practices. This has been done to alleviate practical 
problems in obtaining opinions of counsel to the effect that the 
mortgage is a valid first lien on all of the mortgaged property. These 
problems have been exacerbated in recent years as developments in the 
legal profession generally caused the borrowers' attorneys to be less 
willing to provide approving legal opinions in mortgage transactions 
without going into great detail in qualifying the application of their 
opinions to certain types of property (most of which has now been 
excepted) and routine encumbrances. Experience in the program has shown 
that the vast majority of such encumbrances are primarily technical in 
nature and do not materially affect the security value of the 
collateral. It is expected that those loan settlement delays associated 
with negotiating legal opinions will be reduced or eliminated by this 
proposal and that the protection REA has traditionally derived from 
such opinions will be preserved.

Section 2.01. Additional Notes

    Under the current mortgage, REA prior approval is required for a 
borrower to issue additional notes secured under the mortgage. Under 
section 2.01 of the proposed mortgage, a borrower not in default under 
the mortgage may issue additional notes to finance mortgageable 
property for its utility system, without the approval of REA or other 
mortgagees, if the following criteria are met:
     The borrower has achieved for each of the 2 calendar years 
immediately preceding the issuance of the notes a Times Interest 
Earning Ratio (TIER) of at least 1.35 and a Debt Service Coverage Ratio 
(DSC) of at least 1.35, on a pro forma basis, after taking into account 
the effect of the new notes.
     The borrower will have equity greater than or equal to 27% 
of total assets after taking into account the effect of the additional 
notes.
     The ratio of the borrower's net utility plant to its long-
term debt will be greater than or equal to 1.1 after taking into 
account the effect of the additional notes.
     Transaction costs included in the additional notes do not 
exceed 3.5% of the face amount of the notes.
     The maturity of the loan evidenced by the notes must not 
be less than 5 years and must not exceed the weighted average of the 
expected remaining useful lives of the assets being financed.
     The principal of the loan evidenced by the notes must be 
amortized at a rate that will yield a weighted average life not greater 
than the weighted average life that would result from level payments of 
principal and interest.
     The principal amount of outstanding notes issued to 
finance community infrastructure (namely water and waste systems, solid 
waste disposal facilities, telecommunications and other electronic 
communications systems, and natural gas distribution systems located in 
the borrower's service territory) will not be greater than 20% of the 
principal amount of all outstanding notes, after taking into account 
the effect of the additional notes.
    TIER and DSC are defined in terms of ``Modified'' TIER and 
``Modified'' DSC, that is, generation and transmission and other 
capital credits are excluded from margins in calculating the ratios. 
These measures reflect current revenues and cash flows better than 
straight TIER and DSC, and thus they better reflect a borrower's 
ability to meet on-going expenses. In this modified form, the level for 
TIER has been reduced to 1.35 from the 1.5 currently required in 7 CFR 
1710.114. The 1.35 level proposed for this modified form of DSC is the 
same as that required for the pledging of borrowers' notes under the 
indenture for issuing collateral trust bonds of CFC.
    In calculating TIER, the annual interest expense of the additional 
notes issued, based on the full face amount of the notes, would be 
added to the interest expense for each of the two test years. 
Similarly, in calculating DSC, interest expense, depreciation and 
amortization expense, and debt service billed for the two test years 
would be increased respectively by the annual interest expense, annual 
depreciation and amortization expense, and the annual debt service 
expense associated with the additional notes and facilities.
    In calculating equity as a percentage of total assets, regulatory 
created assets would be deducted from both equity and total assets as 
they appear on a borrower's balance sheet. Regulatory created assets 
are current period expenses that have been deferred by the borrower, 
and they should be deducted to provide a more accurate picture of a 
borrower's current equity to assets ratio. Under REA's Uniform System 
of Accounts, regulatory created assets equal the sum of amounts 
properly recordable in Accounts 182.2 Unrecovered Plant and Regulatory 
Study Costs, and 182.3 Other Regulatory Assets. This same adjustment is 
used in REA's lien accommodation rule and other regulations.
    The proposed requirement of a net utility plant to long-term debt 
ratio of 1.1 is used in lieu of the more complicated bondable additions 
tests usually used in utility indentures securing publicly offered 
debt. This ratio is used in REA's lien accommodation rule (1717.854) as 
one of the criteria for determining eligibility for advance approval 
for lien accommodations under the current mortgage, and it is also used 
by CoBank, set at a higher level, in its 100 percent mortgage. Comments 
are invited on whether a more traditional bondable additions test would 
be preferable to the proposed net utility plant to long-term debt 
ratio.
    The proposed criteria that would control the amount of transaction 
costs financed by a note, the maximum maturity of the note, and the 
rate of note amortization are intended to help ensure that each note 
will be supported by adequate collateral throughout the life of the 
note. The proposed minimum maturity of 5 years is intended to reserve 
the security of the mortgage to financing that meets the long-term 
credit needs of borrowers. Shorter term loans generally do not face the 
same kind of uncertainty and risks involved in long-term loans, and 
offering them security under the mortgage should be subject to approval 
by the mortgagees under proposed section 2.03. All four of these 
criteria are currently used by REA, along with others, to determine 
eligibility for a lien accommodation (see 7 CFR 1717.852 and 1717.853).
    REA estimates that about 64 percent of distribution borrowers would 
be able to meet the criteria for issuing additional notes under 
proposed section 2.01. This estimate is based on 1991-92 data for TIER 
and DSC and 1992 data for equity, total assets, net utility plant, and 
long-term debt, and assumes that the average note issued will equal 
13.5% of a borrower's total assets (the average size of a combined REA-
supplemental loan in 1992-93). Borrowers failing to meet the proposed 
criteria under section 2.01 would need to get the approval of each 
mortgagee, under proposed section 2.03, to issue additional notes.
    As indicated above, issuance of additional notes under section 2.01 
would be limited to the financing of mortgageable property for the 
electric system and the four named community infrastructure purposes. 
The aggregate outstanding principal balance of notes issued for 
community infrastructure would be limited for notes issued under 
section 2.01 to 20% of the outstanding principal balance of all notes. 
Borrowers wishing to issue notes in excess of this amount for community 
infrastructure would need to obtain approval from each mortgagee.

Section 2.02. Refunding or Refinancing Notes

    As in issuing additional notes, the current mortgage also requires 
the approval of the mortgagees for borrowers to refund or refinance 
existing notes. Under proposed section 2.02 of the new mortgage, 
borrowers that are not in default under the mortgage could refund or 
refinance existing notes if the following conditions are met:
     The total amount of outstanding indebtedness evidenced by 
the new notes is not greater than 103.5% of the then outstanding 
principal balance of the notes being refunded or refinanced.
     The weighted average life of the new notes in not greater 
than the weighted average remaining life of the notes being refunded or 
refinanced.
     The present value of the cost of the refunding or 
refinancing notes, including all transaction costs and any required 
investments in the lender, is less than the present value of the cost 
of the notes being refunded or refinanced.
    A lien accommodation would be automatic for notes issued under 
sections 2.01 and 2.02. The borrower's loan contract with the lender 
would not be subject to the approval of the other mortgagees. REA 
expects to propose corresponding amendments to its lien accommodation 
rule and loan contracts to take the requirements of the new mortgage 
into account, once the final form of the distribution mortgage has been 
determined.

Section 2.05. Form of Supplemental Mortgage

    It is contemplated that a provision will be developed for inclusion 
either at this point or as an appendix in the final form of the 
Mortgage. The provision would set out a succinct form of amendment to 
be used to facilitate borrowings that do not require consent of the 
Mortgagees. The parties would be free to agree to other forms of 
amendment on a case-by-case basis but obviously such a process would be 
more time consuming and the outcome less certain. REA is specifically 
soliciting comments on this approach and would welcome suggestions on 
what would be an appropriate form for a supplemental mortgage.

Section 3.04. Environmental Obligations

    Under this proposed section, the borrower would expressly agree to 
comply with all applicable water and air pollution control standards 
and other environmental requirements imposed by Federal or state 
statutes, regulations, licenses or permits as related to the mortgaged 
property. The borrower would also agree to defend, indemnify, and hold 
harmless the mortgagees from and against all liabilities, losses, 
costs, etc. related to existing or future hazardous waste or hazardous 
chemical substances on the mortgaged property, any lien or claim 
related thereto, and any failure of the borrower to comply with the 
terms of any government agency having any regulatory authority over 
environmental matters regarding the mortgaged property. The inclusion 
of this section reflects the trend in modern loan documentation to 
allocate environmental risks to the borrower since that is the party 
that manages and controls the day to day operations.

Section 3.08. Restrictions on Additional Permitted Debt

    Compared to the current mortgage, proposed section 3.08 would raise 
the threshold on restricted rentals allowed without the approval of the 
mortgagees, and also allow certain ``permitted debt'', in addition to 
notes issued under proposed Article 2, without the mortgagees' 
approval. Restricted rentals without mortgagees' approval would be 
allowed in an amount not to exceed 5% of equity during any 12 
consecutive calendar month period, versus 2% currently. The following 
permitted debt would also be allowed without mortgagees' approval if 
the borrower is not in default under its mortgage:
     Purchase money indebtedness in non-utility system property 
in an amount not exceeding 10% of net utility plant.
     Unsecured lease obligations incurred in the ordinary 
course of business except restricted rentals.
     Unsecured indebtedness for borrowed money in an aggregate 
amount not exceeding 15% of net utility plant.
     Debt represented by dividends declared but not paid.
     Indebtedness of other operating electric companies 
acquired by the borrower not exceeding 90% of the net utility plant of 
the acquired company.

Section 3.10. Limitations on Consolidations and Mergers

    Proposed section 3.10 would make certain changes in the conditions 
under which the borrower may consolidate or merge with another 
corporation. Significant among these changes is that the successor 
corporation would have to meet on a pro forma basis the same TIER, 
equity to assets ratio, and net utility plant to long-term debt ratio 
as required under section 2.01 for issuing additional notes.

Section 3.11. Limitations on Transfers of Property

    This proposed section would raise the limits under which a borrower 
could sell, lease or transfer assets for fair market value without the 
approval of the mortgagees. The current mortgage sets the limits at 
$25,000 for each individual asset, and $100,000 for any 12 month 
period. Proposed section 3.11 would drop the limit for each individual 
asset and raise the limit for any 12 month period to 10 % of net 
utility plant.

Section 3.12. Maintenance of Mortgaged Property

    Several changes to existing mortgage requirements on property 
maintenance would be made under this section.
    The proposed mortgage would eliminate the current requirement that 
borrowers expend for maintenance, renewals and replacements during each 
three-year period 10 % of the difference between gross operating 
revenues and the cost of power during the period. REA has come to 
believe that requiring a fixed percentage expenditure on maintenance is 
not an effective approach for ensuring that its collateral is 
adequately maintained. Comments are invited on this question.
    Borrowers would still be required to adequately maintain their 
systems. Mortgagees would continue to have access to inspect the 
mortgaged property. As a corollary to the more generalized maintenance 
standard, it is proposed that any mortgagee could direct the borrower 
to provide to all mortgagees an initial certification by an independent 
professional engineer acceptable to the mortgagees, as to the condition 
of the mortgaged property. Such a certification could be requested only 
once every 3 years.
    If the independent engineer certifies that the borrower needs to 
make repairs or replacements to comply with the maintenance 
requirements of the mortgage, any mortgagee could request that such 
recommendations be followed and the borrower would be obligated to 
comply with them promptly. A year after such request, a second 
independent certification would be required as to the condition of the 
property. If deficiencies remain, any mortgagee could so notify the 
borrower, who would then be required to cure the deficiencies within 60 
days. REA believes that such certifications by independent professional 
engineers would provide each mortgagee with an effective mechanism to 
ensure that the mortgaged property is being adequately maintained.

Section 3.13. Insurance; Restoration of Damaged Mortgaged Property

    Under this section several changes are proposed to the insurance 
provisions of the existing mortgage. The borrower, for example, would 
be required to have insurance coverage in conformance with generally 
accepted utility industry standards for utilities of the size and 
character of the borrower. Specific dollar-amount coverage limits would 
be eliminated from the mortgage. Insurance policies would be required 
to remain in force for 30 days after written notice to each mortgagee, 
instead of the current 10 days. REA plans to review its existing 
regulation on fidelity and insurance requirements (7 CFR part 1788) to 
determine whether changes are needed.

Section 3.16. Limitation on Dividends, Patronage Refunds and Other Cash 
Distributions

    It is proposed that the controls on distributions in the current 
mortgage be retained with only minor changes.

Section 3.18. Compliance With Loan Agreements; Notice of Amendments to 
and Defaults Under Loan Agreements

    This section proposes two changes to provisions in the current 
mortgage. First, borrowers would be required to supply a copy of a loan 
agreement with another lender, and amendments thereto, only when 
requested by a mortgagee. Second, the provision in the current mortgage 
that the terms of the mortgage govern if they are inconsistent with the 
terms of a loan contract, would be deleted. This is proposed to ensure 
that a mortgagee could enforce terms in its loan contract agreed to by 
the borrower, even though they may be more demanding on the borrower 
than the terms in the mortgage.

Section 3.20. Rates to Provide Revenue Sufficient to Meet TIER and DSC 
Requirements.

    This section proposes requirements that are similar to those in 7 
CFR 1710.114, except that the threshold levels set for (modified) TIER 
and (modified) DSC are set at 1.35, the same as in proposed section 
2.01, rather than 1.5 for TIER and 1.25 for DSC as in Sec. 1710.114.
    If a borrower fails to achieve a (modified) TIER and (modified) DSC 
of 1.35 based on the average of the two best years out of the three 
most recent years, then it would be required to provide each mortgagee 
with a written plan of remedial action setting forth the actions the 
borrower shall take to achieve the required TIER and DSC levels on a 
timely basis. If requested by a mortgagee, the plan would have to be 
prepared by an independent consultant acceptable to the mortgagees. The 
mortgagor would be required to take all actions included in its written 
plan approved by the mortgagees.
    If a state regulatory authority having jurisdiction will not 
approve rates sufficient to achieve the required TIER and DSC levels, 
the borrower would be required to provide documentation to that effect, 
along with a modified plan taking the state authority's determination 
into account. Such modified plan would be subject to the approval of 
each mortgagee.

Section 4.01. Events of Default

    The proposed events of default are patterned after those commonly 
contained in modern mortgage indentures. There are two notable 
differences with the current mortgage. First, a default in payment on 
the notes would not be an event of default unless it lasted for more 
than 5 business days after the payment is due. Second, defaults with 
respect to other covenants and conditions contained in the mortgage, 
loan contracts, or notes would not be an event of default unless they 
continued for a period of 30 days after a mortgagee has given written 
notice of default directing the mortgagor to remedy the default.

