<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 1-12527
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BAYCORP HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
------------------------------------------------------
DELAWARE 02-0488443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
COCHECO FALLS MILLWORKS, 100 MAIN STREET, SUITE 201
DOVER, NEW HAMPSHIRE 03820-3835
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 742-3388
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant has filed all documents
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes X No
----- -----
Class Outstanding at August 7, 1998
- --------------------------------------- -----------------------------
Common Stock, $0.01 Par Value per Share 8,262,748
<PAGE> 2
BAYCORP HOLDINGS, LTD.
INDEX
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Statements of Income and Comprehensive Income
- Three and Six Months Ended June 30, 1998 and 1997...................3
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997.............................................4-5
Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1998 and 1997.................................6
Notes to Financial Statements......................................7-12
Item 2 -Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................12-16
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings...........................................16
Item 4 - Submission of Matters to a Vote of Security Holders.........16
Item 5 - Other Information...........................................17
Item 6 - Exhibits and Reports on Form 8-K............................17
Signature............................................................18
Exhibit Index........................................................19
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BAYCORP HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Operating Revenues $ 7,438 $ 3,555 $ 14,881 $ 11,992
Operating Expenses:
Production 5,252 5,063 10,150 9,457
Transmission 214 218 427 438
Administrative & General 3,732 1,436 5,513 3,369
Depreciation & Amortization 877 863 1,755 1,726
Taxes other than Income 1,037 1,127 2,097 2,289
-------------------------- --------------------------
Total Operating Expenses 11,112 8,707 19,942 17,279
-------------------------- --------------------------
Operating Loss (3,674) (5,152) (5,061) (5,287)
Other (Income) Deductions:
Interest and Dividend Income (140) (237) (491) (638)
Decommissioning Cost Accretion 720 666 1,433 1,331
Decommissioning Trust Fund Income (140) (100) (249) (211)
Unit 2 Sales and Other Deductions 60 3 86 3
-------------------------- --------------------------
Total Other Deductions 500 332 779 485
-------------------------- --------------------------
Loss Before Income Taxes (4,174) (5,484) (5,840) (5,772)
Income Taxes 0 0 0 0
-------------------------- --------------------------
Net Loss $ (4,174) $ (5,484) $ (5,840) $ (5,772)
Other Comprehensive Income, Net of Tax
Unrealized Gains (Losses) on Securities 267 (35) 330 (26)
-------------------------- --------------------------
Comprehensive Income (Loss) $ (3,907) $ (5,519) $ (5,510) $ (5,798)
========================== ==========================
Weighted Average Shares Outstanding 8,262,748 8,294,803 8,262,466 8,307,764
Basic and Diluted Loss Per Share $ (0.51) $ (0.66) $ (0.71) $ (0.69)
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
3
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BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
June 30, December 31,
1998 1997
-------- ------------
ASSETS:
Current Assets:
Cash & Cash equivalents $ 7,391 $ 3,270
Short-term Investments, at market 9,294 15,822
Accounts Receivable 1,176 465
Materials & Supplies, net 3,841 3,816
Prepayments & Other Assets 3,110 1,570
-------- --------
Total Current Assets 24,812 24,943
-------- --------
Property, Plant, & Equipment:
Utility Plant 110,903 108,584
Less: Accumulated Depreciation (11,417) (9,758)
-------- --------
Net Utility Plant 99,486 98,826
Nuclear Fuel 15,569 15,076
Less: Accumulated Amortization (8,769) (6,717)
-------- --------
Net Nuclear Fuel 6,800 8,359
Net Property, Plant & Equipment 106,286 107,185
Other Assets:
Decommissioning Trust Fund 9,102 8,025
Deferred Debits & Other 6 5
-------- --------
Total Other Assets 9,108 8,030
-------- --------
TOTAL ASSETS $140,206 $140,158
======== ========
(The accompanying notes are an integral part of these consolidated statements.)
4
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BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 85 $ 270
Taxes Accrued 1,350 0
Miscellaneous Current Liabilities 2,807 1,594
-------- --------
Total Current Liabilities 4,242 1,864
Operating Reserves:
Decommissioning Liability 58,795 55,846
Miscellaneous Other 564 564
-------- --------
Total Operating Reserves 59,359 56,410
Other Liabilities & Deferred Credits 4,047 3,745
Commitments & Contingencies
Stockholders' Equity:
Common stock, $.01 par value,
Authorized - 20,000,000 shares,
Issued and Outstanding - 8,417,800 84 84
Less: Treasury Stock - 155,052 and 145,000 shares, respectively, at cost (1,239) (1,168)
Additional paid-in capital 92,100 92,100
Accumulated Other Comprehensive Income 445 115
Accumulated Deficit (18,832) (12,992)
-------- --------
Total Stockholders' Equity 72,558 78,139
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $140,206 $140,158
======== ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
5
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BAYCORP HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net cash flow from operating activities:
Net Loss $(5,840) $ (5,772)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation & Amortization 1,755 1,726
Amortization of nuclear fuel 2,052 2,156
Decommissioning trust accretion 1,433 1,331
Decommissioning trust interest (249) (211)
(Increase) decrease in accounts receivable (711) 2,507
Increase in materials & supplies (114) (55)
Increase in prepaids and other assets (1,540) (2,735)
Increase (decrease) in accounts payable (185) 21
Increase in taxes accrued 1,350 1,470
Other Increase (decrease) 1,560 (3,219)
------- --------
Net cash used in operating activities (489) (2,781)
------- --------
Net cash flows provided by (used in) investing activities:
Utility plant additions (833) (1,756)
Nuclear fuel additions (493) (1,723)
Payments to decommissioning fund (579) (553)
Short term investments, net 6,586 (4,646)
------- --------
Net cash provided by (used in) investing activities 4,681 (8,678)
------- --------
Net cash used in financing activities:
Reacquired Capital Stock (71) (500)
------- --------
Net cash used in financing activities (71) (500)
------- --------
Net increase (decrease) in cash and cash equivalents 4,121 (11,959)
Cash and cash equivalents, beginning of period 3,270 16,412
------- --------
Cash and cash equivalents, end of period $ 7,391 $ 4,453
======= ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
6
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BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE A - THE COMPANY
BayCorp Holdings, Ltd. ("BayCorp" or the "Company") serves as a holding
company for Great Bay Power Corporation ("Great Bay"). Great Bay is an electric
generating company whose principal asset is a 12.1% joint ownership interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay is an exempt wholesale generator ("EWG") under the Public
Utility Holding Company Act of 1935 ("PUHCA"). Unlike regulated public
utilities, Great Bay has no franchise area or captive customers. Great Bay sells
its power in the competitive wholesale power markets.
Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly-formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. Currently,
Great Bay is the sole subsidiary of BayCorp. BayCorp's principal asset is its
100% equity interest in Great Bay. The new corporate structure enables BayCorp,
either directly or through subsidiaries other than Great Bay, to engage in
businesses that Great Bay would be prohibited from pursuing due to its status as
an EWG under the PUHCA. BayCorp may in the future enter into new businesses or
acquire existing businesses, both in energy related fields and possibly in
unrelated fields.
BayCorp was incorporated in Delaware in 1996. Great Bay was
incorporated in New Hampshire in 1986 and was formerly known as EUA Power
Corporation (the "Predecessor"). Great Bay sells its share of the electricity
output of the Seabrook Project in the wholesale electricity market, primarily in
the Northeast United States. Neither BayCorp nor Great Bay has operational
responsibilities for the Seabrook Project. Great Bay's share of the Seabrook
Project capacity is approximately 140 megawatts ("MW"). Great Bay currently
sells all but 10 MW of its share of the Seabrook Project capacity in the
short-term market.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements included herein have been prepared
on behalf of the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC") and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted or
condensed pursuant to such rules and regulations. The Company believes, however,
its disclosures herein, when read in conjunction with the Company's audited
financial statements for the year ended December 31, 1997, are adequate to make
the information presented not misleading. The results for the interim periods
are not necessarily indicative of the results to be expected for the full fiscal
year.
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BAYCORP HOLDINGS, LTD.
The Company adopted SFAS No. 130, Reporting Comprehensive Income,
effective January 1, 1998. Accumulated Other Comprehensive Income and the
current three and six month period charges are as follows:
<TABLE>
<CAPTION>
Three Month Six Month
Unrealized Gains Unrealized Gains Accumulated Other
on Securities on Securities Comprehensive Income
<S> <C> <C> <C>
Beginning Balance $178,000 $115,000 $115,000
Period Charge 267,000 330,000 330,000
-------- -------- --------
Ending Balance $445,000 $445,000 $445,000
======== ======== ========
</TABLE>
NOTE C - COMMITMENTS AND CONTINGENCIES
NUCLEAR POWER, ENERGY AND UTILITY REGULATION
The Seabrook Project and Great Bay, as part owner of a licensed nuclear
facility, are subject to the broad jurisdiction of the Nuclear Regulatory
Commission ("NRC"), which is empowered to authorize the siting, construction and
operation of nuclear reactors after consideration of public health and safety,
environmental and antitrust matters. Great Bay has been, and will be, affected
to the extent of its proportionate share by the cost of any NRC requirements
applicable to Seabrook Unit I.
Great Bay is also subject to the jurisdiction of the Federal Energy
Regulatory Commission ("FERC") under Parts II and III of the Federal Power Act
and, as a result, is required to file with FERC all contracts for the sale of
electricity. FERC has the authority to suspend the rates at which Great Bay
proposes to sell power, to allow such rates to go into effect subject to refund
and to modify a proposed or existing rate if FERC determines that such rate is
not "just and reasonable." FERC's jurisdiction also includes, among other
things, the sale, lease, merger, consolidation or other disposition of
facilities, interconnection of certain facilities, accounts, service and
property records.
Because it is an EWG, Great Bay is not subject to the jurisdiction of
the SEC under PUHCA. In order to maintain its EWG status, Great Bay must
continue to engage exclusively in the business of owning and/or operating all or
part of one or more "eligible facilities" and to sell electricity only at
wholesale (i.e. not to end users) and activities incidental thereto. An
"eligible facility" is a facility used for the generation of electric energy
exclusively at wholesale or used for the generation of electric energy and
leased to one or more public utility companies. The term "facility" may include
a portion of a facility. In the case of Great Bay, its 12.1% joint ownership
interest in the Seabrook Project comprises an "eligible facility."
UTILITY DEREGULATION; PUBLIC CONTROVERSY CONCERNING NUCLEAR POWER PLANTS
Several states in which Great Bay sells electricity are considering or
have implemented initiatives relating to the deregulation of the utility
industry. Simultaneously with the deregulation initiatives occurring in each of
the New England states, the New England Power Pool ("NEPOOL") is restructuring
to create and maintain open, non-discriminatory, competitive, unbundled markets
for energy, capacity, and ancillary services. NEPOOL's restructuring is designed
to function efficiently in a changing electric power industry and to permit
regional transmission at rates that do not vary with
8
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BAYCORP HOLDINGS, LTD.
distance. In conjunction with NEPOOL's restructuring, a new entity, ISO New
England, Inc., has been formed to insure system reliability and to oversee the
newly formed deregulated generation markets. All of the deregulation initiatives
open electricity markets to competition in the affected states. While Great Bay
believes it is a low-cost producer of electricity and will benefit from the
deregulation of the electric industry, it is not possible to predict the impact
of these various initiatives on Great Bay.
Nuclear units in the United States have been subject to widespread
criticism and opposition, which has led to construction delays, cost overruns,
licensing delays and other difficulties. Various groups have sought to prohibit
the completion and operation of nuclear units and the disposal of nuclear waste
by litigation, legislation and participation in administrative proceedings. The
Seabrook Project was the subject of significant public controversy during its
construction and licensing and remains controversial. An increase in public
concerns regarding the Seabrook Project or nuclear power in general could
adversely affect the operating license of Seabrook Unit 1. While the Company
cannot predict the ultimate effect of such controversy, it is possible that it
could result in a premature shutdown of the unit.
In the event of a permanent shutdown of any unit, NRC regulations
require that the unit be completely decontaminated of any residual
radioactivity. While the owners of the Seabrook Project are accumulating a trust
fund to pay decommissioning costs, if these costs exceed the amount of the trust
fund, the owners, including Great Bay, will be liable for the excess.
DECOMMISSIONING LIABILITY
Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, Great Bay has recognized as a liability its proportionate share of
the estimated Seabrook Project decommissioning. The initial recognition of this
liability was capitalized as part of the Fair Value of the Utility Plant at
November 23, 1994. The current estimated cost to decommission the Seabrook
Project, based on a study performed for the lead owner of the Seabrook Project,
is approximately $473 million in 1997 dollars and $2.2 billion in 2026 dollars,
assuming a remaining 28 year life for the facility and a future escalation rate
of 5%. Based on this estimate, the present value of Great Bay's share of this
liability as of June 30, 1998 is approximately $58.8 million.
During the first quarter of 1996, Great Bay began to accrete its share
of the Seabrook Project's decommissioning liability. This accretion is a
non-cash charge and recognizes Great Bay's liability related to the closure and
decommissioning of its nuclear plant in current year dollars over the licensing
period of the plant. As a result of this accretion, Great Bay's share of the
estimated decommissioning cost increased from $50.2 million as of December 31,
1995 to $58.8 million as of June 30, 1998.
The Seabrook Project's decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning Finance
Committee ("NDFC"). This estimate is based on a number of assumptions. Changes
in assumptions based on factors such as labor and material costs, technology,
inflation and timing of decommissioning could cause these estimates to change,
possibly materially, in the near term.
The Staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations and joint owners in the financial statements of these entities. In
response to
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BAYCORP HOLDINGS, LTD.
these questions, the FASB has agreed to review the accounting for nuclear
decommissioning costs. In 1996, the FASB issued an Exposure Draft entitled
"Accounting for Certain Liabilities Related to Closure and Removal of Long-Lived
Assets." The FASB continues to work on this project. Either a revised exposure
draft or a final statement may be issued in 1998. Great Bay's accounting for
decommissioning was based on the FASB's original tentative conclusions. If the
current exposure draft is adopted or accounting practices for nuclear power
plant decommissioning are changed, Great Bay's decommissioning liability and
annual provision for decommissioning could change relative to amounts reflected
in the financial statements. The Company is unable to predict the impact, if
any, changes in the current accounting will have on the Company's financial
statements.
On November 15, 1992, Great Bay, the Bondholder's Committee and the
Predecessor's former parent, Eastern Utilities Associates ("EUA"), entered into
a settlement agreement that resolved certain proceedings against EUA brought by
the Bondholder's Committee. Under the settlement agreement EUA reaffirmed its
guarantee of up to $10 million of Great Bay's future decommissioning costs of
Seabrook Unit 1.
Although the owners of Seabrook are accumulating funds in an external
trust to defray decommissioning costs, these costs could substantially exceed
the value of the trust fund, and the owners, including Great Bay, would remain
liable for the excess. The amount required to be deposited in the trust fund is
subject to periodic review and adjustment by the NDFC, which could result in
material increases in such amounts. Based on the currently approved funding
schedule Great Bay's decommissioning payments for 1998 would be approximately
$1.2 million.
In January 1997 and July 1997, the NRC staff ruled that Great Bay did
not satisfy the NRC definition of "electric utility." In January 1998, Great Bay
filed a petition with the NRC seeking NRC approval of Great Bay's proposal to
fund decommissioning obligations. Great Bay's petition also sought, in the
alternative, an NRC permanent exemption from the obligation of Great Bay to
comply with the NRC regulations applicable to non "electric utility" owners of
interests in nuclear power plants.
On July 23, 1998, the staff of the NRC notified Great Bay of the
staff's determination that Great Bay complies with the decommissioning funding
assurance requirements under NRC regulations. The New Hampshire State
legislature recently enacted legislation that provides that in the event of a
default by Great Bay on its payments to the decommissioning fund, the other
Seabrook joint owners would be obligated to pay their proportional share of such
default. As a result of the enactment of this legislation, the NRC staff found
that Great Bay complies with the decommissioning funding assurance requirements
in 10 CFR 50.75. In response to the New Hampshire legislation, Great Bay has
agreed to make accelerated payments to the Seabrook decommissioning fund such
that Great Bay will have contributed sufficient funds by the year 2015 to allow
sufficient monies to accumulate, with no further payments by Great Bay to the
fund, to the full estimated amount of Great Bay's decommissioning obligation by
the time the current Seabrook operating license expires in 2026. Based on the
currently approved funding schedule and Great Bay's accelerated funding
schedule, Great Bay's decommissioning payments will be approximately $1.3
million in 1998 and escalate at 4% each year thereafter through 2015.