Section 4.02. Acceleration of Maturity; Rescission and Annulment

    This proposed section differs in several respects from the 
provisions of the current mortgage. A basic difference is that each 
mortgagee would have equal rights in accelerating its notes, in 
contrast to the current mortgage where other mortgagees must wait 30 
days for REA to act before they can accelerate.
    It is proposed that in the event of a default in payment on a 
mortgagee's notes, that mortgagee may accelerate its notes and so 
notify the other mortgagees. Upon receipt of actual knowledge of or any 
notice of acceleration by such mortgagee, any other mortgagee would be 
able to accelerate its notes.
    If any other event of default occurs under the mortgage and is 
continuing, any mortgagee would be able to accelerate its notes and 
notify the others to that effect. Any mortgage could also accelerate if 
an event of default occurs and is continuing under its loan contract or 
note. Upon receipt of actual knowledge of or any notice of acceleration 
by a mortgagee, any other mortgagee would be able to accelerate its 
notes. After acceleration, if all payment defaults have been cured and 
all other defaults have been cured to the satisfaction of mortgagees 
representing at least 80% of the aggregate outstanding principal 
balance of the notes, then said mortgagees would be able to annul the 
acceleration.

Section 4.03. Remedies of Mortgagees

    Under this section it is proposed that any mortgagee may, upon an 
event of default, take possession of the property, manage and operate 
the property, protect and enforce the rights of all of the mortgagees, 
appoint a receiver, and sell the mortgaged property. Any other 
mortgagee would be able to join in these proceedings. If the mortgagees 
do not agree on the method or manner of enforcement of remedies, 
mortgagees representing a majority of the outstanding principal balance 
of the notes would be able to direct the method and manner of the 
remedial actions.

Section 5.03. Special Defeasance

    Under this section, in certain circumstances a borrower could 
deposit funds with a trustee for the benefit of a mortgagee in an 
amount sufficient to discharge the note. Such a note would no longer be 
considered to be ``outstanding'' under the mortgage. The borrower would 
obtain a release from the lien of the mortgage and the mortgagee would 
have the trust as security for the payments on the note as they come 
due. This section has been adapted from the Model Indenture.

Accounting Requirements

    So long as REA is on the mortgage, it is proposed that borrowers 
would be required to follow REA's Uniform System of Accounts. If REA is 
paid off and is no longer on the mortgage, Generally Accepted 
Accounting Principals would prevail. This is set forth in proposed 
section 1.01 in the definition of ``Accounting Requirements.''

Current Mortgage Provisions Not Included

    A number of ``operational controls'' and other provisions contained 
in the current mortgage are not included in this proposed mortgage. As 
indicated above, some of these controls may be retained in REA's new 
loan contract. The more significant provisions not included in the 
proposed mortgage are as follows:
     Mortgagee approval of extensions or additions to the 
borrower's system.
     Mortgagee approval of sales of electric power and energy 
in excess of 1,000 Kw.
     Mortgagee approval of contracts for the operation or 
maintenance or use by others of all or a substantial part of the 
borrower's property.
     Mortgagee approval of contracts to purchase electric power 
or energy.
     Mortgagee approval of expenditures for legal, engineering, 
supervisory, accounting or similar services, other than reasonable, 
routine expenses.
     Requirement that funds of the borrower be deposited in a 
Federal Reserve Bank or in depositaries that are members of the Federal 
Deposit Insurance Corporation.
     Mortgagee approval of compensation for members of the 
borrower's board of directors.
     Mortgagee approval of the borrower's manager and the 
manager's employment contract.
     Mortgagee approval of investments, loans, and guarantees 
made by the borrower. For several reasons, including the restrictions 
imposed on REA (but not other lenders) by section 312 of the Rural 
Electrification Act of 1936, REA believes it is preferable that such 
approval rights be included in the loan contract of each mortgagee as 
each sees fit.
     The requirement in article II, section 4 of the current 
mortgage that any prepayment of a concurrent (contemporaneous) loan 
made by REA or the supplemental lender be accompanied by a pro rata 
prepayment of the other concurrent loan. Since this provision relates 
only to loans made concurrently with REA, while the mortgage covers 
both concurrent loans and loans made independently of other loans, REA 
believes it is appropriate to shift this provision to its loan 
contract.

Inter-Creditor Agreement

    As noted above, shares of stock and other securities, including 
those held in lenders secured under the proposed mortgage, would be 
excepted from the lien of the mortgage. It is REA's view that, in the 
event any notes are accelerated, all such assets, revenues, and other 
proceeds obtained from the mortgagor by any mortgagee should be shared 
equally and ratably among all mortgagees along with the mortgaged 
property. Also, whether or not any notes are accelerated, if a borrower 
pays only a portion of the aggregate principal and interest due on the 
notes as a whole, REA believes such payments should also be shared 
equally and ratably among the mortgagees. It is REA's intention to try 
to reach agreement with the other existing mortgagees on a mutually 
acceptable inter-creditor agreement before the proposed new mortgage is 
published in final form.
    As stated above, the foregoing discussion focuses on the more 
significant provisions of the proposed mortgage, especially where they 
differ with provisions in the current mortgage. In addition to 
receiving written comments, REA stands ready to meet with interested 
individuals and organizations to discuss their comments and 
recommendations. Such meetings would be open to any interested person, 
and they would be ``informal'', as opposed to a formal hearing. 
Although any such meetings will not be transcribed, REA will include a 
summary of any such meeting in the file for this rulemaking. To 
facilitate scheduling, it would be better for individuals, especially 
the large number of borrowers affected by this proposed rule, to form 
one or more groups to represent their interests at such meetings.

List of Subjects in 7 CFR Part 1718

    Administrative practice and procedure, Electric power, Electric 
utilities, Loan programs--energy, Loan security documents, Reporting 
and recordkeeping requirements, Rural areas.

    For the reasons set out in the preamble, REA proposes to amend 
chapter XVII of title 7 of the Code of Federal Regulations by adding a 
new part 1718 to read as follows:

PART 1718--LOAN SECURITY DOCUMENTS FOR ELECTRIC BORROWERS

Subpart A--General

Sec.
1718.1-1718.49  [Reserved]

Subpart B--Mortgage for Distribution Borrowers

1718.50  Definitions.
1718.51  Policy.
1718.52  Existing mortgages.
1718.53  Rights of other mortgagees.
1718.54  Availability of forms.

Appendix A to Subpart B of Part 1718--Standard Form of Mortgage for 
Electric Distribution Borrowers

    Authority: 7 U.S.C. 901-950b; Delegation of Authority by the 
Secretary of Agriculture, 7 CFR 2.23; Delegation of Authority by the 
Under Secretary for Small Community and Rural Development, 7 CFR 
2.72, unless otherwise noted.

Subpart A--General


Secs. 1718.1-1718.49  [Reserved]

Subpart B--Mortgage for Distribution Borrowers


Sec. 1718.50  Definitions.

    Unless otherwise indicated, terms used in this subpart are defined 
as set forth in 7 CFR 1710.2.


Sec. 1718.51  Policy.

    (a) Adequate loan security must be provided for loans made or 
guaranteed by REA. The loans are required to be secured by a first 
mortgage lien on most of the borrower's assets substantially in the 
form set forth in Appendix A of this subpart. At the discretion of REA, 
this standard form of mortgage may be adapted to satisfy different 
legal requirements among the states and individual differences in 
lending circumstances, provided that such adaptations are consistent 
with the policies set forth in this subpart.
    (b) Some borrowers, such as certain public power districts, may not 
be able to provide security in the form of a first mortgage lien on 
their assets. In these cases REA will consider accepting other forms of 
security, such as resolutions and pledges of revenues.
    (c) REA may require supplemental and amending mortgages to protect 
its security, or in connection with additional loans.
    (d) REA may also require such other security instruments (such as 
loan contracts, security agreements, financing statements, guarantees, 
and pledges) as it deems appropriate.
    (e) All distribution borrowers that receive a loan or loan 
guarantee from REA on or after [Date 30 days after the final rule is 
published in the Federal Register] will be required to enter into a 
mortgage with REA that meets the requirements of this subpart. 
Distribution borrowers that refinance debt secured under their existing 
mortgage have the option of staying with their existing mortgage or 
entering into a new mortgage that meets the requirements of this 
subpart. In the case of either a new loan or refinancing loan, the 
concurrence of any other lenders secured under the borrower's existing 
mortgage may be required before the borrower can enter into a new 
mortgage.


Sec. 1718.52  Existing mortgages.

    Nothing contained in this subpart invalidates, terminates or 
rescinds any existing mortgage entered into between the borrower and 
REA and any other mortgagees.


Sec. 1718.53  Rights of other mortgagees.

    Nothing contained in this subpart is intended to alter or affect 
any rights of any other mortgagee that is a party to an existing 
mortgage between a borrower and REA.


Sec. 1718.54  Availability of forms.

    Single copies of the mortgage are available from the Administrative 
Services Division, Rural Electrification Administration, United States 
Department of Agriculture, Washington, DC 20250-1500. This form may be 
reproduced.
Appendix A to Subpart B--Standard Form of Mortgage for Electric 
Distribution Borrowers

RESTATED MORTGAGE AND SECURITY AGREEMENT

Made By And Between ____________, Mortgagor and United States of 
America and ____________, Mortgagee. Dated as of
    This instrument grants a security interest by a transmitting 
utility.
    This instrument contains future advance provisions.
    This instrument contains after-acquired property provisions.

Table of Contents

Granting Clauses

First
Second
Third
Fourth

Excepted Property

Habendum

Article I

Definitions & Other Provisions of General Application

Section 1.01  Definitions
Section 1.02   General Rules of Construction
Section 1.03   Special Rules of Construction if REA is a Mortgagee
Section 1.04   Governing Law
Section 1.05   Notices

Article II

Additional Notes

Section 2.01  Additional Notes
Section 2.02   Refunding or Refinancing Notes
Section 2.03   Other Additional Notes
Section 2.04   Additional Lenders Entitled to the Benefits of This 
Mortgage
Section 2.05   Form of Supplemental Mortgage

Article III

Particular Covenants of the Mortgagor

Section 3.01  Payment of Debt Service on Notes
Section 3.02  Warranty of Title
Section 3.03  After-Acquired Property; Further Assurances; Recording
Section 3.04  Environmental Obligations
Section 3.05  Payment of Taxes
Section 3.06  Authority to Execute and Deliver Notes, Loan 
Agreements and Mortgages; All Action Taken; Enforceable Obligations
Section 3.07  Restrictions on Further Encumbrances on Property
Section 3.08  Restrictions on Additional Permitted Debt
Section 3.09  Preservation of Corporate Existence and Franchises
Section 3.10  Limitations on Consolidations and Mergers
Section 3.11  Limitations on Transfers of Property
Section 3.12  Maintenance of Mortgaged Property
Section 3.13  Insurance; Restoration of Damaged Mortgaged Property
Section 3.14  Mortgagee Right to Expend Money to Protect Mortgaged 
Property
Section 3.15  Time Extensions for Payment of Notes
Section 3.16  Limitation on Dividends, Patronage Refunds and Other 
Cash Distributions
Section 3.17  Application of Proceeds from Condemnation
Section 3.18  Compliance with Loan Agreements; Notice of Amendments 
to and Defaults under Loan Agreements
Section 3.19  Rights of Way, etc., Necessary in Business
Section 3.20  Rates to Provide Revenue Sufficient to Meet TIER and 
DSC Requirements
Section 3.21  Keeping Books; Inspection by Mortgagee

Article IV

Events of Default and Remedies

Section 4.01  Events of Default
Section 4.02  Acceleration of Maturity; Rescission and Annulment
Section 4.03  Remedies of Mortgagees
Section 4.04  Application of Proceeds from Remedial Actions
Section 4.05  Remedies Cumulative; No Election
Section 4.06  Waiver of Appraisement Rights, Marshaling of Assets 
Not Required
Section 4.07  Notice of Default

Article V

Possession Until Default--Defeasance Clause

Section 5.01  Possession Until Default
Section 5.02  Defeasance Generally
Section 5.03  Special Defeasance

Article VI

Miscellaneous

Section 6.01  Property Deemed Real Property
Section 6.02  Mortgage to Bind and Benefit Successors and Assigns
Section 6.03  Headings
Section 6.04  Separability Clause
Section 6.05  Mortgage Deemed Security Agreement
Section 6.06  Indemnification by Mortgagor of Mortgagees
Schedule A--Maximum Debt Limit and Other Information
Schedule B--Property Schedule
Schedule C--Excepted Property
Schedule D--Notary Public Certification
    Restated Mortgage and Security Agreement, dated as of 
____________, 19______, (hereinafter sometimes called this 
``Mortgage'') is made by and between ____________________ 
(hereinafter called the ``Mortgagor''), a corporation existing under 
the laws of the State of__________ , and the UNITED STATES OF 
AMERICA acting by and through the Administrator of the Rural 
Electrification Administration (hereinafter called the 
``Government''), ____________ (Supplemental Lender) __________, 
(hereinafter called ``____________'') a ____________ existing under 
the laws of ____________, and is intended to confer rights and 
benefits on both the Government and ____________ as well as any and 
all other lenders pursuant to Article II of this Mortgage that enter 
into a supplemental mortgage in accordance with section 2.04 of 
Article II hereof (the Government and any such other lenders being 
herein sometimes collectively referred to as the ``Mortgagees'').