LIQUIDITY AND CAPITAL EXPENDITURES
10
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BAYCORP HOLDINGS, LTD.
BayCorp anticipates that Great Bay's share of the Seabrook Project's
capital expenditures for the 1998 fiscal year will total approximately $7.5
million, primarily for nuclear fuel and various capital projects. This estimate
is based on the latest projections provided by the managing agent of the
Seabrook Project.
The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. An unscheduled outage began on December 5, 1997 and lasted
until January 15, 1998. A second unscheduled outage began on June 11, 1998 and
lasted until July 12, 1998. The Company incurs losses during outage periods due
to the loss of all operating revenues and additional costs associated with the
outages as well as continuing operating and maintenance expenses and
depreciation.
For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement request
for tax years 1994, 1995 and 1996 were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). The appeals are currently pending before the BTLA. The Company has paid
all of its property tax obligations to date under protest. A successful outcome
of the Company's appeals with respect to property tax assessments would
favorably affect the Company's liquidity and obligation for property tax
payments in the future.
As a result of the NRC's review of Great Bay's status as an "electric
utility" and in connection with recently enacted New Hampshire legislation,
Great Bay has agreed to make accelerated payments to the Seabrook
decommissioning fund such that Great Bay will have contributed sufficient funds
by the year 2015 to allow sufficient monies to accumulate, with no further
payments by Great Bay to the fund after 2015. These accelerated payments are
designed to fund the full estimated amount of Great Bay's decommissioning
obligation by the time the current Seabrook operating license expires in 2026.
See "Decommissioning Liability."
On February 12, 1998, Great Bay sent a letter to PECO Energy Company
("PECO") informing PECO that Great Bay intended to terminate PECO as Great Bay's
exclusive marketing agent. On February 24, 1998, Great Bay filed suit against
PECO in the United States District Court for the District of New Hampshire
seeking a declaratory judgment that Great Bay properly terminated the PECO
Services Agreement and seeking damages arising out of PECO's breach of the PECO
Services Agreement. As of March 1, 1998, Great Bay assumed all marketing
responsibilities for its power.
On June 2, 1998, Great Bay announced that it withdrew its lawsuit
against PECO. At that time, Great Bay and PECO terminated the power marketing
agreement between the companies and Great Bay paid to PECO approximately $2.5
million. During the quarter ended June 30, 1998, Great Bay made an approximate
$2.5 million charge to income for this expense. This amount is reflected in
Administrative and General Expenses in the accompanying Statement of Income.
NOTE D - EQUITY
On October 9, 1997, the Board of Directors of BayCorp adopted a
resolution authorizing BayCorp to repurchase up to an additional aggregate of
100,000 shares of BayCorp common stock on the
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BAYCORP HOLDINGS, LTD.
open market or in negotiated transactions. The shareholder groups controlled by
Omega Advisors, Inc. and Elliot Associates, L.P., the owners of approximately
57% of the Company's shares outstanding in aggregate, have advised the Company
that they do not intend to sell shares in the open market or in negotiated
transactions which would be subject to repurchase by the Company under this
repurchase program. As of June 30, 1998, the Company had repurchased 10,000
shares at a cost of approximately $71,253, or approximately $7.125 per share, as
part of this repurchase program.
Neither the Company nor Great Bay has ever paid cash dividends on its
common stock. BayCorp currently expects that it will retain all of its future
earnings and does not anticipate paying a dividend in the foreseeable future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
As a result of the corporate restructuring that occurred in January
1997, BayCorp's principal asset is its 100% equity interest in Great Bay. Great
Bay is a public utility whose principal asset is a 12.1% joint ownership
interest in the Seabrook Nuclear Power Project in Seabrook, New Hampshire.
Unless the context requires otherwise, references to BayCorp for events and time
periods before January 1997 reflect treatment of BayCorp as successor to Great
Bay.
An unscheduled outage at the Seabrook Project began on June 11, 1998
and lasted until July 12, 1998. For the three months ended June 30, 1998, the
Company has reported a net loss of approximately $4,174,400 due to decreased
revenues and increased operating costs associated with this unscheduled outage
and costs associated with terminating Great Bay's power marketing agreement with
PECO. See "Liquidity and Capital Expenditures."
RESULTS OF OPERATIONS: SECOND QUARTER OF FISCAL 1998 COMPARED TO THE SECOND
QUARTER OF FISCAL 1997
Operating Revenues
Operating Revenues increased by approximately $3,882,900, or 109.2%, to
$7,437,700 in the second quarter of 1998 as compared to $3,554,800 in the second
quarter of 1997. This increase in revenues was primarily the result of the
scheduled refueling outage that occurred in the second quarter of 1997 and
lasted 50 days. During the second quarter of 1998 there were 19 unscheduled
outage days. For the second quarter of 1998, the capacity factor at the Seabrook
plant was 78.2% versus a capacity factor of 43.3% for the second quarter of
1997. The capacity factor for the second quarter of 1998 and the second quarter
of 1997 were adversely affected by the scheduled and unscheduled outages
referred to above. Sales of electricity increased by approximately 81% to
239,951,500 kilowatt-hours ("kWhs") in the second quarter of 1998 as compared to
132,710,000 kWhs in the second quarter of 1997. During the second quarter of
1998 the average sales price per kWh (determined by dividing total sales revenue
by the total number of kWhs sold in the applicable period) increased 16.1% to
3.10 cents per kWh as compared with 2.67 cents per kWh in the second quarter of
1997.
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BAYCORP HOLDINGS, LTD.
BayCorp's cost of power (determined by dividing total operating
expenses by BayCorp's 12.1% share of the power produced by the Seabrook Project
during the applicable period) decreased 29.4% to 4.63 cents per kWh in the
second quarter of 1998 as compared to 6.56 cents per kWh in the second quarter
of 1997. This decrease was primarily the result of an increase in availability
and an increase in the capacity factor at the Seabrook Project during the second
quarter of 1998 as compared to the second quarter of 1997. Scheduled and
unscheduled outage time increases BayCorp's cost of power because Seabrook costs
are spread over fewer kWhs.
Expenses
Production expenses for the second quarter of 1998 increased
approximately $187,000, or 3.7%, as compared to the second quarter of 1997. This
increase was primarily the result of unscheduled outage related costs incurred
in the second quarter of 1998. There were no unscheduled outage costs during the
second quarter of 1997.
Administrative and general expenses increased $2,296,400, to $3,732,200
in the second quarter of 1998 as compared to $1,435,800 in the second quarter of
1997. This increase was primarily attributable to Great Bay's buy-out of its
power marketing agreement with PECO for approximately $2.5 million during the
second quarter of 1998. See "Liquidity and Capital Expenditures." There was an
overall decrease of approximately $75,100, or 3.8%, in depreciation and
amortization and taxes other than income expenses, from $1,989,600 in the second
quarter of 1997 to $1,914,500 in the second quarter of 1998.
Other (Income) Deductions
Decommissioning Cost Accretion increased $54,000, to $720,000 during
the second quarter of 1998 as compared to $666,000 during the second quarter of
1997. This accretion is a non-cash charge and recognizes Great Bay's liability
related to the closure and decommissioning of the Seabrook Project in current
year dollars over the period during which the Seabrook Project is licensed to
operate.
During the second quarter of 1998, the Company realized $280,000 in
interest income on the Company's cash and decommissioning trust fund accounts as
compared to $337,000 during the second quarter of 1997. The decrease of $57,000,
or 17.1%, primarily reflects reduced interest earnings on the lower cash
balances during the second quarter of 1998 as compared to the second quarter of
1997. Miscellaneous expenses increased $56,500, to $59,700 in the second quarter
of 1998 as compared to $3,100 in the second quarter of 1997 and was primarily
attributable to State of Delaware corporate franchise taxes for BayCorp.
Net Loss
As a result of the above factors, during the second quarter ended June
30, 1998, the Company recorded a net loss of $4,174,400, or approximately $.51
per basic and diluted share, as compared to a net loss of $5,484,400, or
approximately $.66 per basic and diluted share, during the second quarter ended
June 30, 1997.
13
<PAGE> 14
BAYCORP HOLDINGS, LTD.
RESULTS OF OPERATIONS: FIRST SIX MONTHS OF FISCAL 1998 COMPARED TO THE FIRST SIX
MONTHS OF FISCAL 1997
Operating Revenues
Operating Revenues increased by approximately $2,888,800, or 24.1%, to
$14,880,900 in the first six months of 1998 as compared to $11,992,100 in the
first six months of 1997. This increase in revenues was primarily due to an
increase in availability and production at the Seabrook Project during the first
six months of 1998 as compared to the first six months of 1997. For the first
six months of 1998, the capacity factor at the Seabrook plant was 79.7% versus a
capacity factor of 71.6% for the first six months of 1997. The capacity factor
for the first six months of 1998 was adversely affected by the unscheduled
outages that lasted a total of 35 days during January and June. The capacity
factor for the first six months of 1997 was adversely affected by the refueling
outage that lasted 50 days in May and June of 1997. Sales of electricity
increased by approximately 11.3% to 486,445,600 kWhs in the first six months of
1998 as compared to 437,185,500 kWhs in the first six months of 1997. During the
first six months of 1998 the average sales price per kWh increased 11.7% to 3.06
cents per kWh as compared with 2.74 cents per kWh in the first six months of
1997.
BayCorp's cost of power increased 3.8% to 4.10 cents per kWh in the
first six months of 1998 as compared to 3.95 cents per kWh in the first six
months of 1997. This increase was primarily the result of increased
Administrative and General Expenses in the first six months of 1998 as compared
to the first six months of 1997.
Expenses
Production and Transmission expenses for the first six months of 1998
increased approximately $681,500, or 6.9%, as compared to the first six months
of 1997. This increase was primarily the result of unscheduled outage related
costs incurred in the first six months of 1998. There were no unscheduled
outages during the first six months of 1997.
Administrative and general expenses increased $2,143,700, or 63.6%, to
$5,512,900 in the first six months of 1998 as compared to $3,369,200 in the
first six months of 1997. This increase was primarily attributable to the charge
related to Great Bay's buy-out of its power marketing agreement with PECO for
approximately $2,500,000 during the first six months of 1998. There was an
overall decrease of approximately $162,800, or 4.1%, in depreciation and
amortization and taxes other than income expenses, from $4,014,600 in the first
six months of 1997 to $3,851,800 in the first six months of 1998.
Other (Income) Deductions
Decommissioning Cost Accretion increased $101,600, to $1,433,000 during
the first six months of 1998 as compared to $1,331,400 during the first six
months of 1997. This accretion is a non-cash charge and recognizes Great Bay's
liability related to the closure and decommissioning of the Seabrook Project in
current year dollars over the period during which the Seabrook Project is
licensed to operate.
14
<PAGE> 15
BAYCORP HOLDINGS, LTD.
During the first six months of 1998, the Company realized $739,300 in
interest income on the Company's cash and decommissioning trust fund accounts as
compared to $849,900 during the first six months of 1997. The decrease of
$110,600, or 13%, primarily reflects reduced interest earnings on the lower cash
balances during the first six months of 1998 as compared to the first six months
of 1997. Miscellaneous expenses increased $82,500 to $85,600 in the first six
months of 1998 as compared to $3,100 in the first six months of 1997 and was
primarily attributable to State of Delaware corporate franchise taxes for
BayCorp.
Net Loss
As a result of the above factors, during the first six months ended
June 30, 1998, the Company recorded a net loss of $5,839,900, or approximately
$.71 per basic and diluted share, as compared to a net loss of $5,771,600, or
approximately $.69 per basic and diluted share, during the first six months
ended June 30, 1997.
Net Operating Losses
For federal income tax purposes, as of December 31, 1997, the Company
had net operating loss carry forwards ("NOLs") of approximately $196 million,
which are scheduled to expire between 2005 and 2012. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use of
$136 million of the Company's NOLs is approximately $5.5 million per year. Any
unused portion of the $5.5 million annual limitation applicable to the Company's
restricted NOL's is available for use in future years until such NOL's are
scheduled to expire. The Company's other $60 million of NOLs are not currently
subject to such limitations.
Liquidity
BayCorp's cash and short-term investments decreased approximately
$2,407,000 during the first six months of 1998. Principal factors affecting
liquidity during the six months ended June 30, 1998 included the net loss of
$5,839,900 discussed above and cash expenditures of approximately $833,000 for
capital plant additions, $493,000 for nuclear fuel purchases and $579,000 for
decommissioning trust fund payments. The increase in accounts receivable of
approximately $711,000 is primarily due to the low 1997 year end receivables
balance resulting from the unscheduled outage in December 1997 that reduced
December sales. The increase in prepaids and other assets of approximately
$1,540,000 includes prepaid 1998 nuclear station taxes of $455,000. This
increase also includes an increase in the Seabrook prepaid funding account of
approximately $1,149,000 following a low year end 1997 balance due to the
unscheduled outage in December and its associated costs.
Offsetting these cash charges were non-cash charges to income which
included $1,755,000 for depreciation, $2,052,000 for nuclear fuel amortization
and $1,433,000 for decommissioning trust fund accretion and an increase in Taxes
Accrued of $1,350,000. During the first six months of 1998, miscellaneous other
liabilities increased approximately $1,560,000, and was primarily attributable
to the monthly outage accrual for a refueling outage scheduled to begin in April
1999.
15
<PAGE> 16
BAYCORP HOLDINGS, LTD.
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve a number of risks and uncertainties. Any statements contained
herein (including without limitation statements to the effect that the Company,
Great Bay or their management "believes", "expects", "anticipates", "plans" and
similar expressions) that are not statements of historical fact should be
considered forward-looking statements. Among the important factors that could
cause actual results to differ materially from those indicated by such
forward-looking statements are the factors set forth in the Company's Annual
Report on Form 10-K under the caption Management's Discussion and Analysis of
Financial Condition and Results of Operation - Certain Factors That May Affect
Future Results, which are incorporated by reference herein.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For each of the tax years 1994, 1995, 1996 and 1997, Great Bay filed
property tax abatement applications with the town of Seabrook and two other New
Hampshire towns in which the Seabrook Project is located. The abatement request
for tax years 1994, 1995 and 1996 were denied. Great Bay filed appeals for each
of those years with the New Hampshire Board of Tax and Land Appeals (the
"BTLA"). The appeals are currently pending before the BTLA. The Company has paid
all of its property tax obligations to date under protest. A successful outcome
of the Company's appeals with respect to property tax assessments would
favorably affect the Company's liquidity and obligation for property tax
payments in the future.
On February 12, 1998, Great Bay sent a letter to PECO Energy Company
("PECO") informing PECO that Great Bay intended to terminate PECO as Great Bay's
exclusive marketing agent. On February 24, 1998, Great Bay filed suit against
PECO in the United States District Court for the District of New Hampshire
seeking a declaratory judgment that Great Bay properly terminated the PECO
Services Agreement and seeking damages arising out of PECO's breach of the PECO
Services Agreement. As of March 1, 1998, Great Bay assumed all marketing
responsibilities for its power.
On June 2, 1998, Great Bay announced that it withdrew its lawsuit
against PECO. At that time, Great Bay and PECO terminated the power marketing
agreement between the companies and Great Bay paid to PECO approximately $2.5
million. During the quarter ended June 30, 1998, Great Bay made an approximate
$2.5 million charge to income for this expense. This amount is reflected in
Administrative and General Expenses in the accompanying Statement of Income.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 5, 1998. Proxies for
the meeting were solicited pursuant to Regulation 14A, and there were no
solicitations in opposition to management's nominees for Directors. All such
nominees were elected. At the Annual Meeting, the stockholders of the Company:
(1) elected a Board of Directors to serve until the next Annual Meeting
of Stockholders of the Company and until their successors are duly
elected and qualified (by a vote of 6,641,696 in favor of the
proposal and 5,123 votes against the proposal, as to all
Directors),
16
<PAGE> 17
BAYCORP HOLDINGS, LTD.
(2) ratified the selection by the Board of Directors of Arthur Andersen
LLP as the Company's independent public accountants for the current
fiscal year (6,639,440 votes in favor of the proposal, 7,129 votes
against the proposal and 110 votes abstained.)