Recitals

    Whereas, the Mortgagor, the Government and ____________ are 
parties to that certain ____________ Mortgage and Security Agreement 
dated as of ____________, 19______, as supplemented, amended or 
restated (the ``Original Mortgage'' identified in Schedule ``A'' of 
this Mortgage) originally entered into between the Mortgagor, the 
Government acting by and through the Administrator of the Rural 
Electrification Administration (the ``REA'') and ____________; and
    Whereas, the Mortgagor deems it necessary to borrow money for 
its corporate purposes and to issue its promissory notes and other 
debt obligations therefor from time to time in one or more series, 
and to mortgage and pledge its property hereinafter described or 
mentioned to secure the payment of the same;
    Whereas, the Mortgagor desires to enter into this Mortgage 
pursuant to which all secured debt of the Mortgagor hereunder shall 
be secured on parity;
    Whereas, this Mortgage restates and consolidates the Original 
Mortgage while preserving the priority of the Lien under the 
Original Mortgage securing the payment of Mortgagor's outstanding 
obligations secured under the Original Mortgage, which indebtedness 
is described more particularly by listing the Original Notes in 
Schedule ``A'' hereto; and
    Whereas, all acts necessary to make this Mortgage a valid and 
binding legal instrument for the security of such notes and 
obligations, subject to the terms of this Mortgage, have been in all 
respects duly authorized;
    Now, Therefore, This Mortgage Witnesseth: That to secure the 
payment of the principal of (and premium, if any) and interest on 
the Original Notes and all Notes issued hereunder according to their 
tenor and effect, and the performance of all provisions therein and 
herein contained, and in consideration of the covenants herein 
contained and the purchase or guarantee of Notes by the guarantors 
or holders thereof, the Mortgagor has mortgaged, pledged and granted 
a continuing security interest in, and by these presents does hereby 
grant, bargain, sell, alienate, remise, release, convey, assign, 
transfer, hypothecate, pledge, set over and confirm, pledge, and 
grant a continuing security interest in for the purposes hereinafter 
expressed [other language may be required under various state laws], 
unto the Mortgagees all property, rights, privileges and franchises 
of the Mortgagor of every kind and description, real, personal or 
mixed, tangible and intangible, of the kind or nature specifically 
mentioned herein or any other kind or nature, except any Excepted 
Property, now owned or hereafter acquired by the Mortgagor (by 
purchase, consolidation, merger, donation, construction, erection or 
in any other way) wherever located, including (without limitation) 
all and singular the following:

Granting Clause First

    A. all of those fee and leasehold interests in real property set 
forth in Schedule ``B'' hereto, subject in each case to those 
matters set forth in such Schedule;
    B. all of the Mortgagor's interest in fixtures, easements, 
permits, licenses and rights-of-way comprising real property, and 
all other interests in real property, comprising any portion of the 
System (as herein defined) located in the Counties listed in 
Schedule ``B'' hereto;
    C. all right, title and interest of the Mortgagor in and to 
those contracts of the Mortgagor (i) relating to the ownership, 
operation or maintenance of any generation, transmission or 
distribution facility owned, whether solely or jointly, by the 
Mortgagor, (ii) for the purchase of electric power and energy by the 
Mortgagor and having an original term in excess of 3 years, (iii) 
for the sale of electric power and energy by the Mortgagor and 
having an original term in excess of 3 years, and (iv) for the 
transmission of electric power and energy by or on behalf of the 
Mortgagor and having an original term in excess of 3 years, 
including in respect of any of the foregoing, any amendments, 
supplements and replacements thereto;
    D. all the property, rights, privileges, allowances and 
franchises particularly described in the annexed Schedule ``B'' are 
hereby made a part of, and deemed to be described in, this Granting 
Clause as fully as if set forth in this Granting Clause at length; 
and
    Also All Other Property, real estate, lands, easements, 
servitudes, licenses, permits, allowances, consents, franchises, 
privileges, rights of way and other rights in or relating to real 
estate or the occupancy of the same; all power sites, storage 
rights, water rights, water locations, water appropriations, 
ditches, flumes, reservoirs, reservoir sites, canals, raceways, 
waterways, dams, dam sites, aqueducts, and all other rights or means 
for appropriating, conveying, storing and supplying water; all 
rights of way and roads; all plants for the generation of electric 
and other forms of energy (whether now known or hereafter developed) 
by steam, water, sunlight, chemical processes and/or (without 
limitation) all other sources of power (whether now known or 
hereafter developed); all power houses, gas plants, street lighting 
systems, standards and other equipment incidental thereto; all 
telephone, radio, television and other communications, image and 
data transmission systems, air conditioning systems and equipment 
incidental thereto, water wheels, waterworks, water systems, steam 
and hot water plants, substations, lines, service and supply 
systems, bridges, culverts, tracks, ice or refrigeration plants and 
equipment, offices, buildings and other structures and the equipment 
thereto all machinery, engines, boilers, dynamos, turbines, 
electric, gas and other machines, prime movers, regulators, meters, 
transformers, generators (including, but not limited to, engine-
driven generators and turbogenerator units), motors, electrical, gas 
and mechanical appliances, conduits, cables, water, steam, gas or 
other pipes, gas mains and pipes, service pipes, fittings, valves 
and connections, pole and transmission lines, towers, overhead 
conductors and devices, underground conduits, underground conductors 
and devices, wires, cables, tools, implements, apparatus, storage 
battery equipment, and all other fixtures and personalty; all 
municipal and other franchises, consents, certificates or permits; 
all emissions allowances; all lines for the transmission and 
distribution of electric current and other forms of energy, gas, 
steam, water or communications, images and data for any purpose 
including towers, poles, wires, cables, pipes, conduits, ducts and 
all apparatus for use in connection therewith, and (except as 
hereinbefore or hereinafter expressly excepted) all the right, title 
and interest of the Mortgagor in and to all other property of any 
kind or nature appertaining to and/or used and/or occupied and/or 
employed in connection with any property hereinbefore described;

Granting Clause Second

    All other property, real, personal or mixed, of whatever kind 
and description and wheresoever situated, including without 
limitation goods, accounts, money held in a trust account pursuant 
hereto or to a Loan Agreement, and general intangibles now owned or 
which may be hereafter acquired by the Mortgagor, but excluding 
Excepted Property, now owned or which may be hereafter acquired by 
the Mortgagor, it being the intention hereof that all property, 
rights, privileges, allowances and franchisees now owned by the 
Mortgagor or acquired by the Mortgagor after the date hereof (other 
than Excepted Property) shall be as fully embraced within and 
subjected to the lien hereof as if such property were specifically 
described herein.

Granting Clause Third

    Also any Excepted Property that may, from time to time 
hereafter, by delivery or by writing of any kind, be subjected to 
the lien hereof by the Mortgagor or by anyone in its behalf; and any 
Mortgagee is hereby authorized to receive the same at any time as 
additional security hereunder for the benefit of all the Mortgagees. 
Such subjection to the lien hereof of any Excepted Property as 
additional security may be made subject to any reservations, 
limitations or conditions which shall be set forth in a written 
instrument executed by the Mortgagor or the person so acting in its 
behalf or by such Mortgagee respecting the use and disposition of 
such property or the proceeds thereof.

Granting Clause Fourth

    Together with (subject to the rights of the Mortgagor set forth 
on Section 5.01) all and singular the tenements, hereditaments and 
appurtenances belonging or in anywise appertaining to the aforesaid 
property or any part thereof, with the reversion and reversions, 
remainder and remainders and all the tolls, earnings, rents, issues, 
profits, revenues and other income, products and proceeds of the 
property subjected or required to be subjected to the lien of this 
Mortgage, and all other property of any nature appertaining to any 
of the plants, systems, business or operations of the Mortgagor, 
whether or not affixed to the realty, used in the operation of any 
of the premises or plants or the System, or otherwise, which are now 
owned or acquired by the Mortgagor, and all the estate, right, title 
and interest of every nature whatsoever, at law as well as in 
equity, of the Mortgagor in and to the same and every part thereof 
(other than Excepted Property with respect to any of the foregoing).

Excepted Property

    There is, however, expressly excepted and excluded from the lien 
and operation of this Mortgage the following described property of 
the Mortgagor, now owned or hereafter acquired (herein sometimes 
referred to as ``Excepted Property''):
    A. all cash on hand or in banks (excluding amounts deposited or 
required to be deposited in a trust account pursuant to this 
Mortgage), choses in action and judgments, contracts and contract 
rights (except to the extent set forth in Granting Clause First), 
shares of stock (including without limitation any interest of the 
Mortgagor in the National Rural Utilities Cooperative Finance 
Corporation and in the National Bank for Cooperatives), bonds, 
notes, repurchase agreements, evidences of indebtedness and other 
securities, bills, patents, patent licenses and other patent rights, 
patent applications, trade names and trademarks, other than any 
securities pledged under this Mortgage, and any other property 
referred to in this Subdivision which is specifically described in 
Granting Clause First or is by the express provisions of the 
Mortgage subjected or required to be subjected to the lien hereof;
    B. all rolling stock (except mobile substations), automobiles, 
buses, trucks, truck cranes, tractors, trailers and similar vehicles 
and movable equipment, and all tools, accessories and supplies used 
in connection with any of the foregoing;
    C. all vessels, boats, ships, barges and other marine equipment, 
all airplanes, airplane engines and other flight equipment, and all 
tools, accessories and supplies used in connection with any of the 
foregoing;
    D. all office furniture, equipment and supplies, including 
(without limitation) all data processing, accounting and other 
computer equipment, software and supplies;
    E. all leasehold interests for office purposes;
    F. all leasehold interests of the Mortgagor under leases for an 
original term (including any period for which the Mortgagor shall 
have a right of renewal) of less than five (5) years;
    G. all timber and crops (both growing and harvested) and all 
coal, ore, gas, oil and other minerals (both in place or severed);
    H. all electric energy, gas, steam, water, ice, and other 
materials, forms of energy or products generated, manufactured, 
produced, or purchased by the Mortgagor for sale, distribution or 
use in the ordinary course of its business;
    I. the last day of the term of each leasehold estate (oral or 
written) and any agreement therefor, now or hereafter enjoyed by the 
Mortgagor and whether falling within a general or specific 
description of property herein: Provided, However, that the 
Mortgagor covenants and agrees that it will hold each such last day 
in trust for the use and benefit of all of the Mortgagees and 
Noteholders and that it will dispose of each such last day from time 
to time in accordance with such written order as the Mortgagee in 
its discretion may give;
    J. all permits, licenses, franchises, contracts, agreements, 
contract rights and other rights not specifically subjected or 
required to be subjected to the lien hereof by the express 
provisions of this Mortgage, whether now owned or hereafter acquired 
by the Mortgagor, which by their terms or by reason of applicable 
law would become void or voidable if mortgaged or pledged hereunder 
by the Mortgagor or which cannot be granted, conveyed, mortgaged, 
transferred or assigned by this Mortgage without the consent of 
other parties whose consent is not secured, or without subjecting 
any Mortgagee to a liability not otherwise contemplated by the 
provisions of this Mortgage, or which otherwise may not be, hereby 
lawfully and effectively granted, conveyed, mortgaged, transferred 
and assigned by the Mortgagor; and
    K. the property identified in Schedule ``C'' hereto.
    Provided, However, that (i) if, upon the occurrence of an Event 
of Default, any Mortgagee, or any receiver appointed pursuant to 
statutory provision or order of court, shall have entered into 
possession of all or substantially all of the Mortgaged Property, 
all the Excepted Property described or referred to in the foregoing 
Subdivisions A through H, inclusive, then owned or thereafter 
acquired by the Mortgagor shall immediately, and, in the case of any 
Excepted Property described or referred to in Subdivisions I through 
J, inclusive, upon demand of any Mortgagee or such receiver, become 
subject to the lien hereof to the extent permitted by law, and any 
Mortgagee or such receiver may, to the extent permitted by law, at 
the same time likewise take possession thereof, and (ii) whenever 
all Events of Default shall have been cured and the possession of 
all or substantially all of the Mortgaged Property shall have been 
restored to the Mortgagor, such Excepted Property shall again be 
excepted and excluded from the lien hereof to the extent and 
otherwise as hereinabove set forth.
    However, pursuant to Granting Clause Third, the Mortgagor may 
subject to the lien of this Mortgage any Excepted Property, 
whereupon the same shall cease to be Excepted Property.

Habendum

    To Have and To Hold all said property, rights, privileges and 
franchises of every kind and description, real, personal or mixed, 
hereby and hereafter (by supplemental mortgage or otherwise) 
granted, bargained, sold, aliened, remised, released, conveyed, 
assigned, transferred, mortgaged, encumbered, hypothecated, pledged, 
setover, confirmed, or subjected to a continuing security interest 
as aforesaid, together with all the appurtenances thereto 
appertaining (said properties, rights, privileges and franchises, 
including any cash and securities hereafter deposited with any 
Mortgagee ((other than any such cash which is specifically stated 
herein not to be deemed part of the Mortgaged Property)), being 
herein collectively called the ``Mortgaged Property'') unto the 
Mortgagees and the respective assigns of the Mortgagees forever, to 
secure equally and ratably the payment of the principal of (and 
premium, if any) and interest on the Notes, according to their 
terms, without preference, priority or distinction as to interest or 
principal (except as otherwise specifically provided herein) or as 
to lien or otherwise of any Note over any other Note by reason of 
the priority in time of the execution, delivery or maturity thereof 
or of the assignment or negotiation thereof, or otherwise, and to 
secure the due performance of all of the covenants, agreements and 
provisions herein and in the Loan Agreements contained, and for the 
uses and purposes and upon the terms, conditions, provisos and 
agreements hereinafter expressed and declared.
    Subject, However, to Permitted Encumbrances (as defined in 
Section 1.01).

Article I

Definitions & Other Provisions of General Application

    Section 1.01. Definitions. In addition to the terms defined 
elsewhere in this Mortgage, the terms defined in this Article I 
shall have the meanings specified herein and under the UCC, unless 
the context clearly requires otherwise. The terms defined herein 
include the plural as well as the singular and the singular as well 
as the plural.
    Accounting Requirements shall mean the requirements of any 
system of accounts prescribed by REA so long as the Government is 
the holder, insurer or guarantor of any Notes, or, in the absence 
thereof, the requirements of generally accepted accounting 
principles applicable to businesses similar to that of the 
Mortgagor.
    Additional Notes shall mean any Notes issued by the Mortgagor to 
the Government or any other lender pursuant to Article II of this 
Mortgage including any refunding, renewal, or substitute Notes which 
may from time to time be executed and delivered by the Mortgagor 
pursuant to the terms of Article II.
    Board shall mean either the Board of Directors or the Board of 
Trustees, as the case may be, of the Mortgagor.
    Business Day shall mean any day that the Government is open for 
business.
    Debt Service Coverage Ratio (``DSC'') shall mean the ratio 
determined as follows: for each calendar year add (i) Patronage 
Capital or Margins of the Mortgagor, after deducting generation and 
transmission capital credits and other capital credits, (ii) 
Interest Expense (as computed in accordance with the principles set 
forth in the definition of Times Interest Earned Ratio herein) of 
the Mortgagor and (iii) Depreciation and Amortization Expense of the 
Mortgagor, and divide the total so obtained by an amount equal to 
the sum of all payments of principal and interest required to be 
made on account of Total Long-Term Debt during such calendar year 
increasing said sum by any addition to interest expense on account 
of Restricted Rentals as computed with respect to the Times Interest 
Earned Ratio herein; provided, however, that in the event that any 
Long-Term Debt (being any amount included in Total Long-Term Debt 
computed as provided above) has been refinanced during such year the 
payments of principal and interest required to be made during such 
year on account of such Long-Term Debt shall be based (in lieu of 
actual payments required to be made on such refinanced Debt) upon 
the larger of (i) an annualization of the payments required to be 
made with respect to the refinancing debt during the portion of such 
year such refinancing debt is outstanding or (ii) the payment of 
principal and interest required to be made during the following year 
on account of such refinancing debt.
    Depreciation and Amortization Expense shall mean an amount 
constituting the depreciation and amortization of the Mortgagor as 
computed pursuant to Accounting Requirements.
    Distributions shall have the meaning specified in Section 3.16 
hereof.
    Electric System shall mean, and shall be broadly construed to 
encompass and include, all of the Mortgagor's interests in all 
electric production, transmission, distribution, conservation, load 
management, general plant and other related facilities, equipment or 
property and in any mine, well, pipeline, plant, structure or other 
facility for the development, production, manufacture, storage, 
fabrication or processing of fossil, nuclear or other fuel of any 
kind or in any facility or rights with respect to the supply of 
water, in each case for use, in whole or in major part, in any of 
the Mortgagor's generating plants, now existing or hereafter 
acquired by lease, contract, purchase or otherwise or constructed by 
the Mortgagor, including any interest or participation of the 
Mortgagor in any such facilities or any rights to the output or 
capacity thereof, together with all additions, betterments, 
extensions and improvements to such Electric System or any part 
thereof hereafter made and together with all lands, easements and 
rights-of-way of the Mortgagor and all other works, property or 
structures of the Mortgagor and contract rights and other tangible 
and intangible assets of the Mortgagor used or useful in connection 
with or related to such Electric System, including without 
limitation a contract right or other contractual arrangement 
referred to in Granting Clause First, Subclause (C).
    Environmental Law and Environmental Laws shall mean all federal, 
state, and local laws, regulations, and requirements related to 
protection of human health or the environment, including but not 
limited to the Comprehensive Environmental Response, Compensation 
and Liability Act of 1980 (42 U.S.C. 9601 et seq.), the Resource 
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the Clean 
Water Act (33 U.S.C. 1251 et seq.) and the Clean Air Act (42 U.S.C. 
7401 et seq.), and any amendments and implementing regulations of 
such acts.
    Equity shall mean the aggregate of all of the Mortgagor's 
equities and margins computed pursuant to Accounting Requirements, 
but excluding any regulatory created assets.
    Event of Default shall have the meaning specified in Section 
4.01 hereof.
    Excepted Property shall have the meaning stated in the Granting 
Clauses.
    Government shall mean the United States of America acting by and 
through the Administrator of REA and shall include its successors 
and assigns.
    Government Notes shall mean the Original Notes, and any 
Additional Notes, issued by the Mortgagor to the Government, or 
guaranteed or insured as to payment by the Government.
    Independent shall mean when used with respect to any specified 
person or entity means such a person or entity who (1) is in fact 
independent, (2) does not have any direct financial interest or any 
material indirect financial interest in the Mortgagor or in any 
affiliate of the Mortgagor and (3) is not connected with the 
Mortgagor as an officer, employee, promoter, underwriter, trustee, 
partner, director or person performing similar functions.
    Interest Expense shall mean an amount constituting the interest 
expense of the Mortgagor as computed pursuant to Accounting 
Requirements.
    Lien shall mean any statutory or common law consensual or non-
consensual mortgage, pledge, security interest, encumbrance, lien, 
right of set off, claim or charge of any kind, including, without 
limitation, any conditional sale or other title retention 
transaction, any lease transaction in the nature thereof and any 
secured transaction under the UCC.
    Loan Agreement shall mean any agreement executed by and between 
the Mortgagor and the Government or any other lender in connection 
with the execution and delivery of any Notes secured hereby.
    Long-Term Debt shall mean any amount included in Total Long-Term 
Debt pursuant to Accounting Requirements.
    Long-Term Lease shall mean a lease having an unexpired term 
(taking into account terms of renewal at the option of the lessor, 
whether or not such lease has previously been renewed) of more than 
12 months.
    Margins shall mean the sum of amounts recorded as operating 
margins and non-operating margins as computed in accordance with 
Accounting Requirements.
    Maximum Debt Limit, if any, shall mean the amount more 
particularly described in Schedule ``A'' hereof.
    Mortgage shall mean this Restated Mortgage and Security 
Agreement, including any amendments or supplements thereto from time 
to time.
    Mortgageable Property shall mean all Property Additions, and all 
property owned by the Mortgagor on the date of this instrument which 
would constitute Property Additions if acquired after that date, but 
Mortgageable Property shall not include any Excepted Property.
    Mortgaged Property shall have the meaning specified as stated in 
the Habendum to the Granting Clauses.
    Mortgagee or Mortgagees shall mean the Government, ____________ 
(the supplemental lender), their successors and assigns as well as 
any and all other lenders pursuant to Article II of this Mortgage 
that enter into a supplemental mortgage in accordance with Section 
2.04 of Article II hereof, their successors and assigns. The term 
``Mortgagee'' is used herein collectively except where the context 
clearly indicates otherwise.
    Net Utility Plant shall mean the amount constituting the total 
utility plant of the Mortgagor less depreciation computed in 
accordance with Accounting Requirements.
    Note or Notes shall mean one or more of the Government Notes, 
and any other Notes which may, from time to time, be secured under 
this Mortgage.
    Noteholder or Noteholders shall mean one or more of the holders 
of Notes secured by this Mortgage; PROVIDED, however, that in the 
case of any Notes that have been guaranteed or insured as to payment 
by REA, as to such Notes Noteholder or Noteholders shall mean REA, 
exclusively, regardless of whether such notes are in the possession 
of REA.
    Original Mortgage means the instrument(s) identified as such in 
Schedule ``A'' hereof.
    Original Notes shall mean the Notes listed on Schedule ``A'' 
hereto as such , such Notes being instruments evidencing outstanding 
indebtedness of the Mortgagor (i) to the Government (including 
indebtedness which has been issued by the Mortgagor to a third party 
and guaranteed or insured as to payment by the Government) and (ii) 
to each other Mortgagee on the date of this Mortgage.
    Outstanding Notes shall mean as of the date of determination, 
(i) all Notes theretofore issued, executed and delivered to any 
Mortgagee and (ii) any Notes guaranteed or insured as to payment by 
the Government, except (a) Notes referred to in clause (i) or (ii) 
for which the principal and interest have been fully paid and which 
have been canceled by the Noteholder, and (b) Notes the payment for 
which has been provided for pursuant to Section 5.03.
    Permitted Debt shall have the meaning specified in Section 3.08.
    Permitted Encumbrances shall mean:
    (1) as to the property specifically described in Granting Clause 
First, the restrictions, exceptions, reservations, conditions, 
limitations, interests and other matters which are set forth or 
referred to in such descriptions and each of which fits one or more 
of the clauses of this definition, PROVIDED, such matters do not in 
the aggregate materially detract from the value of the Mortgaged 
Property taken as a whole and do not materially impair the use of 
such property for the purposes for which it is held by the 
Mortgagor;
    (2) liens for taxes, assessments and other governmental charges 
which are not delinquent;
    (3) liens for taxes, assessments and other governmental charges 
already delinquent which are currently being contested in good faith 
by appropriate proceedings; PROVIDED the Mortgagor shall have set 
aside on its books adequate reserves with respect thereto;
    (4) mechanics', workmen's, repairmen's, materialmen's, 
warehousemen's and carriers' liens and other similar liens arising 
in the ordinary course of business for charges which are not 
delinquent, or which are being contested in good faith and have not 
proceeded to judgment; PROVIDED the Mortgagor shall have set aside 
on its books adequate reserves with respect thereto;
    (5) liens in respect of judgments or awards with respect to 
which the Mortgagor shall in good faith currently be prosecuting an 
appeal or proceedings for review and with respect to which the 
Mortgagor shall have secured a stay of execution pending such appeal 
or proceedings for review; PROVIDED the Mortgagor shall have set 
aside on its books adequate reserves with respect thereto;
    (6) easements and similar rights granted by the Mortgagor over 
or in respect of any Mortgaged Property, PROVIDED that in the 
opinion of the Board or a duly authorized officer of the Mortgagor 
such grant will not impair the usefulness of such property in the 
conduct of the Mortgagor's business and will not be prejudicial to 
the interests of the Mortgagees, and similar rights granted by any 
predecessor in title of the Mortgagor;
    (7) easements, leases, reservations or other rights of others in 
any property of the Mortgagor for streets, roads, bridges, pipes, 
pipe lines, railroads, electric transmission and distribution lines, 
telegraph and telephone lines, the removal of oil, gas, coal or 
other minerals and other similar purposes, flood rights, river 
control and development rights, sewage and drainage rights, 
restrictions against pollution and zoning laws and minor defects and 
irregularities in the record evidence of title, PROVIDED that such 
easements, leases, reservations, rights, restrictions, laws, defects 
and irregularities do not materially affect the marketability of 
title to such property and do not in the aggregate materially impair 
the use of the Mortgaged Property taken as a whole for the purposes 
for which it is held by the Mortgagor;
    (8) liens upon lands over which easements or rights of way are 
acquired by the Mortgagor for any of the purposes specified in 
Clause (7) of this definition, securing indebtedness neither 
created, assumed nor guaranteed by the Mortgagor nor on account of 
which it customarily pays interest, which liens do not materially 
impair the use of such easements or rights of way for the purposes 
for which they are held by the Mortgagor;
    (9) leases existing at the date of this instrument affecting 
property owned by the Mortgagor at said date which have been 
previously disclosed to the Mortgagees in writing and leases for a 
term of not more than two years (including any extensions or 
renewals) affecting property acquired by the Mortgagor after said 
date;
    (10) terminable or short term leases or permits for occupancy, 
which leases or permits expressly grant to the Mortgagor the right 
to terminate them at any time on not more than six months' notice 
and which occupancy does not interfere with the operation of the 
business of the Mortgagor;
    (11) any lien or privilege vested in any lessor, licensor or 
permittor for rent to become due or for other obligations or acts to 
be performed, the payment of which rent or performance of which 
other obligations or acts is required under leases, subleases, 
licenses or permits, so long as the payment of such rent or the 
performance of such other obligations or acts is not delinquent;
    (12) liens or privileges of any employees of the Mortgagor for 
salary or wages earned but not yet payable;
    (13) the burdens of any law or governmental regulation or permit 
requiring the Mortgagor to maintain certain facilities or perform 
certain acts as a condition of its occupancy of or interference with 
any public lands or any river or stream or navigable waters;
    (14) any irregularities in or deficiencies of title to any 
rights-of-way for pipe lines, telephone lines, telegraph lines, 
power lines or appurtenances thereto, or other improvements thereon, 
and to any real estate used or to be used primarily for right-of-way 
purposes, PROVIDED that in the opinion of counsel for the Mortgagor, 
the Mortgagor shall have obtained from the apparent owner of the 
lands or estates therein covered by any such right-of-way a 
sufficient right, by the terms of the instrument granting such 
right-of-way, to the use thereof for the construction, operation or 
maintenance of the lines, appurtenances or improvements for which 
the same are used or are to be used, or PROVIDED that in the opinion 
of counsel for the Mortgagor, the Mortgagor has power under eminent 
domain, or similar statues, to remove such irregularities or 
deficiencies;
    (15) rights reserved to, or vested in, any municipality or 
governmental or other public authority to control or regulate any 
property of the Mortgagor, or to use such property in any manner, 
which rights do not materially impair the use of such property, for 
the purposes for which it is held by the Mortgagor;
    (16) any obligations or duties, affecting the property of the 
Mortgagor, to any municipality or governmental or other public 
authority with respect to any franchise, grant, license or permit;
    (17) any right which any municipal or governmental authority may 
have by virtue of any franchise, license, contract or statute to 
purchase, or designate a purchaser of or order the sale of, any 
property of the Mortgagor upon payment of cash or reasonable 
compensation therefor or to terminate any franchise, license or 
other rights or to regulate the property and business of the 
Mortgagor;
    (18) as to properties of other operating electric companies 
acquired after the date of this Mortgage by the Mortgagor as 
permitted by Section 3.10 hereof, reservations and other matters as 
to which such properties may be subject as more fully set forth in 
such Section;
    (19) any lien required by law or governmental regulations as a 
condition to the transaction of any business or the exercise of any 
privilege or license, or to enable the Mortgagor to maintain self-
insurance or to participate in any fund established to cover any 
insurance risks or in connection with workmen's compensation, 
unemployment insurance, old age pensions or other social security, 
or to share in the privileges or benefits required for companies 
participating in such arrangements;
    (20) liens arising out of any defeased mortgage or indenture of 
the Mortgagor; or
    (21) the undivided interest of other owners, and liens on such 
undivided interests, in property owned jointly with the Mortgagor as 
well as the rights of such owners to such property pursuant to the 
ownership contracts.
    (22) any lien or privilege vested in any lessor, licensor or 
permittor for rent to become due or for other obligations or acts to 
be performed, the payment of which rent or the performance of which 
other obligations or acts is required under leases, subleases, 
licenses or permits, so long as the payment of such rent or the 
performance of such other obligations or acts is not delinquent;
    (23) purchase money mortgages permitted by Section 3.08; and
    (24) the Original Mortgage.
    Property Additions shall mean property as to which the Mortgagor 
shall provide Title Evidence and which shall be (or, if retired, 
shall have been) subject to the lien of this Mortgage, which shall 
be properly chargeable to the Mortgagor's fixed plant accounts under 
Accounting Requirements (including property acquired to replace 
property retired and credited to such accounts) and which shall be:
    (1) acquired (including acquisition by merger, consolidation, 
conveyance or transfer) by the Mortgagor after the date hereof, 
including property in the process of construction, insofar as not 
reflected on the books of the Mortgagor with respect to periods on 
or prior to the date hereof, and
    (2) used or useful in the business of the Mortgagor conducted 
with the properties described in the Granting Clauses of this 
Mortgage, even though separate from and not physically connected 
with such properties.
    ``Property Additions'' shall also include:
    (3) easements and rights-of-way that are useful for the conduct 
of the business of the Mortgagor, and
    (4) property located or constructed on, over or under public 
highways, rivers or other public property if the Mortgagor has the 
lawful right under permits, licenses or franchises granted by a 
governmental body having jurisdiction in the premises or by the law 
of the State in which such property is located to maintain and 
operate such property for an unlimited, indeterminate or indefinite 
period or for the period, if any, specified in such permit, license 
or franchise or law and to remove such property at the expiration of 
the period covered by such permit, license or franchise or law, or 
if the terms of such permit, license, franchise or law require any 
public authority having the right to take over such property to pay 
fair consideration therefor.
    ``Property Additions'' shall not include:
    (a) good will, going concern value, contracts, agreements, 
franchises, licenses or permits, whether acquired as such, separate 
and distinct from the property operated in connection therewith, or 
acquired as an incident thereto, or
    (b) any shares of stock or indebtedness or certificates or 
evidences of interest therein or other securities, or
    (c) any plant or system or other property in which the Mortgagor 
shall acquire only a leasehold interest, or any betterments, 
extensions, improvements or additions (other than movable physical 
personal property which the Mortgagor has the right to remove), of, 
upon or to any plant or system or other property in which the 
Mortgagor shall own only a leasehold interest unless (i) the term of 
the leasehold interest in the property to which such betterment, 
extension, improvement or addition relates shall extend for at least 
75% of the useful life of such betterment, extension, improvement or 
addition and (ii) the lessor shall have agreed to give the Mortgagee 
reasonable notice and opportunity to cure any default by the 
Mortgagor under such lease and not to disturb any Mortgagee's 
possession of such leasehold estate in the event any Mortgagee 
succeeds to the Mortgagor's interest in such lease upon the any 
Mortgagee's exercise of any remedies under this Mortgage so long as 
there is no default in the performance of the tenant's covenants 
contained therein, or
    (d) any property of the Mortgagor subject to the Permitted 
Encumbrance described in clause (23) of the definition thereof.
    REA shall mean the Rural Electrification Administration of the 
United States Department of Agriculture or if at any time after the 
execution of this Mortgage REA is not existing and performing the 
duties of administering a program of rural electrification as 
currently assigned to it, then the entity performing such duties at 
such time.
    Restricted Rentals shall mean all rentals required to be paid 
under finance leases and charged to income, exclusive of any amounts 
paid under any such lease (whether or not designated therein as 
rental or additional rental) for maintenance or repairs, insurance, 
taxes, assessments, water rates or similar charges. For the purpose 
of this definition the term ``finance lease'' shall mean any lease 
having a rental term (including the term for which such lease may be 
renewed or extended at the option of the lessee) in excess of 3 
years and covering property having an initial cost in excess of 
$250,000 other than aircraft, ships, barges, automobiles, trucks, 
trailers, rolling stock and vehicles; office, garage and warehouse 
space; office equipment and computers.
    Security Interest shall mean any assignment, transfer, mortgage, 
hypothecation or pledge.
    Subordinated Indebtedness shall mean secured indebtedness of the 
Mortgagor, payment of which shall be subordinated to the prior 
payment of the Notes in accordance with the provisions of Section 
3.08 hereof by subordination agreement in form and substance 
satisfactory to each Mortgagee which approval will not be 
unreasonably withheld.
    Supplemental Mortgage shall mean an instrument of the type 
described in Section 2.04.
    Times Interest Earned Ratio (``TIER'') shall mean the ratio 
determined as follows: for each calendar year: add (i) Patronage 
Capital or Margins of the Mortgagor after deducting generation and 
transmission capital credits and other capital credits, (ii) 
Interest Expense on Total Long-Term Debt of the Mortgagor and (iii) 
taxes paid, if any, based upon income during the year and divide the 
total so obtained by Interest Expense on Total Long-Term Debt of the 
Mortgagor, provided, however, that in computing Interest Expense on 
Total Long-Term Debt, there shall be added, to the extent not 
otherwise included, an amount equal to 33\1/3\% of the excess of 
Restricted Rentals paid by the Mortgagor over 2% of the Mortgagor's 
Equities and Margins.
    Title Evidence, with respect to any property, shall mean
    (1) an opinion of counsel to the effect that the Mortgagor has 
title, whether fairly deducible of record or based upon prescriptive 
rights (or, as to personal property, based on such evidence as 
counsel shall determine to be sufficient), as in the opinion of 
counsel is satisfactory for the use thereof in connection with the 
operations of the Mortgagor, and counsel in giving such opinion may 
disregard any irregularity or deficiency in the record evidence of 
title which, in the opinion of such counsel, can be cured by 
proceedings within the power of the Mortgagor or does not 
substantially impair the usefulness of such property for the purpose 
of the Mortgagor and may base such opinion upon his own 
investigation or upon affidavits, certificates, abstracts of title, 
statements or investigations made by persons in whom such counsel 
has confidence or upon examination of a certificate or guaranty of 
title or policy of title insurance in which he has confidence; or
    (2) a mortgagee's policy of title insurance in the amount of the 
cost to the Mortgagor of the land included in Property Additions, as 
such cost is determined by the Mortgagor, issued in favor of the 
Mortgagees by an entity authorized to insure title in the states 
where the Mortgaged Property is located, showing the Mortgagor as 
the owner of the subject property and insuring the lien of this 
Mortgage.
    Total Assets shall mean an amount constituting total assets of 
the Mortgagor as computed pursuant to Accounting Requirements, but 
excluding any regulatory created assets.
    Total Long-Term Debt shall mean an amount constituting the long-
term debt of the Mortgagor as computed pursuant to Accounting 
Requirements.
    Total Utility Plant shall mean the amount constituting the total 
utility plant of the Mortgagor computed in accordance with 
Accounting Requirements.
    Uniform Commercial Code or UCC shall mean the UCC of the state 
referred to in Section 1.04, and if Mortgaged Property is located in 
a state other than that state, then as to such Mortgaged Property 
UCC refers to the UCC in effect in the state where such property is 
located.
    Utility System shall mean the Electric System and all of the 
Mortgagor's interest in community infrastructure located within its 
service territory, namely water and waste systems, solid waste 
disposal facilities, telecommunications and other electronic 
communications systems, and natural gas distribution systems.
    Section 1.02. General Rules of Construction:
    a. Accounting terms not referred to above are used in this 
Mortgage in their ordinary sense and any computations relating to 
such terms shall be computed in accordance with the Accounting 
Requirements.
    b. Any reference to ``directors'' or ``board of directors'' 
shall be deemed to mean ``trustees'' or ``board of trustees,'' as 
the case may be.
    Section 1.03. Special Rules of Construction if REA is a 
Mortgagee: During any period that REA is a Mortgagee, the following 
additional provisions shall apply:
    a. In the case of any Notes that have been guaranteed or insured 
as to payment by REA, as to such Notes REA shall be considered to be 
the Noteholder, exclusively, regardless of whether such Notes are in 
the possession of REA.
    b. In the case of any prior approval rights conferred upon REA 
by Federal statutes, including (without limitation) Section 7 of the 
Rural Electrification Act of 1936, as amended, with respect to the 
sale or disposition of property, rights, or franchises of the 
Mortgagor, all such statutory rights are reserved except to the 
extent that they are expressly modified or waived in this Mortgage.
    Section 1.04. Governing Law: This Mortgage shall be construed in 
and governed by Federal law to the extent applicable, and otherwise 
by the laws of the State of ____________.
    Section 1.05 Notices: All demands, notices, reports, approvals, 
designations, or directions required or permitted to be given 
hereunder shall be in writing and shall be deemed to be properly 
given if sent by registered or certified mail, postage prepaid, or 
delivered by hand, or sent by facsimile transmission, receipt 
confirmed, addressed to the proper party or parties at the following 
address:
    As to the Mortgagor:

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    As to the Mortgagee:

United States of America, Department of Agriculture, Rural 
Electrification Administration, Washington, DC 20250-1500

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and as to any other person, firm, corporation or governmental body 
or agency having an interest herein by reason of being a Mortgagee, 
at the last address designated by such person, firm, corporation, 
governmental body or agency to the Mortgagor and the other 
Mortgagees. Any such party may from time to time designate to each 
other a new address to which demands, notices, reports, approvals, 
designations or directions may be addressed, and from and after any 
such designation the address designated shall be deemed to be the 
address of such party in lieu of the address given above.

Article II

Additional Notes

    Section 2.01. Additional Notes: Without the prior consent of any 
Mortgagee or any Noteholder, the Mortgagor may issue Additional 
Notes to the Government or to another lender or lenders for the 
purpose of acquiring or constructing new or replacement Mortgageable 
Property which Notes will thereupon be secured equally and ratably 
with the Notes if the following requirements are satisfied:
    (1) As evidenced by a certificate of an Independent accountant 
delivered to each Mortgagee:
    (a) The Mortgagor shall have achieved for each of the two 
calendar years immediately preceding the issuance of such additional 
Notes, a TIER of not less than 1.35 and a DSC of not less than 1.35 
on a pro forma basis after taking into account the maximum effect of 
such additional Notes on annual Interest Expense, annual 
Depreciation and Amortization Expense, and annual payments of 
principal and interest (for purpose of this calculation, the 
interest rate assumed in the case of Notes having a variable 
interest rate shall be the greater of (i) interest rate in effect 
with respect to such Notes on the date of such calculation or (ii) 
the average interest rate with respect to any such Notes Outstanding 
during the preceding 12 months); and
    (b) After taking into account the effect of such additional 
Notes, the Mortgagor shall have Equity greater than or equal to 27% 
of Total Assets on a pro forma basis; and
    (c) After taking into account the effect of such additional 
Notes, the ratio of the Mortgagor's Net Utility Plant to its Long 
Term Debt shall be greater than or equal to 1.1 on a pro forma 
basis;
    (d) The aggregate principal amount of such Additional Notes (if 
any) not related to the Electric System when added to the aggregate 
principal amount of all Outstanding Notes (if any) not related to 
the Electric System will be not more than 20% of the Outstanding 
Notes on a pro forma basis;
    (e) The maturity of the loan evidenced by the notes must not 
exceed the weighted average of the expected remaining useful lives 
of the assets being financed;
    (f) The principal of the loan evidenced by the Notes must be 
amortized at a rate that will yield a weighted average life not 
greater than the weighted average life that would result from level 
payments of principal and interest; and
    (g) The principal of the loan evidenced by the Notes must have a 
maturity of not less than 5 years.
    (2) No Event of Default has occurred and is continuing 
hereunder, or any event which with the giving of notice or lapse of 
time or both would become an Event of Default has occurred and is 
continuing.
    (3) The Mortgageable Property being constructed or replaced is 
part of the Mortgagor's Utility System.
    Section 2.02. Refunding or Refinancing Notes: The Mortgagor 
shall also have the right without the consent of any Mortgagee or 
any Noteholder to issue Additional Notes for the purpose of 
refunding or refinancing any Notes so long as: (a) the total amount 
of Outstanding indebtedness evidenced by such Additional Note or 
Notes is not greater than 103.5 percent of the then outstanding 
principal balance of the Note or Notes being refunded or refinanced; 
(b) the weighted average life of any such additional Note or Notes 
is not greater than the weighted remaining life of the Note or Notes 
being refinanced; (c) the present value of the cost of the 
refinancing, including all transaction costs and any required 
investments in the lender, is less than the present value of the 
cost of the Note or Notes being refinanced. PROVIDED, HOWEVER, that 
the Mortgagor may not exercise its rights under this Section if an 
Event of Default has occurred and is continuing, or any event which 
with the giving of notice or lapse of time or both would become an 
Event of Default has occurred and is continuing. Additional Notes 
issued pursuant to this Section 2.02 will thereupon be secured 
equally and ratably with the Notes.
    Section 2.03. Other Additional Notes. With the prior written 
consent of each Mortgagee, the Mortgagor may issue Additional Notes 
to the Government or any lender or lenders which, Notes will 
thereupon be secured equally and ratably with Notes without regard 
to whether any of the requirements of Sections 2.01 or 2.02 are 
satisfied.
    Section 2.04. Additional Lenders Entitled to the Benefits of 
This Mortgage: Without the prior consent of any Mortgagee or any 
Noteholder, each lender designated as a payee in any Additional 
Notes issued by the Mortgagor pursuant to Section 2.01 or 2.02 of 
this Mortgage shall become a Mortgagee hereunder upon the execution 
and delivery by the Mortgagor and such lender of a supplemental 
mortgage hereto designating such lender as a Mortgagee hereunder. 
Such lender shall be entitled to the benefits of this Mortgage 
without further act or deed. Each Mortgagee and each person or 
entity that becomes a lender pursuant to Section 2.01 or 2.02 of 
this Mortgage shall, upon the request of the Mortgagor to do so, 
execute and deliver a supplement to this Mortgage in substantially 
the form set forth in Section 2.05. Such request shall be 
accompanied by an opinion of counsel and a certificate of the 
general manager or other duly authorized officer of the Mortgagor 
showing in reasonable detail that the issuance of the Additional 
Note or Notes which qualify the specified additional lender to 
become a Mortgagee under this Mortgage were or will be issued in 
compliance with the provisions of sections 2.01 or 2.02 hereof. The 
failure of any Mortgagee to enter into such supplemental mortgage 
shall not deprive the lender of its rights under this Mortgage; 
provided that such additional indebtedness otherwise conforms in all 
respects with the requirements for issuing Additional Notes under 
this Mortgage.
    Section 2.05. Form of Supplemental Mortgage: [Here insert the 
shell of a simple mortgage supplement. The new lender should be able 
to set amortization terms and loan contract details in separate 
instruments, but not modify the substance of the shell or the master 
mortgage if it expects to take advantage of Sec. 2.04.]