ITEM 5. OTHER INFORMATION
Great Bay signed a definitive purchase agreement, dated as of June 24,
1998, with Montaup Electric Company ("Montaup"), a subsidiary of Eastern
Utilities Associates ("EUA"), to purchase Montaup's approximately 3% ownership
interest in the Seabrook Project. Montaup's 3% interest in Seabrook represents
approximately 34 megawatts of capacity. Under the terms of the agreement, Great
Bay will pay Montaup approximately $3.2 million and Montaup has agreed to
prefund the decommissioning liability associated with its interest in Seabrook.
Great Bay has also agreed to supply a share of EUA's standard offer obligation
to serve EUA's existing customers in Massachusetts and Rhode Island who do not
choose an alternative supplier. The transaction is subject to state and federal
regulatory approvals. The parties are working to obtain such approvals and close
the transaction before the end of 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index
(b) There were no reports on Form 8-K submitted for the three months
ended June 30, 1998.
17
<PAGE> 18
BAYCORP HOLDINGS, LTD.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BAYCORP HOLDINGS, LTD.
August 13, 1998 By: /s/ Frank W. Getman Jr.
---------------------------------------
Frank W. Getman Jr.
President and Chief Executive Officer
18
<PAGE> 19
BAYCORP HOLDINGS, LTD.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Asset Purchase Agreement by and between Montaup
Electric Company and Great Bay Power Corporation
dated as of June 24, 1998 (1)
27.1 Financial Data Schedule
99.1 Certain Factors That May Affect Future Results, set
out on pages 18-22 of the Company's Annual Report on
Form 10-K for the period ended December 31, 1997.
Such Form 10-K shall not be deemed to be filed except
to the extent that portions thereof are expressly
incorporated by reference herein.
(1) The Registrant agrees to furnish supplementally to the Commission upon its
request a copy of the omitted schedules and exhibits referenced in the
agreement.
19
<PAGE> 1
EXHIBIT 2.1
EXECUTION COPY
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
MONTAUP ELECTRIC COMPANY
AND
GREAT BAY POWER CORPORATION
DATED AS OF JUNE 24, 1998
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I DEFINITIONS...................................................... 1
1.1. Definitions................................................... 1
ARTICLE II PURCHASE AND SALE................................................ 8
2.1. The Sale...................................................... 8
2.2. Excluded Assets............................................... 8
2.3. Assumed Liabilities........................................... 8
2.4. Excluded Liabilities.......................................... 8
ARTICLE III PURCHASE PRICE.................................................. 8
3.1. Purchase Price................................................ 8
3.2. Purchase Price Adjustment..................................... 8
3.3. Allocation of Purchase Price.................................. 10
3.4. Proration..................................................... 10
ARTICLE IV THE CLOSING...................................................... 11
4.1. Time and Place of Closing..................................... 11
4.2. Payment of Purchase Price..................................... 11
4.3. Deliveries by Seller.......................................... 11
4.4. Deliveries by the Buyer....................................... 12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLER...................... 13
5.1. Organization; Qualification................................... 13
5.2. Authority Relative to this Agreement.......................... 13
5.3. Consents and Approvals; No Violation.......................... 13
5.4. Undisclosed Liabilities....................................... 14
5.5. Absence of Certain Changes or Events.......................... 14
5.6. Title and Related Matters..................................... 15
5.7. Insurance..................................................... 15
5.8. Environmental Matters......................................... 15
5.9. Real Estate................................................... 16
5.10. Condemnation.................................................. 16
5.11. Certain Contracts and Arrangements............................ 16
5.12. Legal Proceedings, etc........................................ 17
5.13. Permits....................................................... 17
i
<PAGE> 3
5.14. Regulation as a Utility....................................... 17
5.15. Taxes......................................................... 17
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BUYER...................... 18
6.1. Organization.................................................. 18
6.2. Authority Relative to this Agreement.......................... 18
6.3. Consents and Approvals; No Violation.......................... 18
6.4. Regulation as a Utility....................................... 19
6.5. Availability of Funds......................................... 19
ARTICLE VII COVENANTS OF THE PARTIES........................................ 19
7.1. Conduct of Business of the Company............................ 19
7.2. Access to Information......................................... 20
7.3. Expenses...................................................... 21
7.4. Further Assurances............................................ 21
7.5. Public Statements............................................. 22
7.6. Consents and Approvals........................................ 22
7.7. Fees and Commissions.......................................... 23
7.8. Tax Matters................................................... 23
7.9. Supplements to Schedules...................................... 24
7.10. Risk of Loss.................................................. 24
ARTICLE VIII PURCHASED ASSETS CLOSING CONDITIONS............................ 25
8.1. Conditions to Each Party's Obligations
to Effect the Purchase Transactions........................ 25
8.2. Conditions to Obligations of the Buyer......................... 26
8.3. Conditions to Obligations of the Seller........................ 28
ARTICLE IX INDEMNIFICATION................................................. 30
9.1. Indemnification............................................... 30
9.2. Defense of Claims............................................. 31
ARTICLE X TERMINATION AND ABANDONMENT...................................... 33
10.1. Termination.................................................. 33
10.2. Procedure and Effect of Termination.......................... 34
ii
<PAGE> 4
ARTICLE XI MISCELLANEOUS PROVISIONS......................................... 34
11.1. Amendment and Modification................................... 34
11.2. Waiver of Compliance; Consents............................... 34
11.3. No Survival.................................................. 34
11.4. Notices...................................................... 35
11.5. Assignment................................................... 36
11.6. Governing Law................................................ 36
11.7. Counterparts................................................. 36
11.8. Interpretation............................................... 36
11.9. Schedules and Exhibits....................................... 36
11.10. Entire Agreement............................................. 36
11.11. Bulk Sales or Transfer Laws.................................. 37
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of June 24, 1998, by and
between MONTAUP ELECTRIC COMPANY, a Massachusetts corporation (the "SELLER") and
GREAT BAY POWER CORPORATION, a New Hampshire corporation (the "BUYER").
WHEREAS, the Buyer desires to purchase, and the Seller desires
to sell, the Purchased Assets upon the terms and conditions hereinafter set
forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
I.1. DEFINITIONS. (a) As used in this Agreement, the following
terms have the meanings specified in this Section 1.1(a).
(1) "AFFILIATE" has the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
(2) "ANCILLARY AGREEMENTS" means the Wholesale Standard Offer
Service Agreement and the Decommissioning Funding Agreement.
(3) "ASSIGNMENT" means the Assignment, substantially in the
form of Exhibit A hereto, relating to the assignment by the Seller of its right,
title and interest in, to and under the Project Documents.
(4) "BILL OF SALE" means the Bill of Sale to be delivered at
the Closing with respect to those Purchased Assets which constitute personal
property and which are to be transferred at such Closing, substantially in the
form of Exhibit B hereto.
(5) "BUSINESS DAY" shall mean any day other than Saturday,
Sunday and any day which is a legal holiday or a day on which banking
institutions in Boston, Massachusetts are authorized by law or other
governmental action to close.
(6) "BUYER REPRESENTATIVES" means the Buyer's accountants,
counsel, environmental consultants, financial advisors and other authorized
representatives.
(7) "CAPITAL EXPENDITURES AMOUNT" means the aggregate amount,
if any, of
<PAGE> 6
all funds actually provided by the Seller with respect to capital expenditures
at Seabrook Station under the Project Documents during the period beginning on
the date hereof and ending on the Closing Date.
(8) "CERCLA" means the Federal Comprehensive Environmental
Response, Compensation and Liability Act.
(9) "CODE" means the Internal Revenue Code of 1986, as
amended.
(10) "CONFIDENTIALITY AGREEMENT" means the Confidentiality
Agreement among the Seller, Blackstone Valley Electric Company, Newport Electric
Corporation, EUA and the Buyer.
(11) "DECOMMISSIONING" means all actions taken to render a
nuclear power plant permanently inactive, inoperable and free of radioactive
materials, including, without limitation, the entombment, decontamination,
dismantlement, removal and disposal of structures, systems, and components of a
nuclear power plant in order to permanently cease the nuclear generation of
electric energy, post-shutdown actions, all site restoration actions (including,
but not limited to, all actions necessary to bring the plant site to
"greenfield" or "brownfield" status), and any other item included in a study
accepted and approved by regulatory authorities of competent jurisdiction as a
basis for the termination of operations, preparation for decommissioning, such
as engineering and other planning activities, and all associated activities to
be performed after the actual dismantlement occurs, such as physical security
and radiation monitoring, activities associated with spent fuel storage,
disposal, transfer, transportation and removal and low level waste storage as
well as future obligations with respect to decontamination and decommissioning
of uranium enrichment facilities and the preparation of studies and supporting
documentation required by regulatory authorities of competent jurisdiction.
The foregoing specification is not intended to form a basis for
excluding any action or cost legitimately part of post shutdown,
decommissioning, and site restoration because of the failure to separately
identify or to fall within a category specifically identified.
(12) "DECOMMISSIONING FUNDING AGREEMENT" means the Nuclear
Decommissioning Fund Assignment and Assumption Agreement between the Buyer and
the Seller, substantially in the form of Exhibit C hereto.
(13) "DECOMMISSIONING OBLIGATION" means all obligations of the
Seller, including obligations for advanced funding and payment of costs in
connection with the Decommissioning of Seabrook Station, required pursuant to
federal and New Hampshire law.
(14) "DECOMMISSIONING TRUST FUND" means the fund established
pursuant to New Hampshire Rev. Stat. Ann. Ch. 162-F, and any alternative or
additional fund established
2
<PAGE> 7
for the purpose of funding the Decommissioning of Seabrook Station.
(15) "ENCUMBRANCES" means any mortgages, pledges, liens,
security interests, conditional and installment sale agreements, activity and
use limitations, conservation easements, easements, deed restrictions,
encumbrances and charges of any kind.
(16) "ENVIRONMENTAL LAWS" means all federal, state and local
laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or
judicial or administrative orders relating to pollution or protection of the
environment, natural resources or human health and safety, including, without
limitation, laws relating to Releases or threatened Releases of Hazardous
Substances (including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
transport or handling of Hazardous Substances.
(17) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(18) "ESTIMATED ADJUSTMENT AMOUNT" means the Seller's good
faith reasonable estimate of an Adjustment Amount for the Closing, which
estimate shall be provided to the Buyer no later than two (2) Business Days
before the Closing.
(19) "EUA" means Eastern Utilities Associates. The name
"Eastern Utilities Associates" means the trustee or trustees for the time being
(as trustee or trustees but not personally) under an Agreement and Declaration
of Trust dated April 2, 1928, as amended, which is hereby referred to, and a
copy of which, as amended, has been filed with the Secretary of The Commonwealth
of Massachusetts. Any agreement, obligation, or liability made, entered into, or
incurred by or on behalf of Eastern Utilities Associates binds only its trust
estate, and no shareholder, director, trustee, officer, or agent thereof assumes
or shall be held to any liability therefor.
(20) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(21) "FEDERAL POWER ACT" means the Federal Power Act of 1935,
as amended.
(22) "FERC" means the Federal Energy Regulatory Commission.
(23) "FIRPTA AFFIDAVIT" means the Foreign Investment in Real
Property Tax Act Certification and Affidavit substantially in the form of
Exhibit D hereto.
(24) "HAZARDOUS SUBSTANCES" means (a) any petrochemical or
petroleum
3
<PAGE> 8
products, radioactive materials, radon gas, asbestos in any form that is or
could become friable, urea formaldehyde foam insulation and transformers or
other equipment that contain dielectric fluid which may contain levels of
polychlorinated biphenyls; (b) any chemicals, materials or substances defined as
or included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "restricted hazardous materials", "extremely hazardous
substances", "toxic substances", "contaminants" or "pollutants" or words of
similar meaning and regulatory effect; or (c) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
applicable Environmental Law.
(25) "HOLDING COMPANY ACT" means the Public Utility Holding
Company Act of 1935, as amended.
(26) "HSR ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(27) "INCOME TAX" means any federal, state, local or foreign
Tax (a) based upon, measured by or calculated with respect to net income,
profits or receipts (including, without limitation, capital gains Taxes and
minimum Taxes) or (b) based upon, measured by or calculated with respect to
multiple bases (including, without limitation, corporate franchise taxes) if one
or more of the bases on which such Tax may be based, measured by or calculated
with respect to, is described in clause (a), in each case together with any
interest, penalties, or additions to such Tax.
(28) "INDENTURE" means the Brockton Edison Company Indenture
of First Mortgage and Deed of Trust dated as of September 1, 1948, as
supplemented and modified.
(29) "INDEPENDENT ACCOUNTING FIRM" means such independent
accounting firm of national reputation mutually appointed by the Seller and the
Buyer.
(30) "INSTRUMENT OF ASSUMPTION" means the Instrument of
Assumption substantially in the form of Exhibit E hereto, relating to the
assumption by the Buyer of the liabilities and obligations of the Seller
described therein.
(31) "MATERIAL ADVERSE EFFECT" means any change in or effect
on the Purchased Assets after the date of this Agreement that is materially
adverse to the business, assets, operations or condition (financial or
otherwise) of the Purchased Assets, taken as a whole, and if applicable, the
operation or business of the Purchased Assets, taken as a whole, other than, in
all cases, (i) any change or effect resulting from changes in the international,
national, regional or local wholesale or retail markets for electric power, (ii)
any change or effect resulting from changes in the international, national,
regional or local markets for any fuel used at the Purchased Assets, (iii) any
change or effect resulting from changes in the North American, national,
regional or local electric transmission systems, except for changes in or
directly affecting the transmission of power (but not the cost of such
transmission) from
4
<PAGE> 9
the Purchased Assets to the applicable NEPOOL Pool Transmission Facilities, and
(iv) any materially adverse change in or effect on the Purchased Assets which is
cured (including by the payment of money) by the Seller before the Termination
Date.
(32) "MDTE" means the Massachusetts Department of
Telecommunications and Energy.
(33) "NHPUC" means the New Hampshire Public Utility
Commission.
(34) "PERMITTED ENCUMBRANCES" means, where applicable, (i)
those Encumbrances set forth in Schedule 1.1(a)(34); (ii) those exceptions to
the Seller's title to the Real Estate listed in Schedule 5.6; (iii) all
exceptions, restrictions, and other Encumbrances which are set forth in any NRC
license relating to the Seabrook Station (iv) with respect to any date before
the Closing Date, Encumbrances created by the Indenture or any indebtedness of
the Seller which must be discharged on or before the Closing Date; (v) statutory
liens for current taxes or assessments not yet due or delinquent or the validity
of which is being contested in good faith by appropriate proceedings; (vi)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of the Seller or the validity of which are being
contested in good faith by appropriate proceedings; (vii) zoning, entitlement,
conservation restriction, order of conditions and other land use and
environmental regulations by governmental authorities; and (viii) such other
liens, imperfections in or failure of title, charges, easements, restrictions
and encumbrances which do not materially detract from the value of the Purchased
Assets as currently used or materially interfere with the present use of the
Purchased Assets and do not, in the aggregate, have a Material Adverse Effect.
(35) "PERSON" means any individual, a partnership, a limited
liability company, a joint venture, a corporation, a trust, an unincorporated
organization and a governmental entity or any department or agency thereof.
(36) "PROJECT DOCUMENTS" means (i) the Agreement for Seabrook
Project Disbursement Agent dated as of May 23, 1984, (ii) the Seabrook Project
Managing Agent Agreement, dated as of June 29, 1992, as amended, (iii) the
Transmission Support Agreement dated as of May 31, 1973, as amended, (iv) the
Agreement for Joint Ownership, Construction and Operation of New Hampshire
Nuclear Units, dated as of May 1, 1973, as amended, and (v) any other agreements
among the owners in common of Seabrook Station with respect to the ownership or
operation of Seabrook Station to which the Seller is a party.
(37) "PURCHASED ASSETS" means the assets set forth on Schedule
1.1(a)(37) hereto.
(38) "RELEASE" means release, spill, leak, discharge, dispose
of, pump, pour, emit, empty, inject, leach, dump or allow to escape into or
through the environment.
5
<PAGE> 10
(39) "RETAIL COMPANIES" means, as applicable, each, any or all
of Blackstone Valley Electric Company, Eastern Edison Company and Newport
Electric Corporation.
(40) "SEC" means the Securities and Exchange Commission.
(41) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(42) "SELLER'S AGREEMENTS" means those agreements listed on
Schedule 5.11(a).