Article III

Particular Covenants of the Mortgagor

    Section 3.01. Payment of Debt Service on Notes: The Mortgagor 
will duly and punctually pay the principal, premium, if any, and 
interest on the Notes in accordance with the terms of the Notes, the 
Loan Contracts, this Mortgage and any Supplemental Mortgage 
authorizing such Notes.
    Section 3.02. Warranty of Title: At the time of the execution 
and delivery of this instrument, the Mortgagor has good and 
marketable title in fee simple to the real property specifically 
described in Granting Clause First as owned in fee and good and 
marketable title to the interests in real property specifically 
described in Granting Clause First, subject to no mortgage, lien, 
charge or encumbrance except as stated therein, and has full power 
and lawful authority to grant, bargain, sell, alien, remise, 
release, convey, assign, transfer, mortgage, pledge, set over and 
confirm said real property and interests in real property in the 
manner and form aforesaid.
    The Mortgagor lawfully owns and is possessed of the other 
property specifically described in Granting Clause First, subject to 
no mortgage, lien, charge or encumbrance except as stated therein, 
and has full power and lawful authority to mortgage, assign, 
transfer, deliver, pledge and grant a continuing security interest 
in said property in the manner and form aforesaid.
    The Mortgagor hereby does and will forever warrant and defend 
the title to the property specifically described in Granting Clause 
First against the claims and demands of all persons whomsoever.
    Section 3.03. After-Acquired Property; Further Assurances; 
Recording: All property of every kind, other than Excepted Property, 
acquired by the Mortgagor after the date hereof, shall, immediately 
upon the acquisition thereof by the Mortgagor, and without any 
further mortgage, conveyance or assignment, become subject to the 
lien of this Mortgage; Subject, However, to Permitted Encumbrances 
and the exceptions, if any, to which all of the Mortgagees consent. 
Nevertheless, the Mortgagor will do, execute, acknowledge and 
deliver all and every such further acts, conveyances, mortgages, 
financing statements and assurances as any Mortgagee shall require 
for accomplishing the purposes of this Mortgage.
    The Mortgagor will cause this Mortgage and all Supplemental 
Mortgages and other instruments of further assurance, including all 
financing statements covering security interests in personal 
property, to be promptly recorded, registered and filed, and will 
execute and file such financing statements and cause to be issued 
and filed such continuation statements, all in such manner and in 
such places as may be required by law fully to preserve and protect 
the rights of all of the Mortgagees and Noteholders hereunder to all 
property comprising the Mortgaged Property. The Mortgagor will 
furnish to each Mortgagee:
    A. Promptly after the execution and delivery of this instrument 
and of each Supplemental Mortgage or other instrument of further 
assurance, an Opinion of Counsel stating that, in the opinion of 
such Counsel, this instrument and all such Supplemental Mortgages 
and other instruments of further assurance have been properly 
recorded, registered and filed to the extent necessary to make 
effective the lien intended to be created by this Mortgage, and 
reciting the details of such action or referring to prior Opinions 
of Counsel in which such details are given, and stating that all 
financing statements and continuation statements have been executed 
and filed that are necessary fully to preserve and protect the 
rights of all of the Mortgagees and Noteholders hereunder, or 
stating that, in the opinion of such Counsel, no such action is 
necessary to make the lien effective; and
    B. Within 30 days after ____________ in each year beginning with 
the year ______, an Opinion of Counsel, dated as of such date, 
either stating that, in the opinion of such Counsel, such action has 
been taken with respect to the recording, registering, filing, re-
recording, re-registering and re-filing of this instrument and of 
all Supplemental Mortgages, financing statements, continuation 
statements or other instruments of further assurances as is 
necessary to maintain the lien of this Mortgage (including the lien 
on any property acquired by the Mortgagor after the execution and 
delivery of this instrument and owned by the Mortgagor at the end of 
preceding calendar year) and reciting the details of such action or 
referring to prior Opinions of Counsel in which such details are 
given, and stating that all financing statements and continuation 
statements have been executed and filed that are necessary to fully 
preserve and protect the rights of all of the Mortgagees and 
Noteholders hereunder, or stating that, in the opinion of such 
Counsel, no such action is necessary to maintain such lien.
    Section 3.04. Environmental Obligations: (a) The Mortgagor 
shall, with respect to all facilities which may be part of the 
Mortgaged Property, comply with all Environmental Laws.
    (b) The Mortgagor shall defend, indemnify, and hold harmless 
each Mortgagee, its successors and assigns, from and against any and 
all liabilities, losses, damages, costs, expenses (including but not 
limited to reasonable attorneys' fees and expenses), causes of 
actions, administrative proceedings, suits, claims, demands, or 
judgments of any nature arising out of or in connection with any 
matter related to the Mortgage Property and any Environmental Law, 
including but not limited to:
    (1) The past, present, or future presence of any hazardous 
substance, contaminant, pollutant, or hazardous waste on or related 
to the Mortgaged Property;
    (2) Any failure at any time by the undersigned to comply with 
the terms of any order related to the Mortgaged Property and issued 
by any federal, state, or municipal department or agency (other than 
REA) exercising its authority to enforce any Environmental Law; and
    (3) Any lien or claim imposed under any Environmental Law 
related to clause (1).
    (c) Within 3 (three) days after receiving knowledge of any 
liability, losses, damages, costs, expenses (including but not 
limited to reasonable attorneys' fees and expenses), cause of 
action, administrative proceeding, suit, claim, demand, judgment, 
lien, reportable event including but not limited to the release of a 
hazardous substance, or potential or actual violation or non-
compliance arising out of or in connection with the Mortgaged 
Property and any Environmental Law, the Mortgagor shall provide each 
Mortgagee with written notice of such matter. With respect to any 
matter upon which it has provided such notice, the Mortgagor shall 
immediately take any and all appropriate actions to remedy, cure, 
defend, or otherwise affirmatively respond to the matter.
    Section 3.05. Payment of Taxes: The Mortgagor will pay or cause 
to be paid as they become due and payable all taxes, assessments and 
other governmental charges lawfully levied or assessed or imposed 
upon the Mortgaged Property or any part thereof or upon any income 
therefrom, and also (to the extent that such payment will not be 
contrary to any applicable laws) all taxes, assessments and other 
governmental charges lawfully levied, assessed or imposed upon the 
lien or interest of the Noteholders or of the Mortgagees in the 
Mortgaged Property, so that (to the extent aforesaid) the lien of 
this Mortgage shall at all times be wholly preserved at the cost of 
the Mortgagor and without expense to the Mortgagees or the 
Noteholders; PROVIDED, HOWEVER, that the Mortgagor shall not be 
required to pay and discharge or cause to be paid and discharged any 
such tax, assessment or governmental charge to the extent that the 
amount, applicability or validity thereof shall currently be 
contested in good faith by appropriate proceedings and the Mortgagor 
shall have established and shall maintain adequate reserves on its 
books for the payment of the same.
    Section 3.06. Authority to Execute and Deliver Notes, Loan 
Agreements and Mortgage; All Action Taken; Enforceable Obligations: 
The Mortgagor is authorized under its articles of incorporation and 
bylaws [or code of regulations] and all applicable laws and by 
corporate action to execute and deliver the Notes, any Additional 
Notes, the Loan Agreements and this Mortgage. The Notes, the Loan 
Agreements and this Mortgage are, and any Additional Notes and Loan 
Agreements when executed and delivered will be, the valid and 
enforceable obligations of the Mortgagor in accordance with their 
respective terms.
    Section 3.07. Restrictions On Further Encumbrances on Property: 
Except to secure Additional Notes, the Mortgagor will not, without 
the prior written consent of each Mortgagee, create or incur or 
suffer or permit to be created or incurred or to exist any Lien, 
charge, assignment, pledge, mortgage on any of the Mortgaged 
Property inferior to, prior to, or on a parity with the Lien of this 
Mortgage except for the Permitted Encumbrances. Subject to the 
provisions of Section 3.08, or unless approved by each of the 
Mortgagees, the Mortgagor will purchase all materials, equipment and 
replacements to be incorporated in or used in connection with the 
Mortgaged Property outright and not subject to any conditional sales 
agreement, chattel mortgage, bailment, lease or other agreement 
reserving to the seller any right, title or Lien.
    Section 3.08. Restrictions On Additional Permitted Debt: The 
Mortgagor shall not incur, assume, guarantee or otherwise become 
liable in respect of any debt for borrowed money and Restricted 
Rentals (including Subordinated Debt) other than the following: 
(``Permitted Debt'')
    (1) Additional Notes issued in compliance with Article II 
hereof;
    (2) Purchase money indebtedness in non-Utility System property, 
in an amount not exceeding 10% of Net Utility Plant;
    (3) Restricted Rentals in an amount not to exceed 5% of Equity 
during any 12 consecutive calendar month period;
    (4) Unsecured lease obligations incurred in the ordinary course 
of business except Restricted Rentals;
    (5) Unsecured indebtedness for borrowed money in an aggregate 
amount not exceeding 15% of Net Utility Plant;
    (6) Debt represented by dividends declared but not paid;
    (7) Subordinated Indebtedness approved by each Mortgagee; and
    (8) Indebtedness of other operating electric companies hereafter 
acquired by the Mortgagor not exceeding 90% of the Net Utility Plant 
of the acquired company.
    Provided, However, that the Mortgagor may incur Permitted Debt 
without the consent of the Mortgagee only so long as there exists no 
Event of Default hereunder and there has been no continuing 
occurrence which with the passage of time and giving of notice could 
become an Event of Default hereunder.
    Provided, Further, by executing this Mortgage any consent of REA 
that the Mortgagor would otherwise be required to obtain under this 
Section is hereby deemed to be given or waived by REA by operation 
of law to the extent, but only to the extent, that to impose such a 
requirement of REA consent would clearly violate existing federal 
laws or government regulations.
    Section 3.09. Preservation of Corporate Existence and 
Franchises: The Mortgagor will, so long as any Outstanding Notes 
exist, take or cause to be taken all such action as from time to 
time may be necessary to preserve its corporate existence and to 
preserve and renew all franchises, rights of way, easements, 
permits, and licenses now or hereafter to be granted or upon it 
conferred the loss of which would have a material adverse affect on 
the Mortgagor's financial condition or business. The Mortgagor will 
comply with all laws, ordinances, regulations, orders, decrees and 
other legal requirements applicable to it or its property the 
violation of which could have a material adverse affect on the 
Mortgagor's financial condition or business.
    Section 3.10 Limitations on Consolidations and Mergers: The 
Mortgagor shall not consolidate or merge with any other corporation 
or convey or transfer the Mortgaged Property substantially as an 
entirety unless: (1) Such consolidation, merger, conveyance or 
transfer shall be on such terms as shall fully preserve the lien and 
security hereof and the rights and powers of the Mortgagees 
hereunder; (2) the entity formed by such consolidation or with which 
the Mortgagor is merged or the corporation which acquires by 
conveyance or transfer the Mortgaged Property substantially as an 
entirety shall execute and deliver to the Mortgagees a mortgage 
supplemental hereto in recordable form and containing an assumption 
by such successor entity of the due and punctual payment of the 
principal of and interest on all of the Outstanding Notes and the 
performance and observance of every covenant and condition of this 
Mortgage; (3) immediately after giving effect to such transaction, 
no default hereunder shall have occurred and be continuing; (4) the 
Mortgagor shall have delivered to the Mortgagees a certificate of 
its general manager or other officer and an opinion of counsel for 
the Mortgagor, each of which shall state that such consolidation, 
merger, conveyance or transfer and such supplemental mortgage comply 
with this subsection and that all conditions precedent herein 
provided for relating to such transaction have been complied with; 
and (5) the entity formed by such consolidation or with which the 
Mortgagor is merged or the corporation which acquires by conveyance 
or transfer the Mortgaged Property substantially as an entirety 
shall be an entity--(A) having Equity equal to at least 27% of its 
Total Assets on a pro forma basis after giving effect to such 
transaction, (B) having a pro forma TIER of not less than 1.35 for 
the preceding calendar year, and (C) having Net Utility Plant equal 
to or greater than 1.1 times its long-term debt. Upon any 
consolidation or merger or any conveyance or transfer of the 
Mortgaged Property substantially as an entirety in accordance with 
this subsection, the successor entity formed by such consolidation 
or with which the Mortgagor is merged or to which such conveyance or 
transfer is made shall succeed to, and be substituted for, and may 
exercise every right and power of, the Mortgagor under this Mortgage 
with the same effect as if such successor entity had been named as 
the Mortgagor herein.
    Section 3.11 Limitations on Transfers of Property: The Mortgagor 
may not, except as provided in Section 3.10 above, without the prior 
written approval of each Mortgagee, sell, lease or transfer any 
Mortgaged Property to any other person or entity (including any 
subsidiary or affiliate of the Mortgagor), unless (1) there exists 
no Event of Default or occurrence which with the passing of time and 
the giving of notice would be an Event of Default, (2) fair market 
value is obtained for such property, (3) the aggregate value of 
assets so sold, leased or transferred in any 12-month period is less 
than 10% of Net Utility Plant, and (4) the proceeds of such sale, 
lease or transfer, less ordinary and reasonable expenses incident to 
such transaction, are immediately (i) applied as a prepayment of all 
Notes equally and ratably, (ii) in the case of dispositions of 
equipment, materials or scrap, applied to the purchase of other 
property useful in the Mortgagor's business, not necessarily of the 
same kind as the property disposed of, which shall forthwith become 
subject to the Lien of the Mortgage, or (iii) applied to the 
acquisition or construction of other Mortgageable Property.
    Section 3.12. Maintenance of Mortgaged Property: (a) So long as 
the Mortgagor holds title to the Mortgaged Property, the Mortgagor 
will at all times maintain and preserve the Mortgaged Property which 
is used or useful in the Mortgagor's business and each and every 
part and parcel thereof in good repair, working order and condition, 
ordinary wear and tear and acts of God excepted, and in compliance 
with good utility practice and in compliance with all applicable 
laws, regulations and orders, and will from time to time make all 
needed and proper repairs, renewals and replacements, and useful and 
proper alterations, additions, betterments and improvements, and 