(43) "SETTLEMENT AGREEMENTS" means any agreement or agreements
that have been approved by the MDTE in Docket No. 96-24, RIPUC in Docket Nos.
2514 and 2592 and by the FERC in Docket Nos. ER97-2800-000, ER97-3127-000,
ER97-2338-000 and ER97-3200-000, together with all conditions, terms or
modifications imposed by those agencies.
(44) "STANDARD OFFER SERVICE" means the electric service, if
any, required to be provided by one or more of the Retail Companies to its
retail customers who do not elect to purchase electricity from an alternative
supplier in the market.
(45) "SUBSIDIARY" when used in reference to any other Person
means any entity of which outstanding securities having ordinary voting power to
elect a majority of the Board of Directors or other Persons performing similar
functions of such entity are owned directly or indirectly by such other Person.
(46) "TAXES" means all taxes, charges, fees, levies, penalties
or other assessments imposed by any United States federal, state or local or
foreign taxing authority, including, but not limited to, income, excise,
property, sales, transfer, franchise, payroll, withholding, social security or
other taxes, including any interest, penalties or additions attributable
thereto.
(47) "TAX RETURN" means any return, report, information return
or other document (including any related or supporting information) required to
be supplied to any authority with respect to Taxes.
(48) "TRANSFERABLE PERMITS" means those Permits and
Environmental Permits set forth in Schedule 1.1(a)(48).
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(49) "WHOLESALE STANDARD OFFER SERVICE AGREEMENT" means the
Wholesale Standard Offer Service Agreement among the Buyer and the Retail
Companies, substantially in the form of Exhibit F hereto, relating to Standard
Offer Service.
(b) Each of the following terms has the meaning specified in
the Section set forth opposite such term:
Term Section
---- -------
Adjustment Amount Schedule 3.2
Adjustment Assets 3.2(a)
Adjustment Statement 3.2(a)
Assumed Liabilities 2.3
Buyer Recitals
Buyer Required Regulatory Approvals Schedule 6.3(b)
Closing 4.1
Closing Conditions 4.1
Closing Date 4.1
Direct Claim 9.2(c)
Environmental Permits 5.09(a)
Excluded Assets 2.2
Excluded Liabilities 2.4
Final Order 8.1(c)
Indemnifiable Loss 9.1(a)
Indemnifying Party 9.1(d)
Indemnitee 9.1(c)
Independent Appraiser 3.3(a)
Inventory Adjustment Amount Schedule 3.2
NRC Schedule 5.3(b)
Permits 5.16
Purchase Price 3.1
Real Estate 5.9
Seabrook Station Schedule 1.1(a)(37)
Seller Recitals
Seller Pre-Closing Liabilities Schedule 3.2
Seller Required Regulatory 5.3
Approvals
Termination Date 10.1(b)
Third Party Claim 9.2(a)
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ARTICLE II
PURCHASE AND SALE
II.1. THE SALE. Upon the terms and subject to the satisfaction
of the conditions contained in this Agreement, at the Closing the Seller will
sell, assign, convey, transfer and deliver to the Buyer, and the Buyer will
purchase and acquire from the Seller, free and clear of all Encumbrances (except
for Permitted Encumbrances), all of the Seller's right, title and interest in,
to and under the Purchased Assets.
II.2. EXCLUDED ASSETS. Notwithstanding any provision herein to
the contrary, the Purchased Assets shall not include the rights and assets, if
any, described or referred to in Schedule 2.2 (herein referred to as the
"EXCLUDED ASSETS").
II.3. ASSUMED LIABILITIES. On the Closing Date, the Buyer
shall assume and agree to discharge, pursuant to the Instrument of Assumption,
and to the fullest extent permitted by law, all of the liabilities and
obligations of the Seller described or referred to in Schedule 2.3. All of such
liabilities and obligations to be assumed by the Buyer under this Section 2.3
(excluding any Excluded Liabilities) are referred to herein as the "ASSUMED
LIABILITIES." It is understood and agreed that nothing in this Section 2.3 shall
constitute a waiver or release of any claims arising out of the contractual
relationships between the Seller and the Buyer.
II.4. EXCLUDED LIABILITIES. The Buyer shall not assume or be
obligated to pay, perform or otherwise discharge the Seller's liabilities and
obligations set forth on Schedule 2.4. All such liabilities and obligations not
being assumed pursuant to this Section 2.4 are herein called the "EXCLUDED
LIABILITIES", and the Seller shall continue to be fully liable for all such
Excluded Liabilities, whether arising under the Project Documents or otherwise.
ARTICLE III
PURCHASE PRICE
III.1. PURCHASE PRICE. The purchase price for the Purchased
Assets shall be the sum of (i) $3,200,000 and (ii) the Adjustment Amount (the
"PURCHASE PRICE").
III.2. PURCHASE PRICE ADJUSTMENT. (a) Within ninety (90) days
after the Closing, the Seller shall prepare and deliver to the Buyer a statement
(the "ADJUSTMENT STATEMENT") with respect to any adjustment to the Purchase
Price in respect of the Purchased
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Assets and other items set forth on Schedule 3.2 (the "ADJUSTMENT ASSETS") and
the amounts to be prorated between the Seller and the Buyer in accordance with
Section 3.4. The Adjustment Statement shall be prepared using the same generally
accepted accounting principles, policies and methods as the Seller has
historically used in connection with the calculation of the value of the
Adjustment Assets and such prorated amounts reflected on such Adjustment
Statement. The Buyer agrees to cooperate with the Seller in connection with the
preparation of the Adjustment Statement and related information, and shall
provide to the Seller such books, records and information as may be reasonably
requested from time to time.
(b) The Buyer may dispute all or a part of the Adjustment
Amount which exceeds, in the aggregate, 1% of the amount set forth in clause (i)
of Section 3.1 and such prorated amounts; PROVIDED, HOWEVER, that the Buyer
shall notify the Seller in writing of the disputed amount, and the basis of such
dispute, within thirty (30) days of the Buyer's receipt of the Adjustment
Statement. In the event of a dispute with respect to any part of the Adjustment
Amount and such prorated amounts, the Buyer and the Seller shall attempt to
reconcile their differences and any resolution by them as to any disputed
amounts shall be final, binding and conclusive on the parties. If the Buyer and
the Seller are unable to reach a resolution of such differences within thirty
(30) days of receipt of the Buyer's written notice of dispute to the Seller, the
Buyer and the Seller shall submit the amounts remaining in dispute for
determination and resolution to the Independent Accounting Firm, which shall be
instructed to determine and report to the parties, within thirty (30) days after
such submission, upon such remaining disputed amounts, and such report shall be
final, binding and conclusive on the parties hereto with respect to the amounts
disputed. The fees and disbursements of the Independent Accounting Firm shall be
allocated between the Buyer and the Seller so that the Buyer's share of such
fees and disbursements shall be in the same proportion that the aggregate amount
of such remaining disputed amounts so submitted by the Buyer to the Independent
Accounting Firm that is unsuccessfully disputed by the Buyer (as finally
determined by the Independent Accounting Firm) bears to the total amount of such
remaining disputed amounts so submitted by the Buyer to the Independent
Accounting Firm.
(c) Within thirty (30) days after the Buyer's receipt of the
Adjustment Statement the Buyer shall pay all undisputed amounts or if there is a
dispute with respect to any amount on such Adjustment Statement within five (5)
Business Days after the final determination of any amounts on the Adjustment
Statement, the Buyer shall pay to the Seller an amount equal to the disputed
Adjustment Amount or such prorated amounts, as the case may be, as finally
determined to be payable with respect to the Adjustment Statement. All
Adjustment Statement payments shall be less the Estimated Adjustment Amount;
PROVIDED, HOWEVER, that if such amount shall be less than zero then the Seller
will pay to the Buyer the amount by which such amount is less than zero. Any
amount paid under this Section 3.2(c) shall be paid with interest for the period
commencing on the Closing Date through the date of payment, calculated at the
prime rate of BankBoston in effect on the Closing Date, and in cash by federal
or other wire transfer of immediately available funds.
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III.3. ALLOCATION OF PURCHASE PRICE. The Buyer and the Seller
shall use their good faith efforts to agree to allocate the Purchase Price to
the Purchased Assets within forty-five (45) days of the date of this Agreement.
The Buyer and the Seller may jointly agree to obtain the services of an
independent engineer or appraiser (the "INDEPENDENT APPRAISER") to assist the
parties in determining the fair value of the Purchased Assets for purposes of
such allocation. If such an appraisal is made, both the Buyer and the Seller
agree to accept the Independent Appraiser's determination of the fair value of
the Purchased Assets. The parties shall jointly select the Independent
Appraiser. The cost of the appraisal shall be borne equally by the Buyer and the
Seller. Each of the Buyer and the Seller agrees to file Internal Revenue Service
Form 8594, and all federal, state, local and foreign Tax Returns, in accordance
with such agreed allocation. Each of the Buyer and the Seller shall report the
transactions contemplated by the Agreement for federal Income Tax and all other
tax purposes in a manner consistent with the allocation determined pursuant to
this Section 3.3. Each of the Buyer and the Seller agrees to provide the other
promptly with any other information required to complete Form 8594. Each of the
Buyer and the Seller shall notify and provide the other with reasonable
assistance in the event of an examination, audit or other proceeding regarding
the agreed upon allocation of the Purchase Price.
III.4. PRORATION. (a) The Buyer and the Seller agree that the
items listed on Schedule 3.4 relating to the Purchased Assets will be prorated
as of the Closing Date, with the Seller liable to the extent such items relate
to any time period through the Closing Date, and the Buyer liable to the extent
such items relate to periods subsequent to the Closing Date.
(b) Notwithstanding the preceding Section 3.4(a), if Buyer
seeks, after the Closing Date, an abatement of real estate taxes with respect to
the Purchased Assets, for any period prior to and through the Closing Date, it
will offer to the Seller the opportunity to participate in the abatement
proceeding, by written notice to the Seller, to which the Seller must respond by
written notice delivered to Buyer within ten (10) days of the date of the
Seller's notice, indicating whether the Seller wishes to participate in and pay
its proportionate share of such abatement proceeding. The Seller will be
entitled to a proration of abated taxes, if any, only if it has elected in such
written response to participate in and fund such abatement proceeding and
subject to the continuing requirement that the Seller promptly fund all expenses
of such abatement proceeding as they are incurred, in proportion to the
proration between the parties. Real estate tax abatement proceedings with
respect to the Purchased Assets that are not subject to proration and that are
pending at the Closing Date will be assigned by the Seller to the Buyer, unless
the Seller elects, by written notice to the Buyer at or prior to the Closing
Date, to retain all of the Seller's rights to such abatements, in which event
all costs and responsibilities associated with such abatement proceedings will
be borne exclusively by the Seller.
In connection with any proration under this Section 3.4, in
the event that actual figures are not available at the Closing Date, the
proration shall be based upon the actual figures for the preceding year (or
appropriate period) for which such figures are available and
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such amounts shall be reprorated upon request of either the Seller, on the one
hand, or the Buyer, on the other hand, made within sixty (60) days of the date
that the actual amounts become available. The Seller and the Buyer agree to
furnish each other with such documents and other records as may be reasonably
requested in order to confirm all adjustment and proration calculations made
pursuant to this Section 3.4.
ARTICLE IV
THE CLOSING
IV.1. TIME AND PLACE OF CLOSING. Upon the terms and subject to
the satisfaction of the conditions contained in Article VIII of this Agreement
(the "CLOSING CONDITIONS"), the closing of the sale of the Purchased Assets
contemplated by this Agreement (the "CLOSING") will take place at the offices of
McDermott, Will & Emery, 75 State Street, Suite 1700, Boston, MA 02109-1807 at
10:00 A.M. (local time) on such date as the parties may agree, which date is as
soon as practicable, but no later than fifteen (15) Business Days, following the
date on which all of the Closing Conditions have been satisfied or waived; or at
such other place or time as the parties may agree. The date and time at which
the Closing actually occurs is hereinafter referred to as the "CLOSING DATE."
IV.2. PAYMENT OF PURCHASE PRICE. Upon the terms and subject to
the satisfaction of the conditions contained in this Agreement, in consideration
of the aforesaid sale, assignment, conveyance, transfer and delivery of the
Purchased Assets, the Buyer will pay or cause to be paid to the Seller the
Purchase Price.
IV.3. DELIVERIES BY SELLER. At the Closing, the Seller will
deliver to the Buyer the following items:
(a) The Bill of Sale for the personal property included
in the Purchased Assets and the Assignment, each duly executed
by the Seller;
(b) All consents, waivers or approvals obtained by the
Seller with respect to the Purchased Assets or the
consummation of the transactions connected to the sale of the
Purchased Assets, as the case may be, contemplated by this
Agreement, to the extent specifically required hereunder;
(c) Each Ancillary Agreement associated with the sale
of the Purchased Assets, duly executed by the Seller;
(d) An opinion of counsel and certificate (as
contemplated by Section 8.2) with respect to the Purchased
Assets;
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(e) One or more deeds for conveyance of the Real Estate
constituting part of the Purchased Assets (substantially as
set forth in Schedule 5.9 hereto) to the Buyer, duly executed
and acknowledged by the Seller and in recordable form;
(f) A FIRPTA Affidavit executed by the Seller;
(g) The amount to be deposited by the Seller under
Section 2.1 of the Decommissioning Funding Agreement;
(h) All such other instruments of assignment or
conveyance as shall, in the reasonable opinion of the Buyer
and its counsel, be necessary to transfer to the Buyer the
Purchased Assets in accordance with this Agreement and, where
necessary or desirable, in recordable form; and
(i) Such other agreements, documents, instruments and
writings as are required to be delivered by the Seller at or
prior to the Closing Date pursuant to this Agreement or
otherwise required in connection herewith.
IV.4. DELIVERIES BY THE BUYER. At the Closing, the Buyer will
deliver to the Seller the following items:
(a) The sum of (i) $3,200,000 and (ii) the Estimated
Adjustment Amount by wire transfer of immediately available
funds or such other means as are agreed upon by the Seller and
the Buyer;
(b) Each Ancillary Agreement associated with the sale of
the Purchased Assets, duly executed by the Buyer;
(c) An opinion of counsel and certificate (as
contemplated by Section 8.3) with respect to the Purchased
Assets;
(d) The Bill of Sale and the Instrument of Assumption,
each duly executed by the Buyer;
(e) All such other instruments of assumption as shall,
in the reasonable opinion of the Sellers and its counsel, be
necessary for the Buyer to assume the Assumed Liabilities in
accordance with this Agreement; and
(f) Such other agreements, documents, instruments and
writings as are required to be delivered by the Buyer at or
prior to the Closing Date pursuant to this Agreement, in
connection with the conveyance of any of the Real Estate or
otherwise required in connection herewith.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
V.1. ORGANIZATION; QUALIFICATION. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Massachusetts and has all requisite corporate power and authority to
own, lease, and operate its properties and to carry on its business as is now
being conducted and is duly qualified or licensed to do business as foreign
corporation and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except in each case in those jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect.
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V.2. AUTHORITY RELATIVE TO THIS AGREEMENT. The Seller has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Seller and no
other corporate proceedings on the part of the Seller are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Seller, and
assuming that this Agreement constitutes a valid and binding agreement of the
Buyer, subject to the receipt of the Seller Required Regulatory Approvals and
the Buyer Required Regulatory Approvals, constitutes a valid and binding
agreement of the Seller, enforceable against the Seller in accordance with its
terms, except that such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally or general principles of equity.
V.3. CONSENTS AND APPROVALS; NO VIOLATION. (a) Except for such
notices or approvals set forth on Schedule 5.3(a), and other than obtaining the
Seller Required Regulatory Approvals and the Buyer Required Regulatory
Approvals, neither the execution and delivery of this Agreement by the Seller
nor the sale by the Seller of the Purchased Assets pursuant to this Agreement
will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws (or other similar governing documents) of
the Seller, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority, except
(x) where the failure to obtain such consent, approval, authorization or permit,
or to make such filing or notification, would not have a Material Adverse Effect
or (y) for those requirements which become applicable to the Seller as a result
of the specific regulatory status of the Buyer (or any of its Affiliates) or as
a result of any other facts that specifically relate to the business or
activities in which the Buyer (or any of its Affiliates) is or proposes to be
engaged; (iii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, agreement or other instrument
or obligation to which the Seller is a party or by which the Seller, or any of
the Purchased Assets may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not have a
Material Adverse Effect; or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Seller, or any of its assets,
which violation would have a Material Adverse Effect.