will, subject to contingencies beyond its reasonable control, at all 
times use all reasonable diligence to furnish the consumers served 
by it through the Mortgaged Property, or any part thereof, with an 
adequate supply of electric power and energy. If any substantial 
part of the Mortgaged Property is leased by the Mortgagor to any 
other party, the lease agreement between the Mortgagor and the 
lessee shall obligate the lessee to comply with the provisions of 
subsections (a) and (b) of this Section in respect of the leased 
facilities and to permit the Mortgagor to operate the leased 
facilities in the event of any failure by the lessee to so comply.
    (b) The Mortgagor further agrees upon reasonable written request 
of any Mortgagee, which request together with the requests of any 
other Mortgagees shall be made no more frequently than once every 
three years, to supply promptly to each Mortgagee an initial 
certification (hereinafter called the ``Initial Certification''), in 
form satisfactory to the requestor, prepared by an Independent 
professional engineer, who shall be satisfactory to the Mortgagees, 
as to the condition of the Mortgaged Property. If in the sole 
judgment of any Mortgagee such Initial Certification discloses the 
need for improvements to the condition of the Mortgaged Property or 
any other operations of the Mortgagor, such Mortgagee may send to 
the Mortgagor a written report of such improvements and the 
Mortgagor will upon receipt of such written report promptly 
undertake to accomplish such of these improvements as are required 
by such Mortgagees. One year after receipt of such written report, 
the Mortgagor shall submit to each Mortgagee a second certification 
(herein called the ``Second Certification''), in form satisfactory 
to the Mortgagees, prepared by an Independent professional engineer, 
who shall be satisfactory to the Mortgagees, as to the condition of 
the Mortgaged Property and the other operations of the Mortgagor. If 
in the sole judgment of any Mortgagee such Second Certification 
discloses inadequacies in the condition of the Mortgaged Property or 
the other operations of the Mortgagor, any Mortgagee may send to the 
Mortgagor written notice of these inadequacies, and the Mortgagor 
shall cure such inadequacies, within sixty (60) days of receipt of 
such notice.
    Section 3.13. Insurance; Restoration of Damaged Mortgaged 
Property: (a) The Mortgagor will take out, as the respective risks 
are incurred, and maintain the classes and amounts of insurance in 
conformance with generally accepted utility industry standards for 
such classes and amounts of coverages of utilities of the size and 
character of the Mortgagor.
    (b) The foregoing insurance coverage shall be obtained by means 
of bond and policy forms approved by regulatory authorities having 
jurisdiction, and, with respect to insurance upon any part of the 
Mortgaged Property, shall provide that the insurance shall be 
payable to the Mortgagees as their interests may appear by means of 
the standard mortgagee clause without contribution. Each policy or 
other contract for such insurance shall contain an agreement by the 
insurer that, notwithstanding any right of cancellation reserved to 
such insurer, such policy or contract shall continue in force for at 
least 30 days after written notice to each Mortgagee of 
cancellation.
    (c) In the event of damage to or the destruction or loss of any 
portion of the Mortgaged Property which is used or useful in the 
Mortgagor's business and which shall be covered by insurance, unless 
each Mortgagee shall otherwise agree, the Mortgagor shall replace or 
restore such damaged, destroyed or lost portion so that such 
Mortgaged Property shall be in substantially the same condition as 
it was in prior to such damage, destruction or loss, and shall apply 
the proceeds of the insurance for that purpose. The Mortgagor shall 
replace the lost portion of such Mortgaged Property or shall 
commence such restoration promptly after such damage, destruction or 
loss shall have occurred and shall complete such replacement or 
restoration as expeditiously as practicable, and shall pay or cause 
to be paid out of the proceeds of such insurance all costs and 
expenses in connection therewith.
    (d) Sums recovered under any policy or fidelity bond by the 
Mortgagor for a loss of funds advanced under the Notes or recovered 
by any Mortgagee or any Noteholder for any loss under such policy or 
bond shall, unless applied as provided in the preceding paragraph or 
otherwise be used to finance construction of facilities secured or 
to be secured by this Mortgage, or unless otherwise directed by the 
Mortgagees, be applied to the prepayment of the Notes pro rata 
according to the unpaid principal amounts thereof (such prepayments 
to be applied to such Notes and installments thereof as may be 
designated by the respective Mortgagee at the time of any such 
prepayment), or be used to construct or acquire facilities which 
will become part of the Mortgaged Property. At the request of any 
Mortgagee, the Mortgagor shall exercise such rights and remedies 
which they may have under such policy or fidelity bond and which may 
be designated by such Mortgagee, and the Mortgagor hereby 
irrevocably appoints each Mortgagee as its agent to exercise such 
rights and remedies under such policy or bond as such Mortgagee may 
choose, and the Mortgagor shall pay all costs and reasonable 
expenses incurred by the Mortgagee in connection with such exercise.
    Section 3.14. Mortgagee Right to Expend Money to Protect 
Mortgaged Property: The Mortgagor agrees that any Mortgagee from 
time to time hereunder may, in its sole discretion, after having 
given 5 Business days prior written notice to Mortgagor, but shall 
not be obligated to, advance funds on behalf of Mortgagor, in order 
to insure the Mortgagor's compliance with any covenant, warranty, 
representation or agreement of the Mortgagor made in or pursuant to 
this Mortgage or any of the Loan Agreements, to preserve or protect 
any right or interest of the Mortgagees in the Mortgaged Property or 
under or pursuant to this Mortgage or any of the Loan Agreements, 
including without limitation, the payment of any insurance premiums 
or taxes and the satisfaction or discharge of any judgment or any 
Lien upon the Mortgaged Property or other property or assets of 
Mortgagor; provided, however, that the making of any such advance by 
or through any Mortgagee shall not constitute a waiver by any 
Mortgagee of any Event of Default with respect to which such advance 
is made nor relieve the Mortgagor of any such Event of Default. The 
Mortgagor shall pay to a Mortgagee upon demand all such advances 
made by such Mortgagee with interest thereon at a rate equal to that 
on the Note having the highest interest rate but in no event shall 
such rate be in excess of the maximum rate permitted by applicable 
law. All such advances shall be included in the obligations and 
secured by the security interest granted hereunder.
    Section 3.15. Time Extensions for Payment of Notes: Any 
Mortgagee may, at any time or times in succession without notice to 
or the consent of the Mortgagor, or any other Mortgagee, and upon 
such terms as such Mortgagee may prescribe, grant to any person, 
firm or corporation who shall have become obligated to pay all or 
any part of the principal of (and premium, if any) or interest on 
any Note held by or indebtedness owed to such Mortgagee or who may 
be affected by the lien hereby created, an extension of the time for 
the payment of such principal, (and premium, if any) or interest, 
and after any such extension the Mortgagor will remain liable for 
the payment of such Note or indebtedness to the same extent as 
though it had at the time of such extension consented thereto in 
writing.
    Section 3.16. Limitation on Dividends, Patronage Refunds and 
Other Cash Distributions: The Mortgagor will not, in any calendar 
year, without the prior written consent of the Mortgagees, declare 
or pay any dividends, or pay or determine to pay any patronage 
refunds, or retire any patronage capital or make any other cash 
distributions (such dividends, refunds, retirements and other 
distributions being hereinafter collectively called 
``Distributions''), to its members, stockholders or consumers if 
after giving effect to any such Distribution the total Equity of the 
Mortgagor will not equal or exceed 40% of its total assets and other 
debits; provided, however, that in any event the Mortgagor may make 
Distributions to the estates of natural patrons who are deceased to 
the extent required or permitted by its articles of incorporation 
and bylaws, and, if such Distributions to such estates do not exceed 
25% of the patronage capital and margins received by the Mortgagor 
in the next preceding year, make such additional Distributions in 
any year as will not cause the total Distributions in such year to 
exceed 25% of the patronage capital and margins so received, and 
provided, further, however, that in no event will the Mortgagor make 
any Distributions if there is unpaid when due any installment of 
principal of (and premium, if any) or interest on the Notes, if the 
Mortgagor is otherwise in default hereunder or if, after giving 
effect to any such Distribution, the Mortgagor's total current and 
accrued assets would be less than its total current and accrued 
liabilities. For the purpose of this section a ``cash distribution'' 
shall be deemed to include any general cancellation or abatement of 
charges for electric energy or services furnished by the Mortgagor, 
but not the repayment of a membership fee upon termination of a 
membership.
    Section 3.17. Application of Proceeds from Condemnation: (a) In 
the event that the Mortgaged Property or any part thereof, shall be 
taken under the power of eminent domain, all proceeds and avails 
therefrom may be used to finance construction of facilities secured 
or to be secured by this Mortgage. Any proceeds not so used shall 
forthwith be applied by the Mortgagor: first, to the ratable payment 
of any indebtedness secured by this Mortgage other than principal of 
or interest on the Notes; second, to the ratable payment of interest 
which shall have accrued on the Notes and be unpaid; third, to the 
ratable payment of or on account of the unpaid principal of the 
Notes, to such installments thereof as may be designated by the 
respective Mortgagee at the time of any such payment; and fourth, 
the balance shall be paid to whomsoever shall be entitled thereto.
    (b) If any part of the Mortgaged Property shall be taken by 
eminent domain, each Mortgagee shall release the property so taken 
from the Mortgaged Property and shall be fully protected in so doing 
upon being furnished with:
    (1) A certificate of a duly authorized officer of the Mortgagor 
requesting such release, describing the property to be released and 
stating that such property has been taken by eminent domain and that 
all conditions precedent herein provided or relating to such release 
have been complied with; and
    (2) an opinion of counsel to the effect that such property has 
been lawfully taken by exercise of the right of eminent domain, that 
the award for such property so taken has become final or an appeal 
therefrom is not advisable in the interests of the Mortgagor, the 
Mortgagees or the Noteholders and that all conditions precedent 
herein provided for relating to such release have been complied 
with.
    Section 3.18. Compliance with Loan Agreements; Notice of 
Amendments to and Defaults under Loan Agreements: The Mortgagor will 
observe and perform all of the material covenants, agreements, terms 
and conditions contained in any Loan Agreement entered into in 
connection with the issuance of any of the Notes, as from time to 
time amended. The Mortgagor will send promptly to each Mortgagee 
notice of any default by the Mortgagor under any Loan Agreement and 
notice of any amendment to any Loan Agreement. Upon request of any 
Mortgagee, the Mortgagor will furnish to such Mortgagee single 
copies of such Loan Agreements and amendments thereto as such 
Mortgagee may request.
    Section 3.19. Rights of Way, etc., Necessary in Business: The 
Mortgagor will use its best efforts to obtain all such rights of 
way, easements from landowners and releases from lienors as shall be 
necessary or advisable in the conduct of its business, and, if 
requested by any Mortgagee, deliver to such Mortgagee evidence 
satisfactory to such Mortgagee of the obtaining of such rights of 
way, easements or releases.
    Section 3.20. Rates to Provide Revenue Sufficient to Meet TIER 
and DSC Requirements: The Mortgagor shall design and implement rates 
for electric power and energy and for other utility services 
furnished by it that are designed [when combined with other revenue 
available to the Mortgagor] (i) to provide sufficient revenue to pay 
all fixed and variable expenses when and as due, (ii) to provide and 
maintain reasonable working capital, and (iii) to maintain, on an 
annual basis, a TIER of not less than 1.35 and a DSC of not less 
than 1.35. The Mortgagor shall give thirty (30) days prior written 
notice of any proposed change in its general rate structure to any 
Mortgagee who has requested in writing that it be notified in 
advance of such changes. Within ninety (90) days following the end 
of each calendar year, the Mortgagor shall report, in writing, to 
each of the Mortgagees the TIER and DSC levels which were achieved 
during that calendar year. If the average of the two (2) largest 
annual levels achieved by the Mortgagor out of the three (3) then 
most recent calendar years results in a TIER of less than 1.35 or a 
DSC of less than 1.35, the Mortgagor shall within ninety (90) days 
following the end of the calendar year, provide to each of the 
Mortgagees a written plan of remedial action, proposed by an 
Independent consultant acceptable to each of the Mortgagees, for the 
approval of each Mortgagee. Such plan shall set forth the actions 
that the Mortgagor shall take in order to achieve the required TIER 
and DSC levels on a timely basis. The Mortgagor shall take all 
actions provided for in its written plan approved by the Mortgagees. 
In the event that any state regulatory authority having jurisdiction 
decides to disapprove rates sufficient to meet TIER and DSC ratios 
prescribed in this Mortgage, the Mortgagor will provide appropriate 
documentation to that effect along with a request that the 
Mortgagees approve the plan as modified to take the determination of 
such state authority into account. If each of the Mortgagees 
consents to such modifications, then the plan as so modified shall 
constitute the plan required by this section.
    The Mortgagor will not furnish or supply or cause to be 
furnished or supplied any use, output, capacity, or service of the 
Utility System free of charge to any person, firm or corporation, 
public or private, and the Mortgagor will enforce the payment of any 
and all amounts owing to the Mortgagor by reason of the ownership 
and operation of the Utility System by discontinuing such use, 
output, capacity, or service, or by filing suit therefor within 90 
days after any such accounts are due, or by both such discontinuance 
and by filing suit.
    Section 3.21. Keeping Books; Inspection by Mortgagee: The 
Mortgagor will keep proper books of records and account, in which 
full and correct entries shall be made of all dealings or 
transactions of or in relation to the Notes and the Utility Systems, 
properties, business and affairs of the Mortgagor in accordance with 
the Accounting Requirements. The Mortgagor will at any and all 
times, upon the written request of any Mortgagee and at the expense 
of the Mortgagor, permit such Mortgagee by its representatives to 
inspect the Utility Systems and properties, books of account, 
records, reports and other papers of the Mortgagor and to take 
copies and extracts therefrom, and will afford and procure a 
reasonable opportunity to make any such inspection, and the 
Mortgagor will furnish to each Mortgagee any and all such 
information as such Mortgagee may request, with respect to the 
performance by the Mortgagor of its covenants under this Mortgage, 
the Notes and the Loan Agreements.