(b) Except for such notices or approvals set forth on Schedule
5.3(b) (the "SELLER REQUIRED REGULATORY APPROVALS"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of any
governmental or regulatory body or authority is necessary for the consummation
by the Seller of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not obtained or made, will not, in the aggregate, have a
Material Adverse Effect.
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V.4. UNDISCLOSED LIABILITIES. Except as set forth in Schedule
5.4, to the best of its knowledge, the Seller has no liability or obligation
relating to its ownership of the Purchased Assets, secured or unsecured (whether
absolute, accrued, contingent or otherwise, and whether due or to become due),
except those which were incurred in the ordinary course of business and which in
the aggregate are not material to such Purchased Assets.
V.5. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except (i) as set
forth in Schedule 5.5, or in the reports, schedules, registration statements and
definitive proxy statements filed by the Seller with the SEC and (ii) as
otherwise contemplated by this Agreement, since December 31, 1997 there has not
been: (a) any Material Adverse Effect; (b) any damage, destruction or casualty
loss, whether covered by insurance or not, which had a Material Adverse Effect;
(c) any entry into any agreement, commitment or transaction (including, without
limitation, any borrowing, capital expenditure or capital financing) by the
Seller, which is material to its ownership of the Purchased Assets, except
agreements, commitments or transactions in the ordinary course of business or as
contemplated herein; or (d) any change by the Seller, with respect to the
Purchased Assets, in accounting methods, principles or practices except as
required or permitted by generally accepted accounting principles.
V.6. TITLE AND RELATED MATTERS. Except as set forth in
Schedule 5.6 and except for Permitted Encumbrances, the Seller has title as
specified in the form of Deed set forth in Schedule 5.9 free and clear of all
Encumbrances created by it. Except as set forth in Schedule 5.6 and except for
Permitted Encumbrances, the Seller has good and valid title to the other
Purchased Assets which it purports to own (other than those which have been
disposed of since the date thereof in the ordinary course of business), free and
clear of all Encumbrances.
V.7. INSURANCE. All material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by the Seller
and relating to the Purchased Assets are listed on Schedule 5.7, and, except as
set forth on Schedule 5.7, are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date as of which
this representation is being made have been paid (other than retroactive
premiums which may be payable with respect to comprehensive general liability
and workmen's compensation insurance policies), and no notice of cancellation or
termination has been received with respect to any such policy which was not
replaced on substantially similar terms prior to the date of such cancellation.
Except as described in Schedule 5.7, as of the date of this Agreement, the
Seller has not been refused any insurance with respect to such Purchased Assets
nor has its coverage been limited by any insurance carrier to which it has
applied for any such insurance or with which it has carried insurance during the
last twelve (12) months.
V.8. ENVIRONMENTAL MATTERS. Except as disclosed in Schedule
5.8 or in any public filing by the Seller pursuant to the Securities Act or the
Exchange Act or with any federal, state or local governmental authority having
jurisdiction in the matter:
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(a) The Seller holds, and is in substantial compliance with,
all material permits, licenses and governmental authorizations ("ENVIRONMENTAL
PERMITS") required for the Seller to own the Purchased Assets under applicable
Environmental Laws, and the Seller is otherwise in compliance with applicable
Environmental Laws with respect to its ownership of the Purchased Assets except
for such failures to hold or comply with required Environmental Permits, or such
failures to be in compliance with applicable Environmental Laws, which, in the
aggregate, are not reasonably likely to have a Material Adverse Effect;
(b) The Seller has not received any written request for
information, or been notified that it is a potentially responsible party, under
CERCLA or any similar State law with respect to the Seabrook Station which has
not be resolved or otherwise remedied, except for such liability under such laws
as would not be reasonably likely to have a Material Adverse Effect; and
(c) The Seller has not entered into or agreed to any consent
decree or order, and is not subject to any judgment, decree, or judicial order
relating to compliance with any Environmental Law or to investigation or cleanup
of Hazardous Substances under any Environmental Law relating to the Seabrook
Station which has not been resolved or otherwise remedied, except for such
consent decree or order, judgment, decree or judicial order that would not be
reasonably likely to have a Material Adverse Effect.
(d) To the best of the Seller's knowledge, Seabrook Station is
operated in substantial compliance with all, and no condition with respect to
Seabrook Station violates any, Environmental Laws or judgments, decrees, and
judicial orders relating to compliance with any Environmental Law.
The representations and warranties made in this Section 5.8 are the exclusive
representations and warranties relating to environmental matters.
V.9. REAL ESTATE. Schedule 5.9 contains a description of any
real property owned by the Seller and included in the Purchased Assets (the
"REAL ESTATE"). Schedule 5.9 also describes any indebtedness secured by a
mortgage or other Encumbrance on the Real Estate.
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V.10. CONDEMNATION. Except as set forth in Schedule 5.10,
neither the whole nor any part of the Real Estate or any other real property or
rights leased, used or occupied by the Seller in connection with the ownership
of the Purchased Assets is subject to any pending suit for condemnation or other
taking by any public authority, and, to the knowledge of the Seller, no such
condemnation or other taking has been threatened.
V.11. CERTAIN CONTRACTS AND ARRANGEMENTS. (a) Except (i) as
listed in Schedule 5.11(a) or any other Schedule to this Agreement, (ii) for the
Project Documents, (iii) for contracts, agreements, personal property leases,
commitments, understandings or instruments which will expire prior to the
Closing Date and (iv) for agreements with suppliers entered into in the ordinary
course of business, the Seller is not a party to any written contract,
agreement, personal property lease, commitment, understanding or instrument
which is material to its ownership of the Purchased Assets.
(b) Except as disclosed in Schedule 5.11(b), each material
Seller's Agreement and each of the Project Documents (i) constitutes a valid and
binding obligation of the Seller and, to the best knowledge of the Seller,
constitutes a valid and binding obligation of the other parties thereto, (ii) is
in full force and effect, and (iii) may be transferred to the Buyer pursuant to
this Agreement and will continue in full force and effect thereafter, in each
case without breaching the terms thereof or resulting in the forfeiture or
impairment of any rights thereunder.
(c) Except as set forth in Schedule 5.11(c), there is not,
under the Seller's Agreements or the Project Documents, any default or event
which, with notice or lapse of time or both, would constitute a default on the
part of the Seller, except, such events of default and other events as to which
requisite waivers or consents have been obtained or which would not, in the
aggregate, have a Material Adverse Effect.
V.12. LEGAL PROCEEDINGS, ETC. Except as set forth in Schedule
5.12, there are no claims, actions, proceedings or investigations pending or, to
the Seller's knowledge, threatened against or relating to the Seller before any
court, governmental or regulatory authority or body acting in an adjudicative
capacity, which, if adversely determined, would have a Material Adverse Effect.
Except as set forth in Schedule 5.12, the Seller is not subject to any
outstanding judgment, rule, order, writ, injunction or decree of any court,
governmental or regulatory authority which has a Material Adverse Effect.
V.13. PERMITS. The Seller has all material permits, licenses,
franchises and other governmental authorizations, consents and approvals, other
than with respect to Environmental Laws (collectively, "PERMITS") necessary for
its ownership of such Purchased Assets, except where the failure to have such
Permits would not have a Material Adverse Effect. Except as set forth in
Schedule 5.13(a), the Seller has not received any written notification that it
is in violation of any of such Permits, or any law, statute, order, rule,
regulation, ordinance or judgment of any governmental or regulatory body or
authority
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applicable to it, except for notifications of violations which would not, in the
aggregate, have a Material Adverse Effect. The Seller is in compliance with all
Permits, laws, statutes, orders, rules, regulations, ordinances, or judgments of
any governmental or regulatory body or authority applicable to it, except for
violations which, in the aggregate, do not have a Material Adverse Effect.
(a) Schedule 5.13(b) sets forth all material Permits and
Environmental Permits other than Transferable Permits.
V.14. REGULATION AS A UTILITY. The Seller is a public utility
company within the meaning of the Holding Company Act. Except as set forth on
Schedule 5.14, the Seller is not subject to regulation as a public utility or
public service company (or similar designation) by the United States, any state
of the United States, any foreign country or any municipality or any political
subdivision of the foregoing.
V.15. TAXES. (i) All Tax Returns required to be filed by the
Seller in respect of the Purchased Assets other than those Tax Returns the
failure of which to file would not have a Material Adverse Effect have been
filed, and (ii) all material Taxes shown to be due on such Tax Returns have been
paid in full. Except as set forth in Schedule 5.15, no notice of deficiency or
assessment has been received from any taxing authority with respect to
liabilities for Taxes of the Seller in respect of the Purchased Assets, which
have not been fully paid or finally settled, and any such deficiency shown in
such Schedule 5.15 is being contested in good faith through appropriate
proceedings. Except as set forth in Schedule 5.15, there are no outstanding
agreements or waivers extending the applicable statutory periods of limitation
for Taxes of the Seller associated with the Purchased Assets for any period.
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET
FORTH IN THIS ARTICLE V, THE PURCHASED ASSETS ARE BEING SOLD AND TRANSFERRED "AS
IS, WHERE IS," AND THE SELLER IS NOT MAKING ANY OTHER REPRESENTATIONS OR
WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH
PURCHASED ASSETS, INCLUDING, IN PARTICULAR, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND
DISCLAIMED.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
VI.1. ORGANIZATION. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
Hampshire and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as is now being conducted.
The Buyer has heretofore delivered to the Seller complete and correct copies of
its Certificate of Incorporation and Bylaws (or other similar governing
documents), as currently in effect.
VI.2. AUTHORITY RELATIVE TO THIS AGREEMENT. The Buyer has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Buyer and no
other corporate proceedings on the part of the Buyer are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Buyer, and
assuming that this Agreement constitutes a valid and binding agreement of the
Seller, subject to the receipt of the Buyer Required Regulatory Approvals and
the Seller Required Regulatory Approvals, constitutes a valid and binding
agreement of the Buyer, enforceable against the Buyer in accordance with its
terms, except that such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally or general principles of equity.
VI.3. CONSENTS AND APPROVALS; NO VIOLATION. (a) Except as set
forth in Schedule 6.3, and other than obtaining the Buyer Required Regulatory
Approvals and the Seller Required Regulatory Approvals, neither the execution
and delivery of this Agreement by the Buyer nor the purchase by the Buyer of the
Purchased Assets pursuant to this Agreement will (i) conflict with or result in
any breach of any provision of the Certificate of Incorporation or Bylaws (or
other similar governing documents) of the Buyer, (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, (iii) result in a default (or give rise to
any right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, agreement,
lease or other instrument or obligation to which the Buyer or any of its
subsidiaries is a party or by which any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained.
(b) Except as set forth in Schedule 6.3 and the filings, if
any, by the Buyer and
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the Seller required by the HSR Act (the "BUYER REQUIRED REGULATORY APPROVALS"),
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of any governmental or regulatory body or authority is
necessary for the consummation by the Buyer of the transactions contemplated
hereby.
VI.4. REGULATION AS A UTILITY. Except as set forth in Schedule
6.4, the Buyer is not subject to regulation as a public utility or public
service company (or similar designation) by the United States, any State of the
United States, any foreign country or any municipality or any political
subdivision of the foregoing.
VI.5. AVAILABILITY OF FUNDS. The Buyer has sufficient funds
available to it or has received binding written commitments from responsible
financial institutions to provide sufficient funds (which commitments have been
made available to the Seller) on the Closing Date to pay the Purchase Price.
ARTICLE VII
COVENANTS OF THE PARTIES
VII.1. CONDUCT OF BUSINESS OF THE COMPANY. (a) Except as
contemplated in this Agreement, prior to the Closing Date, without the prior
written consent of the Buyer, the Seller will not with respect to the Purchased
Assets:
(i) (x) create, incur or assume any material amount of indebtedness for
money borrowed (including obligations in respect of capital leases), other than
in the ordinary course of business and except for Permitted Encumbrances and
indebtedness which does not create any Encumbrance on such Purchased Assets; or
(y) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
Person except in the ordinary course of business or otherwise as required by the
Project Documents;
(ii) sell, lease (as lessor), transfer or otherwise dispose of, any of
the Purchased Assets, other than assets used, consumed or replaced in the
ordinary course of business consistent with good industry practice or otherwise
as required by the Project Documents, and not mortgage or pledge, or impose or
suffer to be imposed any Encumbrance on, any of such Purchased Assets, other
than Permitted Encumbrances;
(iii) enter into or amend any real or personal property Tax agreement,
treaty or settlement that would be binding upon the Buyer;
(iv) enter into any power sales commitment that extends beyond the
Closing Date; or
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(v) enter into any written or oral contract, agreement, commitment or
arrangement with respect to any of the transactions set forth in the foregoing
paragraphs (i) through (iv).
(b) During the period from the date of this Agreement to the Closing
Date, the Seller (i) will not amend any of the Seller's Agreements other than in
the ordinary and usual course of business or with the Buyer's prior written
consent, and (ii) will perform in all material respects all of its obligations
in accordance with the Project Documents, including but not limited to making
all required maintenance and capital expenditures as such performance is due.
(c) In connection with any action to be taken relating to Seabrook
Station in their respective capacities as owners in common of Seabrook Station
under the Project Documents, the Seller and the Buyer, during the period from
the date of this Agreement to the Closing Date, shall consult with each other
prior to the taking of such action and shall consider the views of the other
party with respect to such action and the effect thereof on the transactions
contemplated by this Agreement in making a decision with respect to the action
to be taken. In taking any such action, the Seller shall act consistently with
the reasonable requests of the Buyer; PROVIDED, HOWEVER, that nothing in this
Section 7.1(c) shall require the Seller to act in any manner contrary to its
reasonable business interests.
VII.2. ACCESS TO INFORMATION. (a) Between the date of this
Agreement and the Closing Date, the Seller will, during ordinary business hours
and upon reasonable notice (i) give the Buyer and the Buyer Representatives
reasonable access to all its books and records relating to the Purchased Assets;
(ii) permit the Buyer to make such reasonable inspections thereof as the Buyer
may reasonably request; (iii) furnish the Buyer, at the Buyer's expense, with
such financial and operating data and other information in the Seller's
possession with respect to the Purchased Assets as the Buyer may from time to
time reasonably request; (iv) furnish the Buyer, at the Buyer's expense, a copy
of each material report, schedule or other document filed or received by it with
respect to the Purchased Assets with the SEC, MDTE, RIPUC, NHPUC, NRC or FERC;
PROVIDED, HOWEVER, that (A) any such investigation shall be conducted in such a
manner as not to interfere unreasonably with the operation of the Purchased
Assets, (B) the Seller shall not be required to take any action which would
constitute a waiver of the attorney-client privilege and (C) the Seller need not
supply the Buyer with any information which the Seller is under a legal
obligation not to supply. Notwithstanding anything in this Section 7.2 to the
contrary, (i) the Seller will only furnish or provide such access to personnel
and medical records, computer or hard copy, as is required by law, and (ii) the
Buyer shall not have the right to perform or conduct any environmental sampling
or testing at, in, on, or underneath the Purchased Assets.
(b) All information furnished to or obtained by the Buyer and
the Buyer Representatives pursuant to this Section 7.2 shall be subject to the
provisions of the Confidentiality Agreement and shall be treated as "Proprietary
Information" (as defined in the Confidentiality Agreement).
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(c) For a period of seven (7) years after the Closing Date,
the Seller and its representatives shall have reasonable access to all of the
books and records of the Purchased Assets transferred to the Buyer hereunder to
the extent that such access may reasonably be required by the Seller in
connection with matters relating to or affected by the ownership of the
Purchased Assets prior to the Closing Date. Such access shall be afforded by the
Buyer upon receipt of reasonable advance notice and during normal business
hours. The Seller shall be solely responsible for any costs or expenses incurred
by them pursuant to this Section 7.2(c). If the Buyer shall desire to dispose of
any such books and records prior to the expiration of such seven-year period,
the Buyer shall, prior to such disposition, give the Seller a reasonable
opportunity at the Seller's expense, to segregate and remove such books and
records as the Seller may select.
VII.3. EXPENSES. Except to the extent specifically provided
herein, whether or not the transactions contemplated hereby are consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be borne by the party incurring such
costs and expenses.
VII.4. FURTHER ASSURANCES. (a) Subject to the terms and
conditions of this Agreement, each of the parties hereto will use its best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the sale of the Purchased Assets
pursuant to this Agreement. Notwithstanding anything in the previous sentence to
the contrary, the Seller and the Buyer shall use their commercially reasonable
efforts to obtain all Permits necessary for the Buyer to own the Purchased
Assets. From time to time after the date hereof, without further consideration,
the Seller will, at its own expense, execute and deliver such documents to the
Buyer as the Buyer may reasonably request in order to more effectively vest in
the Buyer the Seller's title to the Purchased Assets. From time to time after
the date hereof, the Buyer will, at its own expense, execute and deliver such
documents to the Seller as the Seller may reasonably request in order to more
effectively consummate the sale of the Purchased Assets pursuant to this
Agreement.
(b) In the event that any Purchased Assets shall not have been
conveyed to the Buyer at the Closing, the Seller shall use its best efforts to
convey such asset to the Buyer as promptly as is practicable after the Closing.
This assurance shall not constitute a waiver of any condition to the Buyer's
obligation set forth in Section 8.1.
(c) To the extent that the Seller's rights under any Project
Document may not be assigned without the consent of another Person which consent
has not been obtained, this Agreement shall not constitute an agreement to
assign the same if an attempted assignment would constitute a breach thereof or
be unlawful, and the Seller, at its expense, shall use its commercially
reasonable efforts to obtain any such required consent(s) as promptly as
possible. The Seller and the Buyer agree that if any consent to an assignment of
any Project Document
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shall not be obtained or if any attempted assignment would be ineffective or
would impair the Buyer's rights and obligations under the Project Document in
question so that the Buyer would not in effect acquire the benefit of all such
rights and obligations, the Seller, to the maximum extent permitted by law and
such Project Document, shall after the Closing appoint the Buyer to be the
Seller's agent with respect to such Project Document, and the Seller shall, to
the maximum extent permitted by law and such Project Document, enter into such
reasonable arrangements with the Buyer as are necessary to provide the Buyer
with the benefits and obligations of such Project Document. The Seller and the
Buyer shall cooperate and shall each use their commercially reasonable efforts
after the Closing to obtain an assignment of any such Project Document to the
Buyer.
VII.5. PUBLIC STATEMENTS. The parties shall consult with each
other prior to issuing any public announcement, statement or other disclosure
with respect to this Agreement or the transactions contemplated hereby and shall
not issue any such public announcement, statement or other disclosure prior to
such consultation, except as may be required by law and except that the parties
may make public announcements, statements or other disclosures with respect to
this Agreement and the transactions contemplated hereby to the extent and under
the circumstances in which the parties are expressly permitted by the
Confidentiality Agreement to make disclosures of "Proprietary Information" (as
defined in the Confidentiality Agreement).
VII.6. CONSENTS AND APPROVALS. (a) The Seller and the Buyer
shall each file or cause to be filed with the Federal Trade Commission and the
United States Department of Justice any notifications required to be filed under
the HSR Act and the rules and regulations promulgated thereunder with respect to
the transactions contemplated hereby. The parties shall consult with each other
as to the appropriate time of filing such notifications and shall use their best
efforts to make such filings at the agreed upon times, to respond promptly to
any requests for additional information made by either of such agencies, and to
cause the waiting periods under the HSR Act to terminate or expire at the
earliest possible date after each date of filing.
(b) The Seller and the Buyer shall cooperate with each other
and (i) promptly prepare and file all necessary documentation, (ii) effect all
necessary applications, notices, petitions and filings and execute all
agreements and documents, (iii) use all commercially reasonable efforts to
obtain the transfer or reissuance to the Buyer of all necessary Transferable
Permits, if any, consents, approvals and authorizations of all governmental
bodies and (iv) use all commercially reasonable efforts to obtain all necessary
consents, approvals and authorizations of all other parties, in the case of each
of the foregoing clauses (i), (ii), (iii) and (iv), necessary or advisable to
consummate the transactions contemplated by this Agreement (including, without
limitation, the Seller Required Regulatory Approvals and the Buyer Required
Regulatory Approvals) or required by the terms of any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument to which the Seller or the Buyer is a party or by
which any of them is bound. The Buyer shall use its best efforts to obtain from
the NRC its approval of the transactions contemplated by this Agreement and the
Decommissioning Funding Agreement. The Seller
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shall have the right to review and approve in advance all characterizations of
the information relating to Purchased Assets, and each of the Seller and the
Buyer shall have the right to review in advance all characterizations of the
information relating to the transactions contemplated by this Agreement which
appear in any filing made in connection with the transactions contemplated
hereby.
VII.7. FEES AND COMMISSIONS. The Seller and the Buyer each
represent and warrant to the other that, except for Salomon Brothers, Inc. and
Reed Consulting Group, who are acting for and at the expense of the Seller, no
broker, finder or other Person is entitled to any brokerage fees, commissions or
finder's fees in connection with the transaction contemplated hereby by reason
of any action taken by the party making such representation. The Seller and the
Buyer will pay to the other or otherwise discharge, and will indemnify and hold
the other harmless from and against, any and all claims or liabilities for all
brokerage fees, commissions and finder's fees (other than as described above)
incurred by reason of any action taken by such party.
VII.8. TAX MATTERS. (a) All New Hampshire transfer and sales
taxes incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne equally by the Buyer and Seller, as set forth
in RSA 78-B, and the Buyer, at its own expense, will file, to the extent
required by applicable law, all necessary Tax Returns and other documentation
with respect to all such transfer or sales taxes, and, if required by applicable
law, the Seller will join in the execution of any such Tax Returns or other
documentation. Prior to the Closing Date, the Seller will provide to the Buyer,
to the extent possible, an appropriate certificate of no Tax due from each
applicable taxing authority. Except as provided in the preceding sentence and in
Section 3.4 of this Agreement, Buyer shall have no liability for any other Tax
arising in connection with Seller's sale of the Purchased Assets pursuant to
this Agreement.
(b) With respect to Taxes to be prorated in accordance with
Section 3.4 of this Agreement only, the Buyer shall prepare and timely file all
Tax Returns required to be filed with respect to the Purchased Assets, if any,
and shall duly and timely pay all such Taxes shown to be due on such Tax
Returns. The Buyer's preparation of any such Tax Returns shall be subject to the
Seller's approval, which approval shall not be unreasonably withheld. The Buyer
shall make such Tax Returns available for the Seller's review and approval no
later than 25 Business Days prior to the due date for filing such Tax Return.
Within twenty (20) Business Days after receipt of such Tax Return, the Seller
shall pay to the Buyer their proportionate share of the amount shown as due on
such Tax Return determined in accordance with the Section 3.4 of this Agreement.
(c) Each of the Buyer and the Seller shall provide the other
with such assistance as may reasonably be requested by the other party in
connection with the preparation of any Tax Return, any audit or other
examination by any taxing authority, or any judicial or administrative
proceedings relating to liability for Taxes, and each will retain and provide
the
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requesting party with any records or information which may be relevant to such
return, audit or examination, proceedings or determination. Any information
obtained pursuant to this Section 7.8(c) or pursuant to any other Section hereof
providing for the sharing of information or review of any Tax Return or other
schedule relating to Taxes shall be kept confidential by the parties hereto.
VII.9. SUPPLEMENTS TO SCHEDULES. Prior to the Closing Date the
Seller shall supplement or amend the Schedules required by Section 2.4 and
Article V with respect to any matter relating to the Purchased Assets hereafter
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in such Schedules. No supplement
or amendment of any Schedule made pursuant to this Section shall be deemed to
cure any breach of any representation or warranty made in this Agreement unless
the parties agree thereto in writing.
VII.10. RISK OF LOSS. (a) From the date hereof through the
Closing Date, all risk of loss or damage to the property included in the
Purchased Assets shall be borne by the Seller.
(b) If, before the Closing Date, all or any portion of the
Purchased Assets are taken by eminent domain (or are the subject of a pending
or, to the knowledge of the Seller, contemplated taking which has not been
consummated), the Seller shall notify the Buyer promptly in writing of such
fact. If such taking would have a Material Adverse Effect, the Buyer and the
Seller shall negotiate in good faith to settle the loss resulting from such
taking (including, without limitation, by making a fair and equitable adjustment
to the Purchase Price) and, upon such settlement, consummate the transaction
contemplated by this Agreement pursuant to the terms of this Agreement. If no
such settlement is reached within sixty (60) days after the Seller's having
notified the Buyer of such taking, then the Buyer or the Seller may terminate
this Agreement pursuant to Section 10.1(f).
(c) If before the Closing Date all or any material portion of
the Purchased Assets are damaged or destroyed by fire or other casualty, the
Seller shall notify the Buyer promptly in writing of such fact. If such damage
or destruction would have a Material Adverse Effect and the Seller has not
notified the Buyer of its intention to cure such damage or destruction within
fifteen (15) days after its occurrence, the Buyer and the Seller shall negotiate
in good faith to settle the loss resulting from such casualty (including,
without limitation, by making a fair and equitable adjustment to the Purchase
Price) and, upon such settlement, consummate the transactions contemplated by
this Agreement pursuant to the terms of this Agreement. If no such settlement is
reached within sixty (60) days after the Seller's having notified the Buyer of
such casualty, then the Buyer or the Seller may terminate this Agreement
pursuant to Section 10.1(f).
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ARTICLE VIII
PURCHASED ASSETS CLOSING CONDITIONS
VIII.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
PURCHASE TRANSACTIONS. The respective obligations of each party to effect the
sale of the Purchased Assets shall be subject to the fulfillment at or prior to
the Closing Date of the following conditions:
(a) The waiting period under the HSR Act applicable to the
consummation of the sale of the Purchased Assets contemplated hereby shall have
expired or been terminated;
(b) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents or which the parties agree
is reasonably likely to prevent the consummation of the sale of the Purchased
Assets contemplated hereby shall have been issued and remain in effect (each
party agreeing to use its reasonable best efforts to have any such injunction,
order or decree lifted) and no statute, rule or regulation shall have been
enacted by any state or federal government or governmental agency in the United
States which prohibits the consummation of the sale of the Purchased Assets;
(c) All federal, state and local government consents and
approvals required for the consummation of the sale of the Purchased Assets,
including, without limitation, the Seller Required Regulatory Approvals
applicable to the sale of the Purchased Assets and the Buyer Required Regulatory
Approvals applicable to the sale of the Purchased Assets, shall have been
obtained or become Final Orders (a "FINAL ORDER" means a final order after all
opportunities for rehearing are exhausted and no appeal thereof is pending) with
such terms and conditions as shall have been imposed by the governmental entity
issuing such Final Order unless the failure to obtain such consent or approval
would not result in a Material Adverse Effect; and
(d) All consents and approvals for the consummation of the
sale of the Purchased Assets contemplated hereby required under the terms of any
note, bond, mortgage, indenture, contract or other agreement to which the Seller
or the Buyer, or any of their subsidiaries, are a party shall have been
obtained, other than those which if not obtained, would not, in the aggregate,
have a Material Adverse Effect.
VIII.2. CONDITIONS TO OBLIGATIONS OF THE BUYER. The obligation
of the Buyer to effect the sale of the Purchased Assets contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:
(a) There shall not have occurred and be continuing a Material
Adverse Effect;
(b) The Seller shall have performed and complied with in all
material respects the covenants and agreements contained in this Agreement which
relate to the Purchased
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Assets and are required to be performed and complied with by the Seller on or
prior to the Closing Date, and the representations and warranties of the Seller
which relate to the Purchased Assets and are set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and as of the Closing Date as though made at and as of the Closing Date;
(c) There shall be no Encumbrances on the Purchased Assets by
virtue of the Indenture;
(d) The Buyer shall have received certificates from authorized
officers of the Seller, dated the Closing Date, to the effect that, to the best
of such officers' knowledge, the conditions set forth in Sections 8.2(a), (b)
and (c) have been satisfied;
(e) Seabrook Station shall, on the Closing Date, be in normal,
full power operation;
(f) The Buyer shall have obtained an order, to its reasonable
satisfaction, from the FERC determining that following its purchase of the
Purchased Assets pursuant to this Agreement the Buyer will be an Exempt
Wholesale Generator in accordance with Section 32 of the Holding Company Act and
18 CFR ss.365; and
(g) The Buyer shall have received an opinion from McDermott,
Will & Emery, counsel for the Seller, dated the Closing Date and satisfactory in
form and substance to the Buyer and its counsel, substantially to the effect
that:
(1) the Seller is a corporation organized, existing and in
good standing under the laws of its state of incorporation and has the corporate
power and authority to execute and deliver this Agreement and those Ancillary
Agreements which relate to the Purchased Assets and to consummate the
transactions contemplated hereby; and the execution and delivery of this
Agreement and such Ancillary Agreements and the consummation of the sale of the
Purchased Assets contemplated hereby have been duly authorized by all requisite
corporate action taken on the part of such Seller;
(2) this Agreement and those Ancillary Agreements which relate
to the Purchased Assets have been executed and delivered by Seller and (assuming
that the Seller Required Regulatory Approvals and the Buyer Required Regulatory
Approvals are obtained) are valid and binding obligations of the Seller,
enforceable against the Seller in accordance with their terms, except (A) that
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights, and (B) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to certain
equitable defenses and to the discretion of the court before which any
proceeding therefore may be brought;
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(3) the execution, delivery and performance of this Agreement
and the Ancillary Agreements by the Seller will (i) not constitute a violation
of its Certificate of Incorporation or Bylaws (or similar governing documents),
and (ii) to such counsel's knowledge, violate or conflict with, or result in a
default under, any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which the Seller or any of the Purchased Assets is
bound;
(4) the Bill of Sale, the Assignment and other documents
described in Section 4.3 are in proper form to transfer to the Buyer title to
the Purchased Assets in accordance with this Agreement; and
(5) no declaration, filing or registration with, or notice to,
or authorization, consent or approval of any governmental authority is necessary
for the consummation by such Seller of the Closing other than (i) the Seller
Required Regulatory Approvals, all of such Seller Required Regulatory Approvals
which are applicable to the sale of the Purchased Assets hereunder having been
obtained and being in full force and effect with such terms and conditions as
shall have been imposed by any applicable governmental authority, and (ii) such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not obtained or made, would not, in the aggregate have a
Material Adverse Effect.
As to any matter contained in such opinion which involves the
laws of any jurisdiction other than the federal laws of the United States or the
laws of Massachusetts, such counsel may rely upon opinions of counsel admitted
in such other jurisdictions. Any opinions relied upon by such counsel as
aforesaid shall be delivered together with the opinion of such counsel. Such
opinion may expressly rely as to matters of fact upon certificates furnished by
the Seller and appropriate officers and directors of the Seller and by public
officials.
VIII.3. CONDITIONS TO OBLIGATIONS OF THE SELLER. The
obligation of the Seller to effect the sale of the Purchased Assets contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date of the following additional conditions:
(a) The Buyer shall have performed in all material respects
its covenants and agreements contained in this Agreement which relate to the
Purchased Assets and are required to be performed on or prior to the Closing
Date;
(b) The representations and warranties of the Buyer which
relate to the Purchased Assets and are set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made at and as of the Closing Date;
(c) The Seller shall have received a certificate from an
authorized officer of the Buyer, dated the Closing Date, to the effect that, to
the best of such officer's knowledge, the conditions set forth in Sections
8.3(a) and (b) have been satisfied;
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(d) The FERC shall have approved the Stipulations and
Agreements filed in FERC Docket No. ER97-3127-000 by and between the Office of
the Attorney General of Massachusetts, the Massachusetts Division of Energy
Resources, Eastern Edison Company and Montaup Electric Company, dated October
29, 1997; Docket No. ER97-2800-000 by and between the RIPUC, the Rhode Island
Division of Public Utilities and Carriers, Blackstone Valley Electric Company,
Montaup Electric Company and Newport Electric Corporation; Docket No.