Article IV

Events of Default and Remedies

    Section 4.01. Events of Default: Each of the following shall be 
an ``Event of Default'' under this Mortgage:
    (a) default shall be made in the payment of any installment of 
or on account of interest on or principal of (or premium, if any 
associated with) any Note or Notes for more than five (5) Business 
Days after the same shall be required to be made;
    (b) default shall be made in the due observance or performance 
of any other of the covenants, conditions or agreements on the part 
of the Mortgagor, in any of the Notes, Loan Agreements or in this 
Mortgage, and such default shall continue for a period of thirty 
(30) days after written notice specifying such default and requiring 
the same to be remedied and stating that such notice is a ``Notice 
of Default'' hereunder shall have been given to the Mortgagor by any 
Mortgagee; PROVIDED, HOWEVER that in the case of a default on the 
terms of a Note or Loan Agreement of a particular Mortgagee, the 
``Notice of Default'' required under this paragraph may only be 
given by that Mortgagee;
    (c) the Mortgagor shall file a petition in bankruptcy or be 
adjudicated a bankrupt or insolvent, or shall make an assignment for 
the benefit of its creditors, or shall consent to the appointment of 
a receiver of itself or of its property, or shall institute 
proceedings for its reorganization or proceedings instituted by 
others for its reorganization shall not be dismissed within sixty 
(60) days after the institution thereof;
    (d) a receiver or liquidator of the Mortgagor or of any 
substantial portion of its property shall be appointed and the order 
appointing such receiver or liquidator shall not be vacated within 
sixty (60) days after the entry thereof;
    (e) the Mortgagor shall forfeit or otherwise be deprived of its 
corporate charter or franchises, permits, easements, or licenses 
required to carry on any material portion of its business;
    (f) a final judgment for an amount of more than $____________ 
shall be entered against the Mortgagor and shall remain unsatisfied 
or without a stay in respect thereof for a period of sixty (60) 
days; or,
    (g) any material representation or warranty made by the 
Mortgagor herein, in the Loan Agreements or in any certificate or 
financial statement delivered hereunder or thereunder shall prove to 
be false or misleading in any material respect at the time made.
    Section 4.02. Acceleration of Maturity; Rescission and 
Annulment:
    (a) If an Event of Default described in Section 4.01(a) has 
occurred and is continuing, any Mortgagee upon which such default 
has occurred may declare the principal of all its Notes secured 
hereunder to be due and payable immediately by a notice in writing 
to the Mortgagor and to the other Mortgagees (failure to provide 
said notice to any other Mortgagee shall not effect the validity of 
any acceleration of the Note or Notes by such Mortgagee), and upon 
such declaration, all unpaid principal (and premium, if any) and 
accrued interest so declared shall become due and payable 
immediately, anything contained herein or in any Note or Notes to 
the contrary notwithstanding. Upon receipt of actual knowledge of or 
any notice of acceleration by any Mortgagee, any other Mortgagee may 
declare the principal of all of its Notes to be due and payable 
immediately by a notice in writing to the Mortgagor and upon such 
declaration, all unpaid principal (and premium, if any) and accrued 
interest so declared shall become due and payable immediately, 
anything contained herein or in any Note or Notes or Loan Agreements 
to the contrary notwithstanding.
    (b) If any other Event of Default shall have occurred and be 
continuing, any Mortgagee may declare the principal (and premium, if 
any) and accrued interest on all its Notes secured by this Mortgage 
due and payable and upon such declaration, all unpaid principal (and 
premium, if any) and interest so declared shall become due and 
payable immediately, anything contained herein, in any Loan 
Agreement or in any Note to the contrary notwithstanding.
    (c) If at any time after the unpaid principal of (and premium, 
if any) and accrued interest on any of the Notes shall have been so 
declared to be due and payable, all payments in respect of principal 
and interest which shall have become due and payable by the terms of 
such Note or Notes (other than amounts due as a result of the 
acceleration of the Notes) shall be paid to the respective 
Mortgagees, and all other defaults under the Loan Agreements, the 
Notes and this Mortgage shall have been made good and secured to the 
satisfaction of the Mortgagees representing at least 80% of the 
aggregate unpaid principal balance of all of the Notes then 
Outstanding, then in every such case such Mortgagees, may by written 
notice to the Mortgagor, annul such declaration and waive such 
default and the consequences thereof, but no such waiver shall 
extend to or affect any subsequent default or impair any right 
consequent thereon.
    Section 4.03. Remedies of Mortgagees: If one or more of the 
Events of Default shall occur and be continuing, any Mortgagee 
personally or by attorney, in its or their discretion, may, in so 
far as not prohibited by law:
    (a) take immediate possession of the Mortgaged Property, collect 
and receive all credits, outstanding accounts and bills receivable 
of the Mortgagor and all rents, income, revenues, proceeds and 
profits pertaining to or arising from the Mortgaged Property, or any 
part thereof, whether then past due or accruing thereafter, and 
issue binding receipts therefor; and manage, control and operate the 
Mortgaged Property as fully as the Mortgagor might do if in 
possession thereof, including, without limitation, the making of all 
repairs or replacements deemed necessary or advisable by such 
Mortgagee in possession;
    (b) proceed to protect and enforce the rights of all of the 
Mortgagees by suits or actions in equity or at law in any court or 
courts of competent jurisdiction, whether for specific performance 
of any covenant or any agreement contained herein or in aid of the 
execution of any power herein granted or for the foreclosure hereof 
or hereunder or for the sale of the Mortgaged Property, or any part 
thereof, or to collect the debts hereby secured or for the 
enforcement of such other or additional appropriate legal or 
equitable remedies as may be deemed necessary or advisable to 
protect and enforce the rights and remedies herein granted or 
conferred, and in the event of the institution of any such action or 
suit the Mortgagee instituting such action or suit shall have the 
right to have appointed a receiver of the Mortgaged Property and of 
all proceeds, rents, income, revenues and profits pertaining thereto 
or arising therefrom, whether then past due or accruing after the 
appointment of such receiver, derived, received or had from the time 
of the commencement of such suit or action, and such receiver shall 
have all the usual powers and duties of receivers in like and 
similar cases, to the fullest extent permitted by law, and if 
application shall be made for the appointment of a receiver the 
Mortgagor hereby expressly consents that the court to which such 
application shall be made may make said appointment; and
    (c) sell or cause to be sold all and singular the Mortgaged 
Property or any part thereof, and all right, title, interest, claim 
and demand of the Mortgagor therein or thereto, at public auction at 
such place in any county (or its equivalent locality) in which the 
property to be sold, or any part thereof, is located, at such time 
and upon such terms as may be specified in a notice of sale, which 
shall state the time when and the place where the sale is to be 
held, shall contain a brief general description of the property to 
be sold, and shall be given by mailing a copy thereof to the 
Mortgagor at least fifteen (15) days prior to the date fixed for 
such sale and by publishing the same once in each week for two 
successive calendar weeks prior to the date of such sale in a 
newspaper of general circulation published in said locality or, if 
no such newspaper is published in such locality, in a newspaper of 
general circulation in such locality, the first such publication to 
be not less than fifteen (15) days nor more than thirty (30) days 
prior to the date fixed for such sale. Any sale to be made under 
this subparagraph (c) of this Section 4.03 may be adjourned from 
time to time by announcement at the time and place appointed for 
such sale or for such adjourned sale or sales, and without further 
notice or publication the sale may be had at the time and place to 
which the same shall be adjourned; provided, however, that in the 
event another or different notice of sale or another or different 
manner of conducting the same shall be required by law the notice of 
sale shall be given or the sale be conducted, as the case may be, in 
accordance with the applicable provisions of law. The expense 
incurred by any Mortgagee (including, but not limited to, receiver's 
fees, counsel fees, cost of advertisement and agents' compensation) 
in the exercise of any of the remedies provided in this Mortgage 
shall be secured by this Mortgage.
    (d) In the event that a Mortgagee proceeds to enforce remedies 
under this Section, any other Mortgagee may join in such 
proceedings. In the event that the Mortgagees are not in agreement 
with the method or manner of enforcement chosen by any other 
Mortgagee, the Mortgagees representing a majority of the aggregate 
unpaid principal balance on the then Outstanding Notes may direct 
the method and manner in which remedial action will proceed.
    Section 4.04. Application of Proceeds from Remedial Actions: Any 
proceeds or funds arising from the exercise of any rights or the 
enforcement of any remedies herein provided after the payment or 
provision for the payment of any and all costs and expenses in 
connection with the exercise of such rights or the enforcement of 
such remedies shall be applied first, to the ratable payment of 
indebtedness hereby secured other than the principal of or interest 
on the Notes; second, to the ratable payment of interest which shall 
have accrued on the Notes and which shall be unpaid; third, to the 
ratable payment of or on account of the unpaid principal of the 
Notes; and the balance, if any, shall be paid to whomsoever shall be 
entitled thereto.
    Section 4.05. Remedies Cumulative; No Election: Every right or 
remedy herein conferred upon or reserved to the Mortgagees or to the 
Noteholders shall be cumulative and shall be in addition to every 
other right and remedy given hereunder or now or hereafter existing 
at law, or in equity, or by statute. The pursuit of any right or 
remedy shall not be construed as an election.
    Section 4.06. Waiver of Appraisement Rights; Marshalling of 
Assets Not Required: The Mortgagor, for itself and all who may claim 
through or under it, covenants that it will not at any time insist 
upon or plead, or in any manner whatever claim, or take the benefit 
or advantage of, any appraisement, valuation, stay, extension or 
redemption laws now or hereafter in force in any locality where any 
of the Mortgaged Property may be situated, in order to prevent, 
delay or hinder the enforcement or foreclosure of this Mortgage, or 
the absolute sale of the Mortgaged Property, or any part thereof, or 
the final and absolute putting into possession thereof, immediately 
after such sale, of the purchaser or purchasers thereat, and the 
Mortgagor, for itself and all who may claim through or under it, 
hereby waives the benefit of all such laws unless such waiver shall 
be forbidden by law. Under no circumstances shall there be any 
marshalling of assets upon any foreclosure or to other enforcement 
of this Mortgage.
    Section 4.07. Notice of Default: The Mortgagor covenants that it 
will give immediate written notice to each Mortgagee of the 
occurrence of any Event of Default or in the event that any right or 
remedy described in Sections 4.02 and 4.03 hereof is exercised or 
enforced or any action is taken to exercise or enforce any such 
right or remedy.

Article V

Possession Until Default-Defeasance Clause

    Section 5.01. Possession Until Default: Until some one or more 
of the Events of Default shall have happened, the Mortgagor shall be 
suffered and permitted to retain actual possession of the Mortgaged 
Property, and to manage, operate and use the same and any part 
thereof, with the rights and franchises appertaining thereto, and to 
collect, receive, take, use and enjoy the rents, revenues, issues, 
earnings, income, products and profits thereof or therefrom, subject 
to the provisions of this Mortgage.
    Section 5.02. Defeasance Generally: If the Mortgagor shall pay 
or cause to be paid the whole amount of the principal of (and 
premium, if any) and interest on the Notes at the times and in the 
manner therein provided, and shall also pay or cause to be paid all 
other sums payable by the Mortgagor hereunder or under any Loan 
Agreement and shall keep and perform, all covenants herein required 
to be kept and performed by it, then and in that case, all property, 
rights and interest hereby conveyed or assigned or pledged shall 
revert to the Mortgagor and the estate, right, title and interest of 
the Mortgagee so paid shall thereupon cease, determine and become 
void and such Mortgagee, in such case, on written demand of the 
Mortgagor but at the Mortgagor's cost and expense, shall enter 
satisfaction of the Mortgage upon the record. In any event, each 
Mortgagee, upon payment in full to such Mortgagee by the Mortgagor 
of all principal of (and premium, if any) and interest on any Note 
held by such Mortgagee and the payment and discharge by the 
Mortgagor of all charges due to such Mortgagee hereunder or under 
any Loan Agreement, shall execute and deliver to the Mortgagor such 
instrument of satisfaction, discharge or release as shall be 
required by law in the circumstances.
    Section 5.03. Special Defeasance: Other than any Notes excluded 
by the foregoing Sections 5.01 and 5.02 and Notes which have become 
due and payable, the Mortgagor may cause the Lien of this Mortgage 
to be defeased with respect to any Note for which it has deposited 
or caused to be deposited in trust solely for the purpose an amount 
sufficient to pay and discharge the entire indebtedness on such Note 
for principal (and premium, if any) and interest to the date of 
maturity thereof; PROVIDED, HOWEVER, that the depositary serving as 
trustee for such trust must first be accepted as such by the 
Mortgagee whose Notes are being defeased under this section. In such 
event, such a Note will no longer be considered to be an Outstanding 
Note for purposes of this Mortgage and the Mortgagee shall execute 
and deliver to the Mortgagor such instrument of satisfaction, 
discharge or release as shall be required by law in the 
circumstances.

Article VI

Miscellaneous

    Section 6.01. Property Deemed Real Property: It is hereby 
declared to be the intention of the Mortgagor that any electric 
generating plant or plants and facilities and all electric 
transmission and distribution lines, or other Electric System or 
Utility System facilities, embraced in the Mortgaged Property, 
including (without limitation) all rights of way and easements 
granted or given to the Mortgagor or obtained by it to use real 
property in connection with the construction, operation or 
maintenance of such plant, lines, facilities or systems, and all 
other property physically attached to any of the foregoing, shall be 
deemed to be real property.
    Section 6.02. Mortgage to Bind and Benefit Successors and 
Assigns: All of the covenants, stipulations, promises, undertakings 
and agreements herein contained by or on behalf of the Mortgagor 
shall bind its successors and assigns, whether so specified or not, 
and all titles, rights and remedies hereby granted to or conferred 
upon the Mortgagees shall pass to and inure to the benefit of the 
successors and assigns of the Mortgagees and shall be deemed to be 
granted or conferred for the ratable benefit and security of all who 
shall from time to time be a Mortgagee. The Mortgagor hereby agrees 
to execute such consents, acknowledgements and other instruments as 
may be reasonably requested by any Mortgagee in connection with the 
assignment, transfer, mortgage, hypothecation or pledge of the 
rights or interests of such Mortgagee hereunder or under the Notes 
or in and to any of the Mortgaged Property.
    Section 6.03. Headings: The descriptive headings of the various 
articles and sections of this Mortgage and also the table of 
contents were formulated and inserted for convenience only and shall 
not be deemed to affect the meaning or construction of any of the 
provisions hereof.
    Section 6.04. Separability Cause: In case any provision of this 
Mortgage or in the Notes or in the Loan Agreements shall be invalid 
or unenforceable, the validity, legality and enforceability of the 
remaining provisions thereof shall not in any way be affected or 
impaired, nor, nor shall any invalidity or unenforceability as to 
any Mortgagee hereunder affect or impair the rights hereunder of any 
other Mortgagee.
    Section 6.05. Mortgage Deemed Security Agreement: To the extent 
that any of the property described or referred to in this Mortgage 
is governed by the provisions of the UCC this Mortgage is hereby 
deemed a ``security agreement'' under the UCC, and, if so elected by 
any Mortgagee, a ``financing statement'' under the UCC for said 
security agreement. The mailing addresses of the Mortgagor as 
debtor, and the Mortgagees as secured parties are as set forth in 
section 6.04 hereof. If any Mortgagee so directs the Mortgagor to do 
so, the Mortgagor shall file as a financing statement under the UCC 
for said security agreement and for the benefit of all of the 
Mortgagees, an instrument other than this Mortgage. In such case, 
the instrument to be filed shall be in a form customarily accepted 
by the filing office as a financing statement.
    Section 6.06. Indemnification by Mortgagor of Mortgagees: The 
Mortgagor agrees to indemnify and save harmless each Mortgagee 
against any liability or damages which any of them may incur or 
sustain in the exercise and performance of their rightful powers and 
duties hereunder. For such reimbursement and indemnity, each 
Mortgagee shall be secured under this Mortgage in the same manner as 
the Notes and all such reimbursements for expense or damage shall be 
paid to the Mortgagee incurring or suffering the same with interest 
at the rate specified in Section 3.14 hereof.
    In Witness Whereof, ____________ as Mortgagor, has caused this 
Restated Mortgage and Security Agreement to be signed in its name 
and its corporate seal to be hereunto affixed and attested by its 
officers thereunto duly authorized, and UNITED STATES OF AMERICA, as 
Mortgagee, and ____________, as Mortgagee, has caused this Restated 
Mortgage and Security Agreement to be signed in its name by duly 
authorized persons, all as of the day and year first above written.
----------------------------------------------------------------------
(SEAL)
By:--------------------------------------------------------------------
President
Attest:----------------------------------------------------------------
Title:-----------------------------------------------------------------
Executed by the Mortgagor in the presence of:
----------------------------------------------------------------------
----------------------------------------------------------------------
Witnesses

UNITED STATES OF AMERICA
By:--------------------------------------------------------------------
Director, of the Rural Electrification Administration

Executed by the United States of America,
Mortgagee, in the presence of:
----------------------------------------------------------------------

----------------------------------------------------------------------
Witnesses

----------------------------------------------------------------------

By:--------------------------------------------------------------------
(SEAL)
Attest:----------------------------------------------------------------

Title:-----------------------------------------------------------------
Executed by the above-named Mortgagee in the presence of:
----------------------------------------------------------------------

----------------------------------------------------------------------
Witnesses

Schedule A--Maximum Debt Limit and Other Information

    1. The Maximum Debt Limit is ____________.
    2. The Original Mortgage as described in the first WHEREAS 
clause above is ____________.
    3. The outstanding secured indebtedness described in the fourth 
WHEREAS clause above as evidenced by the Original Notes is as 
follows:

Schedule B--Property Schedule

    The fee and leasehold interests in real property referred to in 
Section Subclause (a) of Granting Clause One are ____________.
    The counties referred to in Subclause (b) of Granting Clause One 
are ____________.

Schedule C--Excepted Property

    [List of all Excepted Property.]

Schedule D--Notary Public Certification

STATE OF ____________)
COUNTY OF ____________)
    On this ______ day of____________, 19______, before me appeared 
____________ and ____________ personally known, by me and having 
been duly sworn by me, did say that they are the President and 
Secretary, respectively, of ____________, a ____________ 
corporation, and that the seal affixed to the foregoing instrument 
is the corporate seal of said corporation, and that said instrument 
was signed and sealed in behalf of said corporation by authority of 
its Board, and said ____________ and ____________ acknowledged that 
the execution of said instrument was a free act and deed of said 
corporation.
    IN WITNESS whereof, I have hereunto set my hand and official 
seal the day and year last above written.
----------------------------------------------------------------------
Notary Public
(Notarial Seal)
My commission expires:
DISTRICT OF COLUMBIA ) SS
    The foregoing instrument was acknowledged before me this 
____________ day of 19______ , by ____________ Director, 
____________ Regional Division of the Rural Electric Administration, 
acknowledging an agency of the United States of America, on behalf 
of the Rural Electrification Administration, United States of 
America.
----------------------------------------------------------------------
Notary Public
(Notarial Seal)
My Commission expires:

    Dated: September 21, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-23924 Filed 9-28-94; 8:45 am]
BILLING CODE 3410-15-P