ER97-3127-000 and ER97-2800-000 between Montaup Electric Company and the Pascoag
Fire District of Rhode Island; Docket No. ER97-3127-000 and ER97-2800-000
between Montaup Electric Company and the Gas and Electric Department of the Town
of Middleborough; and Docket No. ER97-2338-000 between Montaup Electric Company
and the Taunton Municipal Lighting Plant, Pascoag Fire District of Rhode Island
and the Gas and Electric Department of the Town of Middleborough; and said
Stipulations and Agreements shall be and shall continue to be in full force and
effect;
(e) All Seller Required Regulatory Approvals and all other
consents and approvals required of the Seller to consummate the transactions
contemplated by this Agreement shall have been obtained (providing, upon terms
and conditions satisfactory to the Seller, for full recovery of all costs
incurred by the Seller in satisfying its obligations under the Decommissioning
Funding Agreement) and be in full force and effect; and
(f) The Seller shall have received an opinion from McLane,
Graf, Raulerson & Middleton Professional Association, counsel for the Buyer,
dated the Closing Date and satisfactory in form and substance to the Seller and
their counsel, substantially to the effect that:
(1) the Buyer is a corporation organized, existing and in good
standing under the laws of the State of New Hampshire and has the corporate
power and authority to execute and deliver this Agreement and those Ancillary
Agreements which relate to the Purchased Assets and to consummate the
transactions contemplated hereby; and the execution and delivery of this
Agreement and such Ancillary Agreements and the consummation of the sale of the
Purchased Assets contemplated hereby have been duly authorized by all requisite
corporate action taken on the part of the Buyer;
(2) this Agreement and those Ancillary Agreements which relate
to the Purchased Assets have been executed and delivered by the Buyer and
(assuming that the Seller Required Regulatory Approvals and the Buyer Required
Regulatory Approval are obtained) are valid and binding obligations of the
Buyer, enforceable against the Buyer in accordance with their terms, except (A)
that such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and (B) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to certain equitable defenses
and to the discretion of the court before which any proceeding therefore may be
brought;
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<PAGE> 34
(3) the execution, delivery and performance of this Agreement
and the Ancillary Agreements by the Buyer will not (i) constitute a violation of
its Certificate of Incorporation or Bylaws on the Closing Date (or other similar
governing documents) and (ii), to such counsel's knowledge, violate or conflict
with, or result in a default under, any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which the Buyer or any
of the Purchased Assets is bound;
(4) the Instrument of Assumption and other instruments
described in Section 4.4 are in proper form for the Buyer to assume the Assumed
Liabilities in accordance with this Agreement; and
(5) no declaration, filing or registration with, or notice to,
or authorization, consent or approval of any governmental authority is necessary
for the consummation by the Buyer of the Closing other than the Buyer Required
Regulatory Approvals, all of such Buyer Required Regulatory Approvals which are
applicable to the sale of the Purchased Assets hereunder having been obtained
and being in full force and effect with such terms and conditions as shall have
been imposed by any applicable governmental authority.
As to any matter contained in such opinion which involves the
laws of any jurisdiction other than the federal laws of the United States and
the laws of New Hampshire, such counsel may rely upon opinions of counsel
admitted to practices in such other jurisdictions. Any opinions relied upon by
such counsel as aforesaid shall be delivered together with the opinion of such
counsel. Such opinion may expressly rely as to matters of facts upon
certificates furnished by appropriate officers and directors of the Buyer and
its subsidiaries and by public officials.
ARTICLE IX
INDEMNIFICATION
IX.1. INDEMNIFICATION. (a) The Seller will indemnify, defend
and hold harmless the Buyer from and against any and all claims, demands or
suits (by any Person), losses, liabilities, damages (including consequential or
special damages), obligations, payments, costs and expenses (including, without
limitation, the costs and expenses of any and all actions, suits, proceedings,
assessments, judgments, settlements and compromises relating thereto and
reasonable attorneys' fees and reasonable disbursements in connection therewith)
(each, an "INDEMNIFIABLE LOSS"), asserted against or suffered by the Buyer
relating to, resulting from or arising out of (i) any breach by the Seller of
any covenant or agreement of the Seller contained in this Agreement, (ii) the
Excluded Liabilities or (iii) any breach by the Seller of its representations or
warranties hereunder.
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<PAGE> 35
(b) The Buyer will indemnify, defend and hold harmless the
Seller from and against any and all Indemnifiable Losses asserted against or
suffered by the Seller relating to, resulting from or arising out of (i) any
breach by the Buyer of any covenant or agreement of the Buyer contained in this
Agreement, (ii) the Assumed Liabilities or (iii) any breach by the Buyer of its
representations and warranties hereunder.
(c) Any person entitled to receive indemnification under this
Agreement (an "INDEMNITEE") having a claim under these indemnification
provisions shall make a good faith effort to recover all losses, damages, costs
and expenses from insurers of such Indemnitee under applicable insurance
policies so as to reduce the amount of any Indemnifiable Loss hereunder. The
amount of any Indemnifiable Loss shall be reduced (i) to the extent that
Indemnitee receives any insurance proceeds with respect to an Indemnifiable Loss
and (ii) to take into account any net Tax benefit recognized by the Indemnitee
arising from the recognition of the Indemnifiable Loss and any payment actually
received with respect to an Indemnifiable Loss.
(d) The expiration, termination or extinguishment of any
covenant or agreement shall not affect the parties' obligations under this
Section 9.1 if the Indemnitee provided the Person required to provide
indemnification under this Agreement (the "INDEMNIFYING PARTY") with proper
notice of the claim or event for which indemnification is sought prior to such
expiration, termination or extinguishment.
(e) The rights and remedies of the Seller and the Buyer under
this Article IX are exclusive and in lieu of any and all other rights and
remedies which the Seller and the Buyer may have under this Agreement or
otherwise for monetary relief with respect to (i) any breach of any covenant or
agreement set forth in this Agreement, (ii) the Assumed Liabilities or the
Excluded Liabilities, as the case may be or (iii) any breach of any
representation or warranty hereunder.
IX.2. DEFENSE OF CLAIMS. (a) If any Indemnitee receives notice
of the assertion of any claim or of the commencement of any claim, action, or
proceeding made or brought by any Person who is not a party to this Agreement or
any Affiliate of a party to this Agreement (a "THIRD PARTY CLAIM") with respect
to which indemnification is to be sought from an Indemnifying Party, the
Indemnitee will give such Indemnifying Party reasonably prompt written notice
thereof, but in any event not later than thirty (30) calendar days after the
Indemnitee's receipt of notice of such Third Party Claim. Such notice shall
describe the nature of the Third Party Claim in reasonable detail and will
indicate the estimated amount, if practicable, of the Indemnifiable Loss that
has been or may be sustained by the Indemnitee. The Indemnifying Party will have
the right to participate in or, by giving written notice to the Indemnitee, to
elect to assume the defense of any Third Party Claim at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel, and the
Indemnitee will cooperate in good faith in such defense at such Indemnitee's own
expense.
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<PAGE> 36
(b) If within ten (10) calendar days after an Indemnitee
provides written notice to the Indemnifying Party of any Third Party Claim the
Indemnitee receives written notice from the Indemnifying Party that such
Indemnifying Party has elected to assume the defense of such Third Party Claim
as provided in the last sentence of Section 9.2(a), the Indemnifying Party will
not be liable for any legal expenses subsequently incurred by the Indemnitee in
connection with the defense thereof; PROVIDED, HOWEVER, that if the Indemnifying
Party fails to take reasonable steps necessary to defend diligently such Third
Party Claim within twenty (20) calendar days after receiving notice from the
Indemnitee that the Indemnitee believes the Indemnifying Party has failed to
take such steps, the Indemnitee may assume its own defense, and the Indemnifying
Party will be liable for all reasonable expenses thereof. Without the prior
written consent of the Indemnitee, the Indemnifying Party will not enter into
any settlement of any Third Party Claim which would lead to liability or create
any financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder. If a firm offer is made
to settle a Third Party Claim without leading to liability or the creation of a
financial or other obligation on the part of the Indemnitee for which the
Indemnitee is not entitled to indemnification hereunder and the Indemnifying
Party desires to accept and agree to such offer, the Indemnifying Party will
give written notice to the Indemnitee to that effect. If the Indemnitee fails to
consent to such firm offer within ten (10) calendar days after its receipt of
such notice, the Indemnitee may continue to contest or defend such Third Party
Claim and, in such event, the maximum liability of the Indemnifying Party as to
such Third Party Claim will be the amount of such settlement offer, plus
reasonable costs and expenses paid or incurred by the Indemnitee up to the date
of such notice.
(c) Any claim by an Indemnitee on account of an Indemnifiable
Loss which does not result from a Third Party Claim (a "DIRECT CLAIM") will be
asserted by giving the Indemnifying Party reasonably prompt written notice
thereof, stating the nature of such claim in reasonable detail and indicating
the estimated amount, if practicable, but in any event not later than six (6)
months after the Indemnitee becomes aware of such Direct Claim, and the
Indemnifying Party will have a period of six (6) month within which to respond
to such Direct Claim. If the Indemnifying Party does not respond within such six
(6) months period, the Indemnifying Party will be deemed to have accepted such
claim. If the Indemnifying Party rejects such claim, the Indemnitee will be free
to seek enforcement of its rights to indemnification under this Agreement.
(d) If the amount of any Indemnifiable Loss, at any time
subsequent to the making of an indemnity payment in respect thereof, is reduced
by recovery, settlement or otherwise under or pursuant to any insurance
coverage, or pursuant to any claim, recovery, settlement or payment by or
against any other entity, the amount of such reduction, less any costs, expenses
or premiums incurred in connection therewith (together with interest thereon
from the date of payment thereof at the prime rate then in effect of the Bank of
Boston, N.A.), will promptly be repaid by the Indemnitee to the Indemnifying
Party. Upon making any indemnity payment, the Indemnifying Party will, to the
extent of such indemnity payment, be
32
<PAGE> 37
subrogated to all rights of the Indemnitee against any third party in respect of
the Indemnifiable Loss to which the indemnity payment relates; provided,
however, that (i) the Indemnifying Party will then be in compliance with its
obligations under this Agreement in respect of such Indemnifiable Loss and (ii)
until the Indemnitee recovers full payment of its Indemnifiable Loss, any and
all claims of the Indemnifying Party against any such third party on account of
said indemnity payment is hereby made expressly subordinated and subjected in
right of payment to the Indemnitee's rights against such third party. Without
limiting the generality or effect of any other provision hereof, each such
Indemnitee and Indemnifying Party will duly execute upon request all instruments
reasonably necessary to evidence and perfect the above-described subrogation and
subordination rights. Nothing in this Section 9.2(d) shall be construed to
require any party hereto to obtain or maintain any insurance coverage.
(e) A failure to give timely notice as provided in this
Section 9.2 will not affect the rights or obligations of any party hereunder
except if, and only to the extent that, as a result of such failure, the party
which was entitled to receive such notice was actually prejudiced as a result of
such failure.
ARTICLE X
TERMINATION AND ABANDONMENT
X.1. TERMINATION. (a) This Agreement may be terminated at any
time prior to the Closing Date by mutual written consent of the Seller and the
Buyer.
(b) This Agreement may be terminated by the Seller or the
Buyer if the Closing has not occurred on or before nine (9) months from the date
the transactions contemplated by this Agreement are submitted to the NRC for its
approval (the "TERMINATION DATE"); PROVIDED that the right to terminate this
Agreement under this Section 10.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date; and
PROVIDED, FURTHER, that if on the date that is nine (9) months from the date of
such submission the conditions to the Closing set forth in Section 8.1(c) or 8.2
(e) shall not have been fulfilled but all other conditions to the Closing shall
be fulfilled or shall be capable of being fulfilled, then the Termination Date
shall be the day which is fifteen (15) months from the date of such submission.
(c) This Agreement may be terminated by either the Seller or
the Buyer if (i) any governmental or regulatory body, the consent of which is a
condition to the obligations of the Seller or the Buyer to consummate the
Closing shall have determined not to grant its or their consent and all appeals
of such determination shall have been taken and have been unsuccessful, (ii) one
or more courts of competent jurisdiction in the United States or any State shall
have issued an order, judgment or decree permanently restraining, enjoining or
otherwise
33
<PAGE> 38
prohibiting the Closing, and such order, judgment or decree shall have become
final and nonappealable or (iii) any statute, rule or regulation shall have been
enacted by any State or federal government or governmental agency in the United
States which prohibits the consummation of the Closing.
(d) This Agreement may be terminated by the Buyer, if there
has been a material violation or breach by the Seller of any agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of the Buyer to effect the
Closing impossible and such violation or breach has not been waived by the
Buyer.
(e) This Agreement may be terminated by the Seller, if there
has been a material violation or breach by the Buyer of any agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of the Seller to effect the
Closing impossible and such violation or breach has not been waived by the
Seller.
(f) This Agreement may be terminated by either of the Seller
or the Buyer in accordance with the provisions of Section 7.10(b) or (c).
X.2. PROCEDURE AND EFFECT OF TERMINATION. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by either or both of the parties pursuant to Section 10.1, written notice
thereof shall forthwith be given by the terminating party to the other party and
this Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) subject to Section 9.1(e), said termination shall be the
sole remedy of the parties hereto with respect to breaches of any agreement,
representation or warranty contained in this Agreement and none of the parties
hereto nor any of their respective trustees, directors, officers or Affiliates,
as the case may be, shall have any other liability or further obligation to the
other party or any of their respective trustees, directors, officers or
Affiliates, as the case may be, pursuant to this Agreement, except in each case
as stated in this Section 10.2 and in Sections 7.2(b), 7.3 and 7.7;
(b) all filings, applications and other submissions made
pursuant to this Agreement, to the extent practicable, shall be withdrawn from
the agency or other Person to which they were made; and
(c) if a termination of this Agreement occurs as a result of
the failure of the NRC to approve the transactions contemplated by this
Agreement and the Decommissioning Funding Agreement as set forth herein and
therein primarily based upon a determination that adequate funding for
Decommissioning Obligations is not provided for, the Buyer shall pay to
34
<PAGE> 39
the Seller within ten (10) days of the Seller's written demand therefor,
accompanied by reasonable supporting documentation, all reasonable,
out-of-pocket costs and expenses, not to exceed $500,000, paid or incurred by
the Seller during the period from the date of this Agreement to the date of such
termination in connection with the Seller's efforts to consummate the
transactions contemplated by this Agreement; PROVIDED, HOWEVER, that no such
costs or expenses of any Person for investment banking services shall be payable
by the Buyer without the prior consent of the Buyer. The Buyer shall have the
right to perform a reasonable audit of the Seller's books and records with
respect to such costs and expenses.
ARTICLE XI
MISCELLANEOUS PROVISIONS
XI.1. AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified or supplemented only by written
agreement of the Seller and the Buyer.
XI.2. WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise
provided in this Agreement, any failure of any of the parties to comply with any
obligation, covenant, agreement or condition herein may be waived by the party
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
XI.3. NO SURVIVAL. Subject to the provisions of Section 10.2,
each and every representation, warranty and covenant contained in this Agreement
(other than the covenants contained in Sections 3.2, 7.2(b), 7.3, 7.4, 7.7, and
7.8 and in Articles IX and X (which covenants shall survive indefinitely), the
representations contained in Article V (which shall survive for eighteen (18)
months for the Closing) and the provisions of this Article XI (which shall
survive indefinitely)) shall expire with, and be terminated and extinguished by,
the consummation of the sale of the Purchased Assets and the transfer of the
Assumed Liabilities related thereto pursuant to this Agreement and shall not
survive the Closing Date; and none of the Seller, the Buyer or any officer,
director, trustee or Affiliate of any of them shall be under any liability
whatsoever with respect to any such representation, warranty or covenant.
35
<PAGE> 40
XI.4. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
facsimile transmission, telexed or mailed by overnight courier or registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice; PROVIDED that notices of a change of address shall be
effective only upon receipt thereof):
(a) If to the Seller, to:
c/o EUA Services Corporation
750 West Center Street
West Bridgewater, MA 02379
Facsimile: (508) 559-6125
Attention: Kevin Kirby
Vice President
with a copy to:
McDermott, Will & Emery
75 State Street
Suite 1700
Boston, MA 62109-1807
Facsimile: (617) 345-5077
Attention: David A. Fazzone, P.C.
(b) if to the Buyer, to:
Great Bay Power Corporation
Cocheco Falls Millworks
100 Main Street, Suite 201
Dover, NH 03820
Facsimile: (603) 742-3223
Attention: Frank W. Getman, Jr.
President and Chief Executive Officer
with a copy to:
McLane, Graf, Raulerson & Middleton
Professional Association
900 Elm Street, Box 326
Manchester, NH 03105-0326
Facsimile: (603) 625-5650
Attention: Richard A. Samuels, Esq.
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<PAGE> 41
XI.5. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto, including by operation of law without the prior written
consent of the other party, nor is this Agreement intended to confer upon any
other Person except the parties hereto any rights or remedies hereunder;
provided, however, that the Buyer may assign in whole this Agreement and its
rights, interests and obligations hereunder to a wholly-owned Subsidiary of the
Buyer or BayCorp Holdings, Ltd. (an "ELIGIBLE ASSIGNEE") upon written notice to
the Seller and execution and delivery to the Seller of a guaranty of such
Eligible Assignee's obligations hereunder substantially in the form of Exhibit G
hereto.
XI.6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts
(regardless of the laws that might otherwise govern under applicable
Massachusetts principles of conflicts of law) as to all matters, including but
not limited to matters of validity, construction, effect, performance and
remedies.
XI.7. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
XI.8. INTERPRETATION. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
XI.9. SCHEDULES AND EXHIBITS. All Exhibits and Schedules
referred to herein are intended to be and hereby are specifically made a part of
this Agreement.
XI.10. ENTIRE AGREEMENT. This Agreement, the Confidentiality
Agreement, and the Ancillary Agreements, including the Exhibits, Schedules,
documents, certificates and instruments referred to herein or therein, embody
the entire agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or therein. It is expressly
acknowledged and agreed that there are no restrictions, promises,
representations, warranties, covenants or undertakings contained in any material
made available to the Buyer pursuant to the terms of the Confidentiality
Agreement (including the Information Memorandum, dated July, 1997, previously
made available to the Buyer by the Seller and Salomon Brothers Inc). This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such transactions other than the Confidentiality Agreement.
37
<PAGE> 42
XI.11. BULK SALES OR TRANSFER LAWS. The Buyer acknowledges
that the Seller will not comply with the provision of any bulk sales or transfer
laws of any jurisdiction in connection with the transactions contemplated by
this Agreement. The Buyer hereby waives compliance by the Seller with the
provisions of the bulk sales or transfer laws of all applicable jurisdictions.
38
<PAGE> 43
IN WITNESS WHEREOF, the Seller and the Buyer have caused this
agreement to be signed by their respective duly authorized officers as of the
date first above written.
MONTAUP ELECTRIC COMPANY
By: /s/ Kevin A. Kirby
--------------------------------
Name: Kevin A. Kirby
Title: Vice President
GREAT BAY POWER CORPORATION
By: /s/ Frank W. Getman, Jr.
--------------------------------
Name: Frank W. Getman, Jr.
Title: President and Chief
Executive Officer
39
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BAYCORP HOLDINGS, LTD. FOR THE SIX MONTHS ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JAN-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,391
<SECURITIES> 9,294
<RECEIVABLES> 1,176
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,812
<PP&E> 106,286
<DEPRECIATION> 11,417
<TOTAL-ASSETS> 140,206
<CURRENT-LIABILITIES> 4,242
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 72,474
<TOTAL-LIABILITY-AND-EQUITY> 141,206
<SALES> 14,881
<TOTAL-REVENUES> 14,881
<CGS> 19,942
<TOTAL-COSTS> 19,942
<OTHER-EXPENSES> 779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,840)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,840)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,840)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
<PAGE> 1
Exhibit 99.1
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of BayCorp and/or Great Bay to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth below and elsewhere in this Annual Report.
Ownership of a Single Asset. BayCorp's principal asset is it equity
interest in Great Bay. Great Bay owns a single principal asset, a 12.1% joint
interest in the Seabrook Nuclear Power Project in Seabrook, New Hampshire.
Accordingly, BayCorp's results of operations are completely dependent upon the
successful and continued operation of the Seabrook Project. In particular, if
the Seabrook Project experiences unscheduled outages of significant duration,
Great Bay's results of operations will be materially adversely affected.
1
<PAGE> 2
History of Losses; Implementation of Business Strategy. BayCorp has never
reported an operating profit for any year since its incorporation. The Company's
business strategy is to seek purchasers for its share of the Seabrook Project
electricity output at prices, either in the short-term market or pursuant to
medium or long-term contracts, significantly in excess of the prices currently
available in the short-term wholesale electricity market. Sales at current
short-term rates do not result in sufficient revenue to enable BayCorp to meet
its cash requirements for operations, maintenance and capital related costs.
Great Bay's ability to obtain such higher prices will depend on regional,
national and worldwide energy supply and demand factors that are beyond the
control of Great Bay. There can be no assurance that Great Bay ever will be able
to sell power at prices that will enable it to meet its cash requirements.
Liquidity Needs. As of December 31, 1997, BayCorp had approximately
$19.1 million in cash and cash equivalents and short-term investments. The
Company believes that such cash, together with the anticipated proceeds from
the sale of electricity by Great Bay, will be sufficient to enable the Company
to meet its cash requirements until the prices at which Great Bay can sell its
electricity increase sufficiently to enable the Company to cover its annual cash
requirements. However, if the Seabrook Project operated at a capacity factor
below historical levels, or if expenses associated with the ownership or
operation of the Seabrook Project, including without limitation decommissioning
costs, are materially higher than anticipated, or if the prices at which Great
Bay is able to sell its share of the Seabrook Project electricity do not
increase at the rates and within the time expected by Great Bay, Great Bay or
the Company would be required to raise additional capital, either through a debt
financing or an equity financing, to meet ongoing cash requirements. There is no
assurance that Great Bay or the Company would be able to raise such capital or
that the terms on which any additional capital is available would be acceptable.
If additional funds are raised by issuing equity securities, dilution to then
existing stockholders will result.
Changes in Power Sale Contract Terms Available in Wholesale Power
Market. In the past, wholesale sellers of electric power, which typically were
regulated electric utilities, frequently entered into medium or long-term power
sale contracts providing for prices in excess of the prices available in the
short-term market, which includes contracts of one year or less in duration. In
recent years, increased competition in the wholesale electric power market,
reduced growth in the demand for electricity, low prices in the short-term
market and the uncertainty associated with deregulation of the industry have
reduced the willingness of wholesale power purchasers to enter into medium or
long-term contracts and have reduced the prices obtainable from such contracts.
Risks in Connection with Joint Ownership of Seabrook Project. Great Bay is
required under the Agreement for Joint Ownership, Construction and Operation of
New Hampshire Nuclear Units dated May 1, 1973, as amended, by and among Great
Bay and the other 10 utility companies that are owners of the Seabrook Project
(the "JOA"), to pay its share of Seabrook Unit 1 and Seabrook Unit 2 expenses,
including without limitation operations and maintenance expenses, construction
and nuclear fuel expenditures and decommissioning costs, regardless of Seabrook
Unit 1's operations. Under certain circumstances, a failure by Great Bay to make
its monthly payments under the JOA entitles certain other joint owners of the
Seabrook Project to purchase Great Bay's interest in the Seabrook Project for
75% of the then fair market value thereof.
In addition, the failure to make monthly payments under the JOA by owners
of the Seabrook Project other than Great Bay may have a material adverse effect
on Great Bay by requiring Great Bay to pay a greater proportion of the Seabrook
Project expenses in order to preserve the value of its share of the Seabrook
Project. In the past, certain of the owners of the Seabrook Project other than
Great Bay have not made their full respective payments. The electric utility
industry is undergoing significant changes as competition and deregulation are
introduced into the marketplace. Some utilities, including certain Participants,
have indicated in state regulatory proceedings that they may be forced to seek
bankruptcy protection if regulators, as part of the industry restructuring, do
not allow for full recovery of stranded costs. If a Participant other than Great
Bay filed for bankruptcy and that Participant was unable to pay its share of
Seabrook Project expenses, Great Bay might be required to pay a greater portion
of Seabrook Project expenses. In the past, the filing of bankruptcy by a
Participant has not resulted in a failure to pay Seabrook Project expenses or an
increase in the percentage of expenses paid by other Participants.
2
<PAGE> 3
On February 28, 1997, the NHPUC issued an order requiring stranded cost
recovery to be based on the average market price of electricity in New England,
rather than alternative regulatory accounting methods that are more favorable to
the Participants. On March 10, 1997, one of the Participants, Northeast
Utilities (along with three of its subsidiaries), received a temporary
restraining order from the U.S. District Court for the District of Rhode Island.
This temporary restraining order stayed the NHPUC's February 28, 1997 order to
the extent that the order established a rate methodology that is not designed to
recover the cost of providing service and would require Northeast Utilities and
certain of its affiliates to write-off any regulatory assets. If this stay or a
similar court action does not remain in effect and Northeast Utilities is unable
to pay its share of Seabrook Project expenses, Great Bay might be required to
pay a greater portion of Seabrook Project expenses.
The Seabrook Project is owned by Great Bay and the other owners thereof as
tenants in common, with the various owners holding varying ownership shares.
This means that Great Bay, which owns only a 12.1% interest, does not have
control of the management of the Seabrook Project. As a result, decisions may be
made affecting the Seabrook Project notwithstanding Great Bay's opposition.
Certain costs and expenses of operating the Seabrook Project or owning an
interest therein, such as certain insurance and decommissioning costs, are
subject to increase or retroactive adjustment based on factors beyond the
control of BayCorp or Great Bay. The cost of disposing of Unit 2 of the Seabrook
Project is not known at this time. These various costs and expenses may
adversely affect BayCorp and Great Bay, possibly materially.
Extensive Government Regulation. The Seabrook Project is subject to
extensive regulation by federal and state agencies. In particular, the Seabrook
Project and Great Bay as part owner of a licensed nuclear facility, are subject
to the broad jurisdiction of the NRC, which is empowered to authorize the
siting, construction and operation of nuclear reactors after consideration of
public health and safety, environmental and antitrust matters. Great Bay is also
subject to the jurisdiction of the FERC and, as a result, is required to file
with FERC all contracts for the sale of electricity. FERC has the authority to
suspend the rates at which Great Bay proposes to sell power, to allow such rates
to go into effect subject to refund and to modify a proposed or existing rate if
FERC determines that such rate is not "just and reasonable." FERC's jurisdiction
also includes, among other things, the sale, lease, merger, consolidation or
other disposition of facilities, interconnection of certain facilities,
accounts, service and property records. Compliance with the various requirements
of the NRC and FERC is expensive. Noncompliance with NRC requirements may
result, among other things, in a shutdown of the Seabrook Project.
The NRC has promulgated a broad range of regulations affecting all aspects
of the design, construction and operation of a nuclear facility, such as the
Seabrook Project, including performance of nuclear safety systems, fire
protection, emergency response planning and notification systems, insurance and
quality assurance. The NRC retains authority to modify, suspend or withdraw
operating licenses, such as the license pursuant to which the Seabrook project
operates, at any time that conditions warrant. For example, the NRC might order
Seabrook Unit 1 shut down (i) if flaws were discovered in the construction or
operation of Seabrook Unit 1, (ii) if problems developed with respect to other
nuclear generating plants of a design and construction similar to Unit 1, or
(iii) if accidents at other nuclear facilities suggested that nuclear generating
plants generally were less safe than previously believed.
Great Bay is also subject to the New Hampshire public utility law and
regulations of the NHPUC that affect, among other things, the issuance of
securities, transfer of utility property and contacts with affiliates as well as
the sale, lease, merger, consolidation or other disposition of facilities. The
NHPUC does not regulate wholesale electricity rates.
Risk of Nuclear Accident. Nuclear reactors have been used to generate
electric power for more than 35 years and there are currently more than 100
nuclear reactors used for electric power generation in the United States.
Although the safety record of these nuclear reactors in the United States
generally has been very good, accidents and other unforeseen problems have
occurred both in the United States and elsewhere, including the well-publicized
incidents at Three Mile Island in Pennsylvania and Chernobyl in the former
Soviet Union.
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The consequences of such an accident can be severe, including loss of life and
property damage, and the available insurance coverage may not be sufficient to
pay all the damages incurred.
Public Controversy Concerning Nuclear Power Plants. Substantial
controversy has existed for some time concerning nuclear generating plants and
over the years such opposition has led to construction delays, cost overruns,
licensing delays, demonstrations and other difficulties. The Seabrook Project
was the subject of significant public controversy during its construction and
licensing and remains controversial. An increase in public concerns regarding
the Seabrook Project or nuclear power in general could adversely affect the
operating license of Seabrook Unit 1. While Great Bay cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
Waste Disposal; Decommissioning Cost. There has been considerable public
concern and regulatory attention focused upon the disposal of low- and
high-level nuclear wastes produced at nuclear facilities and the ultimate
decommissioning of such facilities. As to waste disposal concerns, both the
federal government and the State of New Hampshire are currently delinquent in
the performance of their statutory obligations. See "Business -- Nuclear Waste
Disposal." In April 1995, a privately owned facility in Utah was approved as a
disposal facility for certain types of LLW. Additionally, the Barnwell, South
Carolina disposal facility was reopened in July 1995 to all states except North
Carolina as a result of legislation passed by the South Carolina legislature.
The Seabrook Project began shipping certain LLW to the Utah facility in December
1995. All LLW generated by the Seabrook Project that exceeds the maximum
radioactivity level of LLW accepted by the Utah facility is stored on-site at
the Seabrook facility. Based on information provided by NAESCO, management
believes that the on-site storage capacity for LLW generated by the Seabrook
Project is adequate until at least 2006.
As to decommissioning, NRC regulations require that upon permanent shutdown
of a nuclear facility, appropriate arrangements for full decontamination and
decommissioning of the facility be made. These regulations require that during
the operation of a facility, the owners of the facility must set aside
sufficient funds to defray decommissioning costs. While the owners of the
Seabrook Project are accumulating a trust fund to defray decommissioning costs,
these costs could substantially exceed the value of the trust fund, and the
owners (including Great Bay) would remain liable for the excess. Moreover, the
amount that is required to be deposited in the trust fund is subject to periodic
review and adjustment by an independent commission of the State of New
Hampshire, which could result in material increases in such amounts.
In January 1997, the NRC issued a temporary exemption to Great Bay from the
obligation of Great Bay to comply with the NRC's regulations applicable to a non
"electric utility" owner of an interest in a nuclear power. In the exemption,
the NRC staff stated that it believes that Great Bay currently does not satisfy
the NRC definition of "electric utility." If Great Bay is an "electric utility,"
then Great Bay may satisfy the NRC decommissioning requirements through its
monthly payments into the decommissioning trust fund. If Great Bay is not an
"electric utility," the NRC could require that Great Bay provide a surety bond
or other allowable decommissioning funding mechanisms. On January 30, 1998,
Great Bay filed a petition with the NRC seeking a determination by the NRC that
acceleration of decommissioning trust fund payments provides reasonable
assurance of decommissioning funding under NRC regulations, or, in the
alternative, merits the issuance by the NRC of a permanent exemption to Great
Bay. Failure to obtain relief may have a material adverse effect on Great Bay's
business, financial condition, liquidity or results of operation. See
"Business -- Recent Developments."
Intense Competition. Great Bay sells its share of Seabrook Project
electricity primarily into the Northeast United States wholesale electricity
market. There are a large number of suppliers to this market and competition is
intense. A primary source of competition comes from traditional utilities, many
of which presently have excess capacity. In addition, non-utility wholesale
generators of electricity, such as IPPs, QFs and EWGs, as well as power
marketers and brokers, actively sell electricity in this market. Great Bay may
face increased competition, primarily based on price, from all sources in the
future.
Risk Related to Holding Company. In contrast with Great Bay, the
activities of BayCorp will not be subject to the extensive government regulation
related to public utilities and licensed nuclear facilities. Thus, BayCorp will
not receive the benefit of the scrutiny by federal and state agencies that Great
Bay receives. In
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addition, BayCorp may pursue activities with a greater business risk than those
associated with a regulated entity such as Great Bay. Depending on the success
of any new activities that BayCorp determines to pursue, it is possible that
BayCorp's earnings per share and dividends, if any, might be lower than if
BayCorp did not pursue such activities.
Year 2000. The Company has assessed the impact of the year 2000 issue on
its computer systems and applications. The Company believes that there are no
material year 2000 related costs to be incurred relative to its computer systems
and applications. However, Great Bay's share of the costs of addressing year
2000 issues at the Seabrook Project is currently estimated at $177,000,
according to NAESCO. If NAESCO is unable to complete year 2000 compliance
efforts in a timely manner or if year 2000 compliance costs exceed NAESCO's
estimate, the Company's operations, financial condition and liquidity could be
materially and adversely affected.
